Analyst Report on the LPO "industry"

Update: Joy London, brought the report I comment on below to the blogosphere. Check her diligently written post on the report.

Valuenotes, recently published a report, titled "Offshoring Legal Services to India". The report costs USD 395, I just wish I had that kind of money to buy and comment on the report.

For the starters, I'm not very in agreement with the following numbers highlighted by the report:

• Currently, legal services offshoring from India generates $61 million in revenues; this is expected to grow nearly 10 times to reach $605 million by 2010 and cross $I billion by 2015.
• ValueNotes estimates the current employment in the Indian legal services offshoring segment at around 1,800, but expects this to grow to 24,000 by 2010.

Now, lets do some high school math. 1800 people earning $61 million. Ahem! So that is $34,000 per person per year employed in the industry. At a normally accepted figure of 2000 working hours per person per year, the billing rate comes to about $17. Couple of things:

1. I don't think the players mentioned in the report (see below) employ 1800 people.

• Law Firm Captives: dedicated centers of international law firms like Lexadigm, Intellevate and NewGalexy.
• Corporate Captives: In-house legal departments of companies like GE, Cisco, Oracle, Dupont.
• Third party "niche" vendors: focus on providing only legal services, such as IP PRO, Patent Metrix, Pangea3, Mindcrest and Quislex.
• Third party Multiservice BPOs: offer offshore legal services along with other services, and include the likes of Evalueserve, Datamatics, WNS and Manthan

Evalueserve with about 150 people (or probably lesser) in the intellectual property division (the only offering from Evalueserve that falls under legal outsourcing) is the biggest group in the space in the country. And they're 150 today, not for the entire past year. Other players are much smaller. The average number of employees that these companies would have had (those who contributed to the "$61 million") is not more than 25 people per company. So we'd need about 72 players. Heh! The report primarily mentions only 16 of them. The rest are probably imaginary shops and thus imaginary revenues.

2. $17 average effective billing rate for a really nascent industry? Someone pinch me!

I'd like to see more comments on the report. Comments solicitied.

"Challenges" for LPO

Now, no industry has had an all rosy run all through. LPO is no different. Economic Times carries a story, titled "Legal outsourcing - bubble or reality?" mentioning a few of the challenges for the "sector". Well, I think the reporter recently took the Excessively Catchy Headlines 101 course. Consider a few of the challenges mentioned in the story:

• The most important challenge to the newly-born sector is the need for Indian lawyers to pass US Bar exams, conflict of interest rules and data security. - Pass bar exams? Really? For what kind of outsourced legal services is that required? So this is a non-issue at least at the end of the spectrum the current players are operating in. For higher end services, yes more familiarity with the laws governing the client's jurisdiction are required. I use this blog to predict that a lot of the "first batches" at the LPO providers will proceed for higher education / certification abroad. That's just "evolution" - even in IT/BPO people go for domain training - not a challenge. Conflict of interest - OK, you have a point. But conflict of interests are as old as commerce itself, so there are ways to deal with it. Next? Data Security? If the reporter meant Export Control Regulations governing the nature of work ("national security concerns", and the like) that can be sent overseas, this is virtually a non-issue. The other pie, that can be outsourced is too big, so chill! If the reporter meant data security at the LPO provider premises, hey did you hear about the success with which the IT industry has implemented security standards. How much of rocket science is porting those to new - LPO - premises?
• On the flip-side, the Indian Advocates Act, which deals with the professional conduct of lawyers, does not support work for other countries. - Frankly, from my conversation with the numerous graduates from premier law schools in India, current passouts don't really scream with joy at the prospect of working for the Indian law firms. Bad pay, bad work ethic, bad growth, "rut, essentially" - their words, not mine. So I can bet here that given a good working environment, learning and growth opportunities, many graduates wouldn't even want to be a part of the Bar. Yes, the Indian lawyers with good practices - own or otherwise - may need to think about it. But not many of those senior lawyers join LPO shops anyway. So much for the Indian Advocates Act and Bar Council Rules.
• There is a strong political opposition in the US against outsourcing as may affect the livelihood of US attorneys may also serve as a roadblock. - Yeah, and we never heard of opposition to IT outsourcing and BPO, did we? Or probably the reporter was on break when all that happened. Bottomline is, if outsourcing of legal work saves money for the attorneys - both at law firms and corporations - they will outsource. The volume and nature of work that is outsourced may vary (and is headed northwards with each passing day), but outsource they will and they do. Period.

So, there really is no bubble that will get burst. Hey reporter, look for a new journalism school, this one isn't taking you anywhere like this!

LPO: Blue-eyed boy of KPO!

ASKED for a sound-check at a function in Delhi this month, Bill Gates eschewed the “1,2,3...” favoured by ordinary mortals. “One billion, 2 billion...,” he counted. They think big, these IT moguls, and especially, these days, in India.

ASKED to develop a story on something as broad as "India's IT and remote-service industries", The Economist chose to mention only about outsourcing of legal services amongst myraid of outsourced services that are loosely classified as KPO.

The story talks about the billions of IT/Technology dollars being pumped into India by biggies of the league of Microsoft and Cisco. Interestingly the growth is limited by a factor that seems counter-intuitive:

“The only thing that limits us in India,” Mr Gates told the local press, “is the speed at which we can recruit.”

This is great news, when read in conjunction with the big numbers about the talent pool in India. If so much is not enough, the Indian opportunity must be HUGE! On a lighter note, we don't expect the leaders of some fanatical political outfits to use Mr. Gates statement to persuade families to have more kids!

Very amusingly for people like me - interested in watching the "sector": Legal Process Outsourcing - the story talks about only LPO in addition to BPO and IT Services outsourcing. And that's not quite surprising, for the opportunity presented by LPO is really big and lucrative. Consider the following:

The law, in fact, illustrates how vast is the untapped potential market. About $250 billion is spent on legal services world-wide, about two-thirds of it in America, and as yet only a tiny proportion goes offshore. Forrester, a research outfit, has estimated that, by last year, 12,000 legal jobs had moved offshore, and forecast that this will increase to 35,000 by 2010. India, with its English-language skills and common-law tradition is well-placed to secure a big share of the business. It is not just a question of “paralegal” hack work such as document-preparation. Sanjay Kamlani, of Pangea3, a small Indian firm, calls it “real lawyering”—drafting contracts and patent applications, research and negotiation. His clients are both big law firms and in-house legal teams.

India's fundamental attraction has not changed since it first drew software developers: fantastic cost savings. With American lawyers costing $300 an hour or more, Indian firms can cut bills by 75%.

We've seen the above numbers earlier too, but what is worth a second mention is the size of savings that outsourcing of legal work to India can bring. Even with a naive calculation of saving 75% of an annual budget of $250 billion, we're talking of saving about $190 billion ! Of course, not all of the $250 billion is "outsourcable", but even if 1% of the savings were to come from outsourcing legal work to India, we're still talking about $2 billion. This is a big enough number to wake up General Counsels of large corporations and Partners at law firms. And the ever increasing number and size of LPO outfits is indeed a "Good morning GC, this is India calling, your draft is ready!"