LPO News

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On his blog, Rahul Jindal posts an excerpt from an interview with the SDD Global Chairman Russel Smith.

No one likes a recession, but for quality legal outsourcing providers, it will mean more business, not less. I just got back from a two-month marketing tour of the U.S. and Europe, and one in-house corporate counsel after another told me of the increasing pressure to cut legal budgets. For many, that will mean outsourcing. Recessions and depressions generally don’t reduce the need for legal work, but they do reduce the tolerance for high legal fees. Also, not all industries suffer during downturns. Many of our clients are media and entertainment companies, and that’s a field that’s almost recession-proof. When times are tough, and people don’t have jobs, the demand for movies and television programming often goes up, not down. It’s partly escapism, but also an increase in free time.

This is an interesting observation. Allaying the fears of a global recession, Mr. Smith blithely dispels the myth of a fast-decoupling US economy.

The whole world watches as the titans clash in the primaries of the US elections. Most of us who have been following the elections know well enough that this year, the primaries would be the most significant part of the election process. The Democrats are in control of the US Congress, a Democratic victory in the presidential elections seems imminent, and the Outsourcing industry is in for a radical overhaul.

The US economy is in recession and protectionist tendencies riding high. Barack Obama and Hillary Clinton have expressed concerns over American jobs being outsourced. The issue of Jobs and job losses is highest on the priority list. At the Democratic primary presidential debate at the Howard University on June 28, 2007, Senator Clinton indicated that there was a need to end tax-breaks for outsourcing jobs. Senator Obama was critical of the effects of globalization on the worker communities that lost their jobs because of the outsourcing phenomenon.

However, the truth is that the United States government cannot shy away from Globalization after years of pushing for increasing liberalization in developing countries to build markets and investments. A reasonable expectation would be a system of incentives and disincentives to retain jobs for American workers in corporates and firms; this can include tax incentives and government investments to companies for companies to create jobs in the US.

The other, and one that could really hurt the back offices in India, could be a significant increase in import tariffs for offshore services. However, as far as the Legal Process Outsourcing is concerned the effects might not be so manifest.

The regulatory regime, reinforced by legislations would spell less decision making power for the body corporates, and an increase in preventative measures. The corporate bodies that have been profiting while decoupling from the US economy would be obliged to placate the government and “insource” jobs. The conservative stance on this issue is one that they have stressed upon a number of times: Outsourcing saves American resources and retains capital within the economy.

However, statistics speak a different story. The US labor department has revealed that US employers have shed 80,000 jobs in March 2008, and much of the blame has been placed on the free trade policies and practices of the government. This will have deep ramifications on the future of emerging economies and globalized trade of goods and services.

The LPO industry will benefit from the downturn in the US markets. Apart from looking to cut spendings and downsizing in the departments that are not the core competencies of the business, organizations are looking to cut the rocketing costs in the legal departments. The increased import tariffs on services industry are unlikely to impede the offshoring of legal services, mainly due to the substantial cost-advantage enjoyed in Asia.

David Perla, Co-CEO of Pangea3 LLC foresees that the US recession spells boom in the LPO industry sector in India.

In this recession, everyone is looking for a culprit, and the litigation bloodbath is just beginning. Witness shareholder and related litigation on just the Bear Stearns debacle alone. Litigation activity related to the recession will increase, and the resulting litigations will be, not surprisingly, discovery heavy. Combine this increase in litigation with the need to preserve cash, and litigants will look to India as a discovery solution. It’s happening already, as most of the top LPO providers have seen a marked increase in litigation business in the last six months.

Apart from the highlighted fact, markets operating in an increasingly regulated environment will naturally experience an influx in litigation. Antitrust laws would tend to rub against corporates and enterprises that were operating in the relative ease of free markets in the time of the Bush administration. Compound that with the booming awareness of the LPO industry, demand will soon outstrip the supply. This is basically one of the reasons that leads me to believe that the smaller players in the market would subsist along with the mid-size and the larger players. The smaller players would evolve and tend to provide increasingly specialized services customized to the needs of businesses in the United States. The coming years would witness a high rate of acquisitions and mergers in the industry, and sub-contracting would mean a lot of business for the smaller players.

In the next post, we will discuss how the LPO industry contributes to the US economy.