LPO Industry: Looking back at 2009; Lessons for 2010

The present paper is an attempt to analyze some of the strengths and weakness of the LPO Industry that surfaced during the past year and to apply the understanding towards predicting some of the opportunities and threats that lie ahead for the LPO industry.

2009 was a definitive watershed event in the history of outsourcing and legal process was an equal party to the game. It marked many firsts in the industry- with majors like Rio Tinto upping and upsetting many long established industry standards. The recession that originated in the United States had by now spilled on to the rest of the world and specially Europe. Although by the second half of the year, boardrooms were again buzzing with the talks of ‘green shoots of recovery’, still uncertainty was yet to give way to the confidence of the better days of up until 2006-07.

Some of the major events of 2009 that shaped and defined the industry are as follows:

1. The impact of recession on the global legal industry became a reality. Companies witnessed a stronger cost consciousness and pricing of all services procured came under tremendous scrutiny. This included the pricing for legal services procured and thus in turn the pressure was passed on to the law firms to either rationalize pricing by adopting more efficient methodologies or miss mandates.
2. Law firms thus were faced to take a defensive stand as clients now demanded better and more efficient models of delivery.
3. Some of the corporates, like global mining major Rio Tinto surprised everyone by surpassing the via-firm process and entered into an agreement with an Indian LPO to procure support services for the in house legal counsel team.
4. Another shaping event was the entry of UK firms in the LPO picture. When Clifford Chance entered into the market 3 years back- it was a noted exception and was even frowned upon by many purists. However 2009 saw many other City firms joining the club leveraging the benefits. Find below a table canvassing some of the outsourcing deals by some of the City majors[1].

Services Buyer	Deal Detail
Simmons & Simmons	Integreon will provide document review, due diligence, document production, and research services to the Mumbai's center of the law firm.
Eversheds	Exigent will provide documentation processing. As part of the move 95 secretarial jobs will be cut in the UK by Eversheds.
Osborne Clarke	As per the deal, Integreon will provide technology and business intelligence services, knowledge and information management, transcription and secretarial and word processing services. As part of the deal, Osborne Clarke’s 75 employees will move to Integreon.
Pinsent Masons	Exigent will provide document review.

Thus, an important factor that surfaced in 2009 was the shifting of focus from US to broader European market. While US law firms and corporates had been harnessing the benefits of legal outsourcing for quite some years now, the gradual shift towards the other side of the ocean began rather slowly, but has been steadily catching up. It is indeed good news for the Indian vendors, as they are inherently better equipped to serve UK law firms.[2] Also, as seen in other verticals, a diversified client base acts as a hedge against cyclical changes.

2010 Opportunities

In terms of sheer opportunities, 2010 starts on a promising note. Some of the uplifting trends are as follow:

a) As noticed earlier, English law firms are increasingly finding flavor with the Indian service providers. If this trend continues, other European nations would soon follow suit and there seems to be no reason why it should not, if the Indian vendors continue performing upto the levels and clients’ expectations.

b) Another promising area is that of regulatory compliance related work. While it could be some time before the finance industry returns to the pre-recessionary days of hectic deal making. However, on the upside recession has forced many governments pull the strings tighter and in the process saddling organizations with more compliances related costs. This is another area where LPOs could find takers, as cost efficiency shall continue to be the guiding light for efficiency driven economies.

c) Diversified client base. As explained earlier, once the UK firms traditionally considered to be the most conservative in approach, start utilizing the services of Indian vendors, it is only a matter of time before clients from other parts of the globe come calling.

2010 Threats

While there seems enough reasons to expect another good year in terms of revenue, there still exists a few factors which need to be addressed to materialize projections into actual numbers.

a) The first in this line is the apparent rise in protectionism. If the State of the Union speech by President Obama, is anything to go by- some of the clients might want to think again before outsourcing services. Yet, as often repeated earlier, the pricing rationale behind legal outsourcing is too obvious and strong to be ignored in favor of political goodwill.

b) Another strong threat for Indian legal service providers is the upcoming competition from other destinations such as New Zealand, Sri Lanka, South Africa and Philippines. While it is some time before they catch up with the already mature Indian industry, yet the competition looks like here to stay for long.

c) Market consolidation: As the market finally matures there would clearly be a few winners who would collectively share amongst themselves the majority of the market share. This would definitely be a threat for some of the smaller players who fail to adopt and grow either organically or through acquisitions.

One thing, however that can be certainly stated about the industry in 2010 is that profitability is here to stay. While capital issues and other politically motivated issues would find their way on to the course eventually the industry looks poised to conquer the summit successfully.