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The cost advantage of offshoring to lower-cost countries is shrinking

A general counsel may countenance offshoring because if promises cost savings. The literature that promotes legal process outsourcing (LPO) speaks of costs being 50 percent or less to provide similar services. That advantage may have been true, and may still hold for some LPO offerings. But according to strategy + bus., Iss. 53, Winter 2008 at 56, in a sophisticated analysis of global R&D, the cut-rate wages are disappearing: “In India, for example, the wage rate for high-end service workers was 53 percent of the equivalent rate for U.S. workers in 2005. In 2008, the percentage had risen to 65 percent, and it is projected to rise to 77 percent in 2012 and 90 percent in 2020.” Slumdog millionaires won’t work for a pittance.

LPO vendors argue that they offer other advantages, such as superior commitment and process improvements (See my post of Nov. 30, 2008: lower costs and improved processes *3.). Cost savings are still to be had, I am sure, but third-world rates may be receding into the past.