Legal Process Outsourcing - Go slow' in order

I am appending below an interesting article on LPO. Regards.

- Dilip


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Source: Business Line, Feb 6, 2006



Go slow' in order

Abhinav Ramnarayan

Legal process outsourcing or LPO work from global clients could prove to be a dream ride for Indian companies. But, as a recent report highlights, a measured speed will help you navigate the bumps and potholes better.

WHILE it's quite clear that IT-enabled services (ITES) is no longer just about irate Americans calling operators in India about broken sandwich toasters, it's still not clear whether specialised BPO, or KPO (knowledge process outsourcing) will really take off in the near future. Take legal process outsourcing (LPO), for instance. Some people say it's the next big thing, while others or not so sure.

In July last year, Nasscom came out with a report on LPO, predicting that once the world wakes up to the possibilities of that industry, it will really take off. It said that paralegal and research support, contract drafting and revising and contract management, library services, patent and trademark prosecution and litigation support are all outsourceable, making the addressable market potential for legal services outsourceable from the US alone around $3-4 billion. It went on to say, though, that only 2-3 per cent of this market had been tapped at the time of the report's release ($60-80 million).

Lip-smacking data

The potential market explicated in the report must have had LPO entrepreneurs and to-be LPO entrepreneurs licking their lips in anticipation, because the report went on to quote Forrester Inc, saying, "According to Forrester Inc, at least 12,000 legal jobs have been outsourced from the US to offshore locations till 2004. Further, the firm has projected that about 35,000 US lawyer jobs will move to low-cost countries such as India by 2010 and that the number will reach 79,000 by 2015. Third-party research indicates that a majority of this (between 60 per cent and 70 per cent) is likely to come to India."

But is it as rosy as all that? A recent Evalueserve report begs to differ. Titled "Legal Process Outsourcing - Hype vs Reality", the report explains that contrary to figures quoted by Nasscom and Forrester that about 15,000 professionals are employed in the LPO business in India, the LPO industry employs barely 1,300 full time lawyers as employees in India. As for the revenue generated, the report says, "Evalueserve contends that Indian companies providing such services will generate approximately $56 million in revenue during July 2005-June 2006, $300 million in 2010-2011, and $960 million in 2015-2016."

The report goes on to say that the $960 million by the year 2015 constitutes a 1.2 per cent share of the US legal industry (projected to stand at $480 billion by then). The Evalueserve report argues that while the pie is large enough to make it a lucrative business, it is not as rewarding as other IT streams. In fact, the report says, "Where as much as 10-12 per cent of information technology, banking, finance and insurance services may be offshored to India by 2015, the corresponding number in legal services is likely to be 1.2 per cent. As this percentage is so small, it is quite likely that some of the Indian service providers mentioned above (Manthan Services, Lawwave, Lexadigm, Lexworks, Atlas Legal Research, Bickel and Brewer, Quislex, Pangea3 and Mindcrest) may not survive beyond the next 2-3 years."

Caution, not red alert

But before the LPO firms roll up their sleeves and prepare for a battle of words, Alok Aggarwal, architect of the report, says, "Let me make it clear. I am not saying that offshoring in the legal domain is not profitable. The report just says that it is unlikely that the industry will flourish the way the other IT companies have." He says that if LPO firms went ahead of themselves, we could see a repeat of the IT boom and the subsequent bursting of the bubble. "We are only advising caution," he adds.

And the reason for LPO not being able to stay on the same track as other offshoring streams? The Evalueserve report names several reasons or impediments, one of which is that the US legal market has always been averse to risk, especially in the corporate legal arena, where the stakes are very high. Says Aggarwal, "If a professional in a normal call centre makes a mistake on a call, the customer on an average is worth perhaps $5,000. If you mess up an ongoing lawsuit, on the other hand, you could lose anything from $2 million to $2 billion."

Some of the other impediments listed in the report include the added risk of losing confidentiality, conflict of interest issues, and the fact that Indian law does not allow foreign law firms to practise in India, which restricts the market to a large extent.

But some of the people in the industry do not seem to be impressed by these arguments. Sanjay Kamlani, Co-CEO, Pangea3, an LPO firm that has about 40 professionals working on offshoring projects, is a lot more confident about the industry. "I can only give you case studies to refute the report," he says."For example, every week we get called by anywhere from one to three Fortune 500 companies asking what legal services we can offer them. Instead of our calling large MNCs they are calling us unsolicited to see what we can do for them," he says.

He says, "I cannot comment on the 1.2 per cent as stated in the said report, but I will say that we are a lot more confident with Forrester's numbers. I think the LPO market will surprise software companies the way it happened in investment banking. Investment banking today far exceeds what anybody would have anticipated five years ago."

Office Tiger, a company that offers document review, contract management and intellectual property services as a part of its legal division, is also upbeat about the prospects of the field. Anupam Ahuja, Vice President-Marketing, Office Tiger, says that since 2004, when the company formally launched legal offshoring services, the number of people working in the division in their centres in Chennai and Colombo, Sri Lanka, has scaled over 500.

She says it doesn't make sense to say that the legal industry in the US would hesitate to offshore their services because of their aversion to taking risk. "Typically, clients do their due diligence in a detailed manner. They will come here, go through your security audits, check how mature and capable you are, and then the question of risk is out of the picture." She says eventually LPO will catch up, with a lot of law firms looking to offshore. "After all, law firms will have to provide services at a value that clients are willing to pay, and if another law firm is offering a better price... "

At the end of the day, if a law firm is able to provide the client a service that is not only cheaper and better, but also standardised and faster, then that is all that counts, she says.

As for the higher risk involved, "There is risk involved in any service that goes offshore, why single out the legal market?" she asks.

Kamlani says the suggestion is that the quality of the work is not as good in India as it is in the US, which he says does not hold water because firms in the US often employ temporary lawyers, from legal firms there. "Compare that to our firm handling the client year in and year out - we are far more qualified and capable and familiar with the territory this way."

Aggarwal reiterates, "People in India are simply gung-ho about LPO and we are advising caution. Of course, some will listen and others will not. As time progresses, some will fall off the way-side, just like in the dotcom bust."