Crisis creates new opportunities for legal process outsourcing
November 19, 2009
The offshore legal services industry is poised to grow robustly in the coming years, thanks to the global financial slowdown, according to a recent report published by ValueNotes.
The offshore legal services industry grew at a rapid pace until 2007. However, the slowdown in the buyer market led to a reduction in the growth rate. The industry was growing at a compounded annual growth rate (CAGR) of more than 40% over the past four years until 2007; it dropped to 28% in 2007-08, and further reduced to 16% in 2008-09. According to ValueNotes, revenues from the LPO industry stood at $320 million in 2008 and the figure is expected to reach $440 million by 2010.
In 2005, there were around 40 service providers in the Indian legal services offshoring segment. The number grew to 100 in 2007; currently there are more than 140 service providers in India offering services ranging from legal transcription to complex contractual analysis and patent-related services.
Over the past two years, more than 20% of the service providers discontinued their operations due to the impact of the global financial meltdown. Many existing contracts were exploratory projects (pilot projects), which were not extended to large engagements. A slowdown in decision-making also affected the number of contracts.
“In the current scenario, almost all offshore legal service providers are suffering—while in some cases billing rates have come under pressure, in others the volume of work has shrunk. As the global legal industry suffers, the offshore industry has also felt the impact of the crisis,” says Neeraja Kandala, lead analyst, legal services, ValueNotes.
“While revenue estimates till 2010 are not very encouraging, we believe that the slowdown is short-term. Post 2010, we expect the industry to pick up pace as the global economy recovers,” Ms Kandala added. The landscape for the LPO industry has changed remarkably over the past four years, according to ValueNotes. Ease of entry and over-hyped prospects led to a rapid increase in the number of players in the industry. The huge potential opportunity led entrants to believe that getting business would be easy. Few bothered about the potential risks or the competitive dynamics of the industry. This, coupled with the uncertain economic conditions, resulted in many weaker players fading away from the competitive landscape.
“While there are various reasons for these shutdowns, the economic slowdown added to the troubles of some service providers. Fewer contracts over the past one year made it difficult for them to survive during the downturn. Moreover, some of the players failed to pay attention to learning processes and acquiring the required knowledge,” says Suheil Patel, analyst and co-author of the report.
Post 2010, we will see consolidation in the industry with larger players acquiring capacity and capability, as well as international law firms looking for control over Indian capacity, feels ValueNotes. However, in the medium term, numerous smaller businesses will continue to mushroom, which will in turn, create a large pool of acquisition targets as well as potential joint venture partners. – Ravi Samalad [email protected]