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Firms split over legal process outsourcing future
Priti Bajaj & Seetha
New Delhi
December 2005: Solicitor firm Khaitan & Co floats a compa¬ny, Neoworth, to handle legal process outsourcing (LPO) for American clients. January 2006: Mumbai-based business process out¬sourcing (BPO) firm buys the LPO arm - along with 20 clients - of an American BPO firm, Bowne
With action appearing to hot up In the LPO segment, why does Alok Aggarwal, founder-chairman of BPO firm Evalucserve (which also takes on LPO work) say that many of the legal process outsourcers may not survive beyond three years? And why does research firm ValueNotes predict that a While a section of companies feels there won't be a large offshoring of work to India, many agree that consolidation is on the cards consolidation Is around the corner and that 2006 could witness some merger and acquisition (M&A) activities in this space?
While Evalueserve feels this will happen because le¬gal work will not bo off-shored to India in large numbers, ValueNotes feels the character of the Indus¬try will have to change with more work coming to India. Niche players, it says In a paper, Offshoring Legal Ser¬vices to India, account for 32% of the market while 47% are general purpose BPOs taking on some legal work. ValueNotes argues that growth beyond a point may be difficult for many of the niche players and they will face twin pressures from law firms as well as from multi-service BPOs, buoyed by economies of scale. With competition in the space increasing, the niche players will need more resources for market¬ing. It is these factors, Val¬ueNotes argues, that will drive M&As in the LPO sec¬tor. While it may be natural for Anupam Ahuja, vice-president, marketing, Of-ficeTiger - a multi-service BPO which also does legal work - to agree with this view, there are some smaller players who concur as well. Shailesh Vickram Singh, business head of India Le¬gal, a niche player, agrees that it makes sense If the whole gamut of services Is provided by one company. Not all niche players be¬lieve in these assessments. Though Sanjay Kamlani, co-CEO of Pangea3, acknowl¬edges that some companies have failed and others will pack up, he doesn't feel this Is because of lack of busi¬ness. Nor does he think the multi-service Bpos have an advantage. "A legal firm in the United States will be more comfortable with offshoring work to a company that talks, walks and breathes like lawyers, instead of companies that do word processing and airline ticketing or other work as well."
Industry consolidation is the point on which Evalue¬serve and ValueNotes ap¬pear to agree. While Evalue¬serve is not too optimistic about the future of LPO in India, ValueNotes and mar¬ket research firm Forrester paint a rosier picture, pre¬dicting that LPO industry in India will generate 24,000 jobs by 2010, against a 5,200 estimate by Evalueserve. The value of LPO business coming into India by 2010, says ValueNotes will be $600 million (13% of the address¬able market of $-1.5 billion), while Evalueserve pitches it at a mere $300 million (less than 1% of the addressable market).
India Legal's Singh agrees with the latter sce¬nario. "The LPO scenario is not very gaga. A major hic¬cup in the growth of LPOs is that most lawyers prefer working in courtrooms."
Kamlani and Ahuja would beg to differ. "The en¬vironment has accelerated since we started in Febru¬ary 2004," says Kamlani. It's not as if clients were partic¬ularly conservative then, but interest has dramatical¬ly increased in the past one and a half years. Pangea3, he claims, has started get¬ting unsolicited queries from prospective Fortune 500 clients. What's more, sales cycles have also short¬ened from about six months in 2003 to an average of four-six weeks now, though some deals could take six months even now.
Pangea3, which started with one client and 12 em¬ployees, now has 35 clients and 40 employees. Of-ficeTiger, too, has in the last one year added 550 employ¬ees for handling LPO work. "And the number is expect¬ed to go up by hundreds more because there is a lot of interest from the law firms overseas and the For¬tune 1000 companies as well," explains Ahuja.
The cost advantage is what is pulling business into India. According to For¬rester, while fresh law graduates in the US demand be¬tween $250,000 and $300,000 a year, Indian law graduates are available for $6,000 to $15,000 a year only Kamlani underscores the point. While a company hiring a law firm in the US would have to pay around $400 an hour, similar work is done in India for around $200 an hour and could even be as little as $75 an hour, depend¬ing on the complexity of the work involved.
Evalueserve feels cost alone will not be a factor to attract business. The legal services industry, it says, is inherently averse to risk and the general counsel and in-housc lawyers feel more comfortable outsourcing work to US law firms.
Kamlani and Ahuja ques¬tion this assumption. Indian firms offer faster turn¬around time and better qual¬ity of work, they argue. "As more clients look at managing legal spend, the LPO trend will catch up," in¬sists Ahuja.
