22 Sep 10 Outsourcing in the changing marketplace

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The year 2008-09 will be remembered for the collapse of Lehman Brothers (the largest bankruptcy in the US history so far!) and for all the numerous companies that crumbled under the pressure of the financial crisis. The global economic meltdown has seen many corporations closing down due to bankruptcies leading to layoffs across the globe. Fall in profitability for businesses across verticals including banks, insurance, healthcare and information technology indicated the severity of the challenging economic environment.

The global outsourcing industry (estimated to be more than $950 billion) also witnessed a slowdown in growth in the last year as a result of the global economic downturn.

The changing marketplace
Post recession, corporations have become cost conscious. With corporations looking to cut costs, legal budgets have also come under tremendous pressure. There has been a considerable drop in billing rates as corporations are looking for ways and means to reduce their costs across the board.
This pressure on billing rates for law firms is likely to result in opening up of greater outsource/offshore possibilities. Cutting costs and better utilization of in-house lawyers is a compelling reason for corporations to consider outsourcing/offshoring in their strategy. While corporations have been pushing law firms to send work to low cost destinations, going forward this pressure will only increase, and the offshore component will become more significant.

The downward pressure on costs, growing litigation, increasing compliance measures and the increasing use of technology will drive corporations as well as law firms to outsource/offshore some of their processes/services (with the prime motive of maintaining profitability).

Increasing momentum in the LPO industry
While the economic downturn is reshaping the global legal services landscape; the LPO industry is witnessing increased activity. Revenues from the offshore legal services industry were $370 million for 2009 and are expected to reach $440 million by end 2010. However, the industry seems to be picking up pace much faster as the global economy recovers.
Most of the corporations outsourced large volumes of document review and secretarial support work. This was due to the high level of offshoreability of these services. However, corporations are now looking to outsource and offshore routine legal work. With increasing emphasis on cost initiatives, corporations, large as well as mid-sized, will increasingly use LPO to gain a competitive advantage.

Growing level of interest

  • Microsoft signed a contract with Wipro Technologies for its IP portfolio. Earlier this year, the software giant also awarded a contract to Integreon for providing legal support service
  • British Telecom recently announced its decision to shift work from its captive legal services center (located in India) to UnitedLex

The established service providers have witnessed long term contracts in the last six to eight months. Last year, Rio Tinto, a leading international mining group based in the UK awarded a contract to CPA Global. Rio Tinto offshored contract review and drafting, legal research and document review to CPA Global. Similarly, Integreon won a seven year contract worth £50 million from UK based law firm Osborne Clarke. Integreon will provide knowledge and information management; technology and business intelligence services; transcription, secretarial, and word processing services to the law firm.

Increasing offshoring maturity
Earlier, buyers were experimenting with offshoring and hence restricted the work to smaller and short-term contracts/assignments. However, in the past three years, the legal offshoring market witnessed increase in the volume of contracts. There is a gradual shift towards, recurring business and multi-service contracts. Further, the services offshored are a blend of legal and support services such as document review, legal research, litigation support, accounting and IT services.
Established service providers have witnessed some long term contracts in the last quarter. Osborne Clarke-Integreon; Eversheds-Exigent; Rio Tinto-CPA Global and British Telecom-UnitedLex are some of the recent longer term contracts in the industry.

 Deals in the industry

 Year Deal details
 2010  Integreon bagged a 10-year contract worth £582 million from CMS Cameron McKenna.
British Telecom recently announced its decision to shift work from its captive legal services center (located in India) to UnitedLex.
Microsoft signed a contract with Integreon for legal support services. Integreon will provide contract review and offshore document review services to the software giant from its India and Fargo centers.
Early this year, Microsoft also announced its plan to send routine legal work to CPA Global.
 2009 Integreon signed a seven year deal worth £ 50 million. As per the deal, Integreon will provide technology and business intelligence services, knowledge and information management, transcription and secretarial and word processing services to Osborne Clarke.
Rio Tinto, a leading international mining group based in the UK awarded a contract to CPA Global. CPA Global will provide contract review and drafting, legal research, document review services to Rio Tinto.
Exigent will offer documentation processing services to UK based law firm Eversheds.
Patton Boggs LLP awarded an outsourcing contract to CPA Global. As per the contract, CPA Global will provide intellectual property docketing services. CPA Global’s on-shore docketing specialists in the US will be supporting Patton Boggs.
Pinsent Masons signed a contract with Exigent where the service provider will offer document review services to the law firm

 Source: ValueNotes Research

Based on our discussions with buyers and legal service providers in India, we believe that the number of recurring business and annuity based contracts are gaining traction. Currently the contracts are tilted more towards support services. And this is benefiting larger service providers with multiple service offerings!
Going forward…
The recessionary environment has forced corporations to evaluate various options to remain profitable. Mitigation of a difficult business environment means stricter budget controls and increased outsourcing and offshoring.
Increased competition and recessionary pressures within the macro environment means that outsourcing/offshoring will need to be more proactive in the future. On the outsourcing supply side, service providers have been building capabilities and expanding their presence in other countries. The momentum will build once the buyers of legal services start to look at how to retain their competitive advantage by lowering costs and increasing productivity.

Blog,BPO/KPO Services
ValueNotes Research
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