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Online Extra: The Cost-Killer in Manila


The challenges of the global economy are nothing new to Baker & McKenzie. The law firm opened its first foreign office -- in Caracas -- in 1955, just six years after Russell Baker teamed up with John McKenzie to form a partnership in Chicago. Today, the firm has grown into a $1.35 billion enterprise, with 8,900 attorneys in 69 offices in the U.S. and 37 other countries. Its 200-person office in Manila shows where the pioneering outfit is headed next -- and where other law firms probably will be, too. The firm also has learned some lessons that may help others following it.

Baker & McKenzie's Manila outpost, first opened in 1963, now provides frontline IT support and computer maintenance for personnel worldwide. It also provides marketing support for the firm around the world, using desktop publishing to create high-quality sales materials and other documents. The office does a lot of word-processing, as well as clerical tasks and some translation work.

In addition, Manila provides business research for the firm globally, pulling together analysis on its biggest 200 clients and their markets and industries. This is part of the firm's aim to deepen its relationship with its clients -- an important goal, as competition for multinational clients intensifies. "Our ambition is to be counsel of choice," says John Conroy Jr., chairman of Baker & McKenzie's management committee. "That requires more than just technical competency, how well you draft an agreement or do an oral argument in court."

EARLY MOVER. One day, the office undoubtedly will provide full-blown legal research and document drafting for Baker & McKenzie in the U.S. and elsewhere. "I don't think it's a question of whether, I think it's just a question of when," says Conroy. Already, Baker & McKenzie is replicating the Manila office, with a similar back office in Juarez and a satellite office in China, which is now doing translation work and some market research.

James Jones, executive vice-president of Hildebrandt International of Somerset, N.J., a management consultancy for the legal industry, says the trend up until now has been for giant U.S. law firms to outsource back-office functions or other lower-skill work to cheaper locations within the U.S., such as West Virginia and North Dakota. That makes Baker & McKenzie a legal-outsourcing pioneer. "Law firms tend to lag behind the rest of the business world in terms of innovative ideas because of the conservative nature of lawyers. Baker & McKenzie is far out ahead of most folks," Jones says.

The payoff, of course, is lower costs and higher earnings per partner. A fresh-out-of-school attorney typically starts at $125,000 to $145,000 in New York or London, plus benefits. In the Philippines or India, he or she would get less than $20,000. Just by centralizing its desktop publishing in Manila, Baker & McKenzie saved $500,000 in 2005. "It has been a major contributor to our profits," says Conroy. "Our globally managed costs increased by only 1% last year, notwithstanding the fact that we have way more professional support."

LANGUAGE SKILLS. Baker & McKenzie developed its outsourcing strategy cautiously. In the late 1990s, the firm hired a consultant to look at whether it could save money by moving more work outside of the U.S. The consultant identified lots of jobs that could be shipped off, but also recommended firing a lot of support staff in the U.S. That wasn't what management wanted to do.

The firm's management committee reconsidered the issue again in 2000, as it looked at how to manage its Asian operations better. This time, Baker & McKenzie decided to embrace "offshoring," but on its own terms. The firm scoped out what functions should be moved to a low-cost site, and where its offshore facility should be located.

Manila made sense because Baker & McKenzie already had a long-established office there that understood the firm's culture. Also, the staff was fluent in English -- the firm's official language -- and with a less-noticeable accent than people typically have in China or India. And Filipinos tend to be very loyal employees, Conroy says. "If you took 200 people out of the organization and moved their work to Manila, that would have created a major challenge," Conroy says. "We haven't created morale problems. We're very positive about it"

TRIAL AND ERROR. The Manila back office started in 2000 with six typists, who prepared documents for Baker & McKenzie's operations in the Asia/Pacific region. It then added IT work. Many on the Manila staff are college educated, and all but a few managers are local. "It had a slow beginning," Conroy says. "I think people initially were skeptical about it."

The firm then assigned other tasks to the Manila facility. Sometimes these new functions worked, other times they didn't. For instance, Baker & McKenzie found out that "pitch assembly," or putting together bids for new business, couldn't be done well in a remote office. Instead, it worked better if the team assembling the pitch was located in the same offices as the lawyers who would be be providing counsel to the clients. "Face-to-face communications is important," says Conroy.

The first years were slow going for a couple of other reasons. It took the lawyers, who were used to having support staff down the hall, some time to get comfortable dealing with someone on the other side of the world, via e-mail or phone calls. It also took the Manila staff time to learn that their responses had to be quick and without mistakes. "We learned we had to set expectations not only for the lawyers but the people in Manila," says Conroy. "We set expectations and became zealous about them."

SPEEDY DELIVERY. Now, the Manila office is up to 200 people. Half of them do document preparation, and a quarter do computer tech-support work, which includes manning a global help desk 24/7 and maintaining and repairing the firm's computer servers around the world. The office is seen positively by lawyers, too. Even when they're traveling and might be without backup support in the home offices, Manila is always open and available. "It has become a travel companion for them," Conroy says.

Craig Courter, the law firm's chief operating officer, notes that he now sends materials to Manila to be typed up and formatted without thinking twice about it. He usually gets the documents back within 45 minutes -- just as if someone on his floor had prepared them. By mid-2006, the Manila headcount should hit 240, with more hiring expected after that. For Baker & McKenzie, the numbers speak for themselves. Arndt is BusinessWeek's Senior Correspondent in Chicago


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