Negative short term impact on legal process outsourcing

Online, November 17, 2009 (Newswire.com) - Pune, India, 12 November 2009

Revenues from the legal process outsourcing industry were US$320 million for 2008; expected to reach $440 million by end 2010

In 2005, there were around 40 service providers in the Indian legal services offshoring segment; the number grew to 100 in 2007; and currently there are more than 140 service providers in India

Over the last two years, > 20% of the total number of service providers discontinued their operations

With the legal services industry going through recessionary conditions, the legal process outsourcing (LPO) industry has not escaped the impact of the crisis. The economic downturn has no doubt slowed down the industry and is changing the service provider landscape.

The offshore legal services industry grew at a rapid pace until 2007. However, the slow down in the buyer market impacted the offshore industry resulting in a drop in the growth rate. The industry that was growing at a CAGR of 40+% over the last four years until 2007, dropped to 28% in 2007-08, and further reduced to 16% for 2008-09. Revenues from the offshore legal services industry were US$320 million for 2008 and are expected to reach $440 million by end 2010.

This drop is primarily due to recessionary cost pressures impacting the global legal services market and the subsequent affect on the number and value of offshoring contracts. Many existing contracts were exploratory projects (in the form of pilots), which were not extended / expanded into large engagements. A slowdown in terms of decision making to offshore from the buyer end also affected the number of contracts.

According to Neeraja Kandala, lead analyst - Legal Services, "In the current scenario almost all offshore legal service providers are battling - 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. 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."

The service provider landscape of the legal process outsourcing industry has changed remarkably in the last 4 years. In 2005, there were around 40 players in the industry. The number grew to 100 in 2007. Currently there are more than 140 service providers in India in the legal services offshoring segment offering services ranging from legal transcription to complex contractual analysis and patent related services.

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. Over the last two years, more than 20% of the total number of service providers in the industry discontinued their operations. Says Suheil Patel, analyst and co-author of the report, "While there are various reasons for these shut downs, the economic slowdown added to the troubles of some of the service providers. Fewer contracts over the last 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."

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 India capacity. 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.

The ValueNotes report, Legal Services Outsourcing: Crisis Creates New Opportunities for LPOs, (http://www.sourcingnotes.com/content/view/554/1/) analyses the offshore legal services industry in India and the changing service provider landscape.

For further information, please contact

Nandita Harendra, Corporate Communications, ValueNotes
Telephone: +91 20 6623 1700 | Email: [email protected]
Neeta Joshi, Business Development Head - ValueNotes Outsourcing Practice
Telephone: +91 20 6623 1793 | Email: [email protected]

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