| Emerging LPO destinations: Offering more options |
| Tuesday, 10 August 2010 | |
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Legal process outsourcing services have been outsourced within the US and UK since 1990s. However, with increasing cost pressures, organizations started tapping global resources. Since the last four to five years, offshoring of legal services work to destinations such as India, the Philippines, Sri Lanka, etc. has gained popularity.
Emerging destinations: Choices galore Destinations of choice for outsourcing primarily include countries that have strong English comprehension abilities and offer a significant labor cost arbitrage. The other important parameters include availability of trained and qualified manpower, good infrastructure and maturity of the LPO industry. In the last decade, a number of destinations have emerged that possess necessary attributes required to handle legal work. Apart from India, other countries such as the Philippines and South Africa have grown as popular offshoring destinations. Canada has also emerged as a nearshore option with a significant number of qualified professionals in the country. Destinations such as Sri Lanka, Malaysia, and South Africa handle some amount of outsourced legal work, but the size and maturity of the industry are major inhibitors.
Industry maturity and growth
Source: ValueNotes Research
Another emerging destination is Australia. The Australian legal market is estimated to be worth $21 billion and is projected to grow by 1% year-on-year. There are already some existing service providers in Australia and many more are planning to open centers in the country. I-Net, a legal service provider opened a new office in Sydney in response to the increase in customer demand. Recently, Pangea3 entered the Australian legal services market after signing a partnership agreement with the law firm, Advent Lawyers. It is the first India-based LPO to open office in Australia. The country has a growing domestic market for legal services, and a majority of the business comes from corporations in Australia. With excellent English language comprehension skills, high literacy rates, Australia scores high on skilled workforce. However, with higher billing rates compared to other offshore locations, the destination is largely preferred by domestic clients.
The emergence of South Africa as a preferred destination with UK clients is driven by its concurrent time zone and cultural affinity. There are a few service providers that have recently established base in South Africa. One of the outsourcing legal service providers, Exigent counts law firms including Lovells, Pinsent Masons and Clarke Willmott as its clients. The Philippines is the strongest offshore contender for Indian providers, though the vendor presence is not as large. Filipinos have strong English and accent comprehension abilities (English being one of the official languages) and high literacy rates. Filipinos also share cultural similarities with the US. The Philippines outsourcing industry is the second largest outsourcing destination in Asia after India. More than 1,000 professionals are involved in legal process outsourcing in the Philippines. Vendors providing services to US, UK and Canadian law firms from the Philippines include companies such as Integreon, SPi, K&C LPO Services, ACT Litigation Services, Adec Solutions, etc. Sri Lanka has the advantage of low labor costs, widespread use of English, strong education systems and open and well-regulated business environment. There are service providers like LegalBase, LexEcon Global Solutions, etc. that have established presence in Sri Lanka. Recently, MphasiS opened a new center in Colombo that is expected to offer legal and finance & accounting services. The center currently has 600 people and will employ more 3,000 people in next three years. However, the political instabilities and language capabilities still continue to be obstacles for Sri Lanka. There are some very small establishments in countries such as China, Malaysia and Israel, but on the whole, due to the scalability issues these destinations are not very attractive for legal services outsourcing. India is by far the largest offshore destination, with over 140 service providers. India has a large English speaking population. Over the last decade, large service providers have nurtured the talent and established quality standards that match international norms. India not only offers cost arbitrage (wages estimated to be 1/4th of American equivalent), but also quality standards through significant industry experience. Going forward… more options There are several options in terms of destinations for corporations and law firms, and the list is growing every year. As the emerging countries gain industry maturity and build critical mass, they will offer stronger competition to India. With the combination of language/accent comprehension capabilities, skilled workforce, cost arbitrage and vendor presence, these countries are poised for fast growth. There will be an increase in services outsourced by European countries necessitating setting up centers in new locations. The economic downturn is putting pressure on the margins, forcing Indian service providers to diversify their client base. These destinations have their own set of drawbacks such as data security concerns, political and economic volatility. However, it is difficult for any of them to usurp India to become the most preferred destination for legal services outsourcing, and will continue to be complimentary outsourcing destinations.
- Sumita Bhattacharjee, Research Analyst
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