Economies essentially can be split into two parts: the goods producing part (mining, manufacturing, construction, etc.) and the services producing part (education, health care, finance, legal, retail, etc.). I have argued in previous columns that New Brunswick has potential to develop its non-renewable natural resources sector and to expand its manufacturing base into niche areas.
At the same time, however; we need to be far more focused on the potential of increasing services-based exports from the province. The North American economy has evolved into primarily a services economy over the past 100 years. In Canada, in the last 20 years there has been a 40 per cent increase in the number of persons employed in the services sector and a slight decline in the number of people working in the goods producing sector.
The challenge with services-based exports is they are based almost entirely on brain power and many people think that small places such as New Brunswick can’t compete. I disagree with this conclusion but it is decidedly true that we need to find niche areas where we can excel.
One of these areas might be legal outsourcing.
Like so many segments of our services economy, much of the high-value economic activity in the legal services industry in New Brunswick leaks out to other provinces – primarily Ontario. Large corporations or people seeking specialized legal expertise will look to Toronto.
According to census data, New Brunswick has 35 per cent fewer lawyers per 1,000 population than Ontario. Is this because Ontario is a far more litigious society? No, it is primarily because far more national and specialized legal work is done by the large Toronto-based law firms.
The question is, can New Brunswick carve out a niche opportunity in this area? While the high-value legal work will likely remain in large urban centres such as Toronto or New York, there is a distinct trend toward moving the routine legal activities to lower-cost locations. Currently, the larger American and Canadian law firms are hiring young law graduates to do this time-consuming legwork and then billing clients for it at steep rates.
But a number of client firms are rebelling against this trend of having relatively low-level work done at high cost. According to a recent article in the Economist magazine, GE, Sony, American Express, Yahoo! and Netflix have all started using Pangea3, a Mumbai, India-based legal outsourcing firm for basic legal tasks.
Pangea3 staff conduct discovery research, review documents, draft contracts and performs other legal tasks with repetitive elements. There are other firms emerging in this area such as United States-based Novus Law, which has built its business model, not as much on lower hourly rates, but on doing the work more quickly and efficiently. The CEO of the firm has come up with a way to perform these routine legal tasks much more efficiently. Novus Law’s revenues are doubling every year.
The size of the North American legal outsourcing market is still relatively small at about $1 billion per year but, according to the Economist article, it is growing at around 20-30 per cent a year.
The big U.S. law firms are starting to adapt to this trend. Some are hiring outsourcing firms directly and others are looking to set up outsourcing operations of their own.
What we need to determine is the economic development potential that could be generated from positioning this province as a nearshore opportunity for legal outsourcing. Could this type of legal work be done here at a lower cost and more efficiently than in large U.S. urban centres? Can we compete with India? Would there been value to clients from working nearshore (i.e. closer to home) than offshore (in Asia)?
It is important to point out this is not about hiring lawyers and legal researchers at rock bottom wages. In New York, companies are billed upwards of $500/hour for this type of work. A firm in this province could bill that work out at a fraction of that rate and still make a good margin.
How do we start looking at building a legal outsourcing cluster? Could we attract one of the growing number of legal outsourcing firms to put a nearshore facility in New Brunswick? Or could an intrepid bunch of entrepreneurial lawyers here take this on as a business opportunity?
What is the role of the education sector? Could we churn out an army of crackerjack legal researchers?
The potential economic benefits from building a legal outsourcing sector are substantial. According to Statistics Canada, every $1 million in spending in legal services in New Brunswick creates nearly 12 full time equivalent jobs (at above average wages) either directly or indirectly across the provincial economy. A small cluster of firms providing legal outsourcing and support services to the large North American law firms could support several thousand direct and indirect jobs across the province and be an important source of tax revenue for governments.
I hope this starts a broader discussion about how New Brunswick could possibly build niche areas of expertise in a wide variety of service sectors. Compared to the rest of Canada, New Brunswick has fewer lawyers, accountants, consultants, engineers, marketers and just about every other professional occupation with the exception of public services such as health care (we have above-average coverage in health care occupations).
We need our business leaders and economic development professionals to start thinking outside the box. Instead of lining up like everyone else and targeting the saturated and highly competitive North American growth sectors, we should be looking for niche opportunities with limited jurisdictional competition and exploiting those to our advantage.
We can sit idly by and watch the rest of the world dictate our fate or we can take control of our destiny. Let’s start taking this stuff more seriously.
David Campbell is an economic development consultant based in Moncton. He writes a daily blog, It’s the Economy, Stupid at www.davidwcampbell.com. This is the fifth and final column in a series looking at emerging industries that could be used by New Brunswick to foster economic growth over the next decade.
Source:-http://nbbusinessjournal.canadaeast.com/front/article/1366739
