City giant jolts market with plan to create 300-strong support staff centre in Belfast; 180 London jobs to go

Allen & Overy (A&O) hopes to set a precedent for law firm offshoring with its plans to launch a 300-strong support centre in Belfast.

While the firm is not the first to relocate support staff to lower-cost locations, it has taken a different tack to its rivals. A&O's decision means it avoids going as far as Clifford Chance, which has a service centre in India, or CMS Cameron McKenna, which is to outsource virtually its entire back office, but goes further than the likes of Linklaters, which has a small support office in Colchester.

The initiative, announced last week (2 February), will see A&O opening in Belfast in the autumn, with the creation of a new support services centre delivering some core internal business support processes, as well as a legal services centre delivering some routine elements of legal work.

A&O's move is expected to result in the loss of 18% of the firm's London support staff roles – around 180 positions – against the creation of 300 new jobs in Northern Ireland by 2014.

Roles up for relocation or redundancy are in the IT, human resources, finance, library and business services areas.

Explaining the decision, managing partner Wim Dejonghe told Legal Week: "It is not an easy decision to deliver to our people but we are doing this because the market is changing. We have been looking at this for a while because our support services were instated for a London-based office, but we are a global business now.

"It is about shaping up to bring the best services to the clients and be in the best position for the future. We have had a project group looking at this for about a year – it is not a decision we have taken lightly."

A 90-day consultation process with London staff started at the end of last week to determine which roles will transfer to Belfast. As yet the only confirmation from the firm is that there will be no lawyer redundancies, with any fee-earning roles in Belfast to be newly-created.

Details of relocation and redundancy packages will not be announced until after the consultation. The package is likely to include around £8,000 for each of those agreeing to relocate.

A&O would not confirm the packages on offer to redundant staff until the end of its consultation but privately partners have indicated that it will offer sums well above its statutory obligations. A&O, in common with many of its peer group firms, offered staff relatively generous redundancy packages during its wide-ranging restructuring in 2009, with staff generally being offered three-and-a-half weeks' salary per year of service, up to a maximum of 52 weeks.

However, Dejonghe is realistic about the number of staff likely to be open to relocating, saying: "I doubt many people will take us up on that."

Rivals have broadly backed A&O's so-called 'near shoring' approach, in which they think clients will have greater trust than, say, India, with the lower-cost base of Belfast allowing substantial opportunities for cost savings. A&O expects to save around £10m over the first five years after allowing for set-up costs and associated redundancies.

The news comes after Herbert Smith announced last year that it will open in Belfast this April. However, unlike A&O's base, Herbert Smith's office will initially handle volume disputes work rather than business support functions.

A&O also joins a number of major banks in using Belfast to offshore back-office functions. The City law firm was awarded £2.5m in public funding from the development agency Invest Northern Ireland in return for creating new jobs.

Commenting on A&O's move, one senior manager at a rival magic circle firm said: "It seems a very sensible business move for a firm with their business model. Comparing it to Camerons' move to outsource its support function to Integreon in London? Clearly, as a business it makes more sense to offshore to another jurisdiction.

"If you outsource in London you will not get any wage arbitrage. In Belfast there is a wage cost saving to be made and, I imagine, a wealth of quality people available."

Reaction from the profession

"This is a good move and it is the way that all large law firms need to think in order to re-engineer their cost bases; we see our captive legal process outsourcing in India as a first step that could well take us in a similar direction."
Mark Dawkins, managing partner, Simmons & Simmons

"It is a smart idea to go to Belfast as clients have expressed to us that they prefer 'near shoring' compared to off-shoring to places that are very far away and where clients have reservations about the ability of the firm to manage and protect confidentiality. That is why we are pleased to have the capability in our various locations, from Milton Keynes to Walnut Creek, to meet the wide variety of client needs. In addition, we have been told that places like India are ceasing to be as competitive on costs as they once were. If you are a large firm like Allen & Overy (A&O) and have the scale to do something like this then it is a good move, but for a smaller firm it is more of a challenge."
Howard Morris, co-CEO, SNR Denton

"This is a big subject and, to be quite honest, a very sensitive subject which is difficult to discuss in the press. I think you will find it hard to get an honest answer from all firms as you can't really talk about these things before you announce them; it is dynamite to staff. The truth is that any business must look at these things and keep an open mind."
Managing partner, City firm

"It is part of a general trend out there. More and more businesses are offshoring. The upside is cost efficiency and I think it is what every sensible multinational business should do."
Partner, A&O

Business process outsourcing – how the magic circle compares

Linklaters – The firm has had an office in Colchester since 1997 housing its switchboard; IT operations (except for some data centres, which are outsourced); IT helpdesk; as well as part of the finance function such as payroll and some accounts payable. The office, which currently has 150 staff, also operates a firmwide helpline as well as a pitch assistance centre and a scanning function. The firm has recently started outsourcing some finance back-office functions to India.

Clifford Chance (CC) – The firm has had a Global Shared Service Centre (GSSC) in New Delhi since 2007 providing business services support to the firm's offices. It currently employs around 315 staff working across finance, IT analytics and research and business support services – including some facilities and human resources roles. The base is expected to reach 400 staff by next year. A knowledge centre in New Delhi supports the firm's lawyers on routine tasks such as research, analysis and document discovery. It houses 38 staff, with plans to grow to 60 by September. The firm is on track to reach its targeted £8m per year cost saving through both centres for the first time this financial year. It comes after the firm cut support staff numbers firmwide by 200 since opening the centres through redundancies and natural attrition.

Freshfields Bruckhaus Deringer – The firm does not currently carry out any offshoring for business services. Commenting on the future, a spokesperson said the firm "can't rule anything out" but has "no specific current plans".

Slaughter and May – The firm does not offshore or outsource back-office functions and says it has no plans to review this at present.