Monday, August 06, 2007

LPO: Already Singing to the Consolidation Tune?

Update: Economic Times has another piece on consolidation within LPO.

Earlier post from May '06
A recent Economic Times news item titled, 'LPOs here head for consolidation' talks about the consolidation in the space - something that has been on the grapevine for a while now.

The Drivers

1. Presently, the sector sees little high-end work as most Indian LPO companies restrict themselves to areas like accounting, document management, agreement formatting and other secretarial services - (Hey, accounting, document management, agreement formatting aren't LPO services - they are secretarial services - and are, ofcourse, not high-end)

2. There are a little over 100 companies in the LPO space but only a handful are actually influencing intelligent decisions - (I agree with the nature of work many self styled LPO companies are doing, but not necessarily the number. I mean 100 sounds a little too high, that is when my own list includes tiny players too)

Add to the above list, recruiting trouble, lack of any location being very ideal, uncontrolled wages and hikes, training challenges fuelled by inexperience, and the herculean task of selling outsourced legal services

The Opportunity

1. Despite challenges in the industry, the opportunity is estimated at $200 bn for the US alone, not considering the equally high-potential European market. India is likely to receive 60% of around 40,000 legal jobs outsourced by the US by ‘10.

2. “The revenues to be generated by such Indian companies will be approximately $56m during July ‘05-July-’06

I agree with the immense potential, especially for Intellectual Property work from the European region to get outsourced - the firms currently serving that market are way too expensive

So, given the drivers and the opportunity, sure consolidation will happen, but not sure if this is the right time. Even if some level of buying out et al happens, it won't be for mouth-watering sums, why should they be, the industry is too nascent still.

Allowing foreign firms to set up shops locally may trigger this, but no one knows when is it happening. The lawyer lobby is way too strong to allow that to happen any time soon.

So, consolidation - we'll will be watching you!