11 Nov 09 Changing global legal industry_An opportunity for LPOs

The impact of global economic meltdown on various industries has been the front page news for the last couple of months. Companies across verticals like banks, financial services, telecommunications, engineering and construction, healthcare, electronics, etc. have been witnessing margin pressures and are looking to cut costs and maintain profitability. With the economic crisis impacting several industries, cost control has become the pertinent issue across businesses.

The impact of the downturn on the global legal industry has been significant. There is heightened cost consciousness, given the fact that law firms are witnessing increasing pricing pressures from their corporate clients. A decrease in legal spend and shrinking budgets have impacted law firms adversely. Paul McGolpin, CPA Global’s Director, Legal Services Outsourcing, says that  “General Counsel and corporate law departments are facing twin pressures to reduce costs while also having to cope with an increasing amount of work, especially with the added weight of stronger regulatory oversight and stricter compliance issues. Put simply, they need to do more for less – and the old way of working is not going to enable them to do that.

The last nine months have been more severe for law firms and has further hit the revenues and profitability of the firms (especially for the law firms that relied heavily on the Wall Street banks). In addition to this, business in certain practice areas has almost dried up. Shrinking M&A market, slower patent market and badly hit housing market – affected the revenues of law firms. As a result, law firms are tightening their belts and have taken some steps towards cost rationalization. Several law firms (including Am Law 200, Magic circle firms and other law firms) have reduced their employee strength.

The slowdown in the global legal services industry has had a spillover effect on the Indian legal offshoring industry. However these challenges will unearth opportunities for Indian offshoring service providers for certain services. Says Sanjay Kamlani, Co-CEO, Pangea3, “As a result of the economic crisis, corporations, particularly financial services companies, are going to be under increased regulatory scrutiny. The US government’s focus on tightened regulations, from the DOJ’s crackdown on violations under the Foreign Corrupt Practices Act to the Obama administration’s proposed financial regulatory reform, will force corporations to comply with an increasing number of global regulations. We anticipate that the legal outsourcing industry is poised to provide compliance services that enable companies to mitigate their compliance risks comprehensively and within their currently constricted budgets.

Corporates have been offshoring services and are likely to continue to do so. Adds Matthew Banks, Senior Vice President, Legal KPO, Integreon, “The global banking sector is already proactive in LPO and will compete with corporates as the largest growth sector in the short to medium term. The US corporate market remains a key source for growth in LPO revenues across a range of services, particularly litigation, contracts and regulatory/compliance. We expect the UK corporate market to follow suit.”

Although firms have been offshoring to save costs, the offshoring process has become more stringent and the vendor screening process has tightened. Corporates on the other hand are looking to increase the volumes of work sent offshore. Corporate counsels have more pressure to deliver quality at lesser prices leading to an increase in the amount of offshoring seen in this segment.

The above article is an excerpt from the report “Legal Services Outsourcing – Crisis Creates New Opportunities for LPOs ” by ValueNotes. The report presents the competitive landscape of legal outsourcing industry in India.

ValueNotes Research
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