Indian LPO industry booms in slowdown

Sanjay Kamlani, co-founder and co-CEO of Pangea3 LLC talks with Pankaj Maru of CyberMedia News and shares his perspective on Indian LPO industry, its future, trends, global recession, IT sector and much more.

Despite the global economic downturn the LPO companies in India get more works from the US compared to the IT industry. Why is it so?

There are two main factors why US companies and law firms are considering outsourcing to India in these turbulent times – the cost cutting and process expertise in legal outsourcing. The slowdown has reduced revenues for US firms and are looking at low cost legal services without compromising on quality. Typically, in the US attorneys charge their clients on an hourly basis, starting charges anything upwards of US$ 200, whereas in India an experienced lawyer is available at USD 75-100.

Additionally, Indian LPOs work around fixed billing rates or rate per project or per document. Contrary to this, law firms abroad bill clients on hourly basis.

This means that they are incentivized to under-perform. In India, the offering is differently packaged, hence more business-friendly. By outsourcing with LPOs, foreign firms save anything from 50-90 per cent cost. In addition to huge cost savings, Indian lawyers offer tremendous process expertise and high-quality services.

There's an increased awareness amongst US companies on the benefits of infusing process expertise in legal services in a way that ensures consistent quality and when one combines that expertise with top tier legal talent, the end result is a measurable improvement in the the quality of the work done.

These firms are steadily waking-up to this fact thereby leading to the rise of outsourcing legal services to Indian LPOs such as Pangea3 where the country’s top legal talent has learned to implement six sigma tools and methods to ensure consistent quality delivered in the most efficient manner. For many US companies the drastic revenue falls has triggered severe cost cutting measures sparing only budgets for non-discretionary items and services.

Legal services relating to litigations and regulatory compliance are quite simply non-discretionary. The sub-prime debt crisis leading to recession has raised a substantial amount of additional legal activity work that demand for such non-discretionary litigation and compliance linked legal services that are very expensive in the US.

Notwithstanding the fact that US firms must purchase these services despite severe slowdown, there's a tremendous pressure on in-house counsel departments and their law firms to reduce the legal services' costs by outsourcing to LPOs in India where the rates can be as low as 10-50 per cent compared to US law firms. This enables them to obtain cost-efficient legal services without compromising on quality. For Pangea3, the last three months have been the largest revenue generators ever and last six months have seen a 100 per cent growth as against the same period last year.

What are current trends in LPO business?

The trends include processing services related to litigation, due diligence and e-discovery. In this recessionary time, many people including employees, shareholders or debt holder have incurred extraordinary losses. It leads to litigation for people and organizations. Hence it results not only rise in corporate transactional related work, but also setting the stage for an enormous amount of litigation in coming months. There's been significant rise in mergers and acquisition work related to due diligence. Our corporate due diligence lawyers conduct thorough reviews and analysis of financial statements, contracts, patent portfolios and other documents relating to assets, liabilities, risks and opportunities.

Also there's a surge in e-discovery due to large litigations commenced in the US regarding transactions with securities. There many investment and commercial banks advised clients - individuals, pension funds and other conservative investors - that by placing their money in securities backed by mortgages, their investments would be very safe and earn more interest.

However, investors have taken action against banks claiming that they were misled into believing that the securities were risk free paying higher interest. In such cases, millions of emails and documents from banks are reviewed to understand various aspects of the marketed securities and the events around the marketing of those securities. So those documents are reviewed to identify and analyze evidence for the case used for litigation strategy including relevant issues codes and document search strategy.

With the ongoing recession how do see the growth of LPO business?

While there's a strong push for lawyers in the US, Europe and Japan to outsource more of their existing legal work to Indian LPOs, there's no question that the global economy is contracting and as such, the size of aggregate legal industry is contracting. The big question for LPOs here is whether the increased market share exceeds the amount of lost business resulting from the contracting industry. So far the pace of increasing market share has exceeded the pace of declining world-wide legal industry size resulting in a trend of increasing revenue for Pangea3 and the LPO industry. We certainly aren’t in a position to predict the longevity of this trend in a deteriorating economic environment.

In your view, can the LPO segment help Indian IT sector in overcoming the slowdown?

Indian IT sector has undoubtedly been an growth engine for our economy and has been instrumental in placing India on the global map. While, US recession is certainly bad news for the world economy in general and the next 3-4 quarters will see muted growth, there's no dearth of opportunities available, and I believe that our IT sector will recover faster than other sectors.

Though, legal services outsourcing has picked up remarkably as companies world-wide face more and more regulatory compliance issues as well as a direct result of the financial turmoil, I view that India’s niche legal service offering will certainly help boost industry morale and strengthen India’s position in the global market. Growth will continue, although margins may decrease due to scarcity of cash. In all, I remain optimistic about the prospects for Indian outsourcing.