Saturday, August 15, 2009

Recession: - Circumstances, Impact and Survival kit for LPO vendors.

Recession: - Circumstances, Impact and Survival kit for LPO vendors.

CIRCUMSTANCES: - Recession is the term interchangeably used for slowing down of the economic engine, decrease in the buying power of the currency and an alarm to optimize the profits by reducing costs. The US economic history has evidenced many financial droughts. 1929 stock market crash, pre and post 1941 WW II, 1965 Vietnam war, Y2K IT crisis in 2000 and the 9/11 terrorist attack on the World trade centre are but a few examples when the economy was bear hit. There are allegations and counter allegations in search of the corollary to assessment behind the recession. Some dedicate it to splurging, mismanagement, Bush administration and US participation in the Iraq, Afghanistan war. Others blame pumping of excess currency and unreasonable surge and seizure of the value note in the economy as a reason.

Let it be as it may, for our purposes, US is hit by the fiend recession, which is more or less a ricochet of its capitalist economic policies. With the raise in alarm by the Obama administration and the welfare schemes of bailout there is a complete antithesis in the legal paradigm of US.

UNDERSTANDING THE US LEGAL MARKET: - Law every where is a noble profession. In the US a lawyer is made out of a minimum 6 yrs. of high school studies. After completing formal education, law school graduates still must pass their local state's bar exam, pass a character fitness review, and swear an oath to abide by and uphold the local rules of practice as an officer of the court. Out of approximately 1 million attorneys practicing in US, about 75% of them are in private practice. About 8% of attorneys work in private industry, some as in-house lawyers, and others as managers. Another 8% work for the federal, state or local governments, most at the local level. 3% of lawyers work for the judiciary. Most of the remaining attorneys work in education, public defender's offices or non-profit organizations.

The condition however for new attorneys joining the profession is common to India. To begin from the beginning they submit to struggle and financial calamity. The larger the law firm the lofty ones packages accrue.


Keeping the bankruptcy and the foreclosure aside, there has been decrease in litigation throughout US. The myth about actual raise in litigation lacks foundation. "Lawyers are rich in good times and richer in bad times" holds true only for smart lawyers and law firms. Those Law firms, who learned from the errors of the past, were better equipped than ever before to handle an economic downturn but to the contrary the small and mid-size growing law firms were the worst hit. Many do not come in press because of negative publicity associated with press and damage of market repute. The bigger law firms are as well scrambling for safety with the challenge of maintaining their credentials. Client retention, discounts and value based billing are the core concerns for bigger law firms. Market climate has extremely pressurized the way things are delivered. Bigger law firms though reluctant of large scale downsizing winnow their teams by elevating performance standards and quietly letting go those lawyers who fail to meet the standards.

To wit, the U.S. law firm's revenue has deteriorated day by day if not collapsed and the indications are certainly not bullish as projected. US firms and companies are diligent in conserving cash and are less likely to make long-term strategic investments in offshore infrastructure during this recession and especially if this recession deepens. The demand for legal services is already declining and could drop even lower by the recession to end. When Americans do not have money to spend on bare necessities, they are not expected to extravagant revenue on litigation which can be otherwise avoided or delayed. The above discussion applies in toto to the corporate division of companies as well. The companies want to cut cost on everything for basic survival and legal division is not an exception to this. The economy of a company has to be appreciated by the Break-even and Shut-down points (a detailed discussion of which is beyond the scope of this article). But clear beyond clarity is the fact that they will emphasize on their corporate division or law firm to cut cost without even taking a risk to outsource in the present scenario. Thanks to the bailout and other concerns associated with outsourcing which will be discussed in the impact portion of this article.

IMPACT: - Whenever the US sneezes, the world catches a cold. India definitely has reasons to worry. Global economic meltdown is bound to affect all countries. Strongest of American, European and Japanese companies are facing stern crisis of liquidity and credit. India is not insulated, either. However, India's cautious approach towards reforms has saved it from probable catastrophic implications. But the truth is, Indian economy is also facing slowdown. The prime reason being, world trade does not functions in isolation. As compared to last year 9% GDP growth Manmohan Singh announced a projection of 6.83 for the year 2009-2010 on the eve of Independence Day. All the economies are interlinked to each other and any major fluctuation in trade balance and economic conditions throw impact on all other economies.

The outsourcing industry is gonna be the worst hit. IT and ITES companies whose prime business target is USA are bound to suffer but LPO (Legal Process Outsourcing) would be facing the worst blow for a simple reason that it was on the pedestal of growth. Exult about growth of the recession proof LPO industry is hollow. It was a hype being created to tailor the marketing strategy of handful big players. The reasons why Americans would not outsource during recession includes (but is not limited to) 1> The recession period is not certain and definite, 2> A general belief that by outsourcing they are taking jobs out of U.S, 3> Bailout and other options, 4> Concentrate on retention of client and not compromise on quality for the time being, 5> Survival is important and strategic decision like outsourcing can be delayed, 6> The Satyam fraud, 7> The Mumbai attack, 8> Quality and Confidentiality and 9> Lack of immense Indian legal talent. The sanctity of the above statement is evident from the market report of big LPO players. Most of the big players have downsized, other closed and many have no work to do.

Only handful of LPO are hiring and have projects in pipeline (majority of these projects were procured before recession) others are merely updating database and creating hype/ploy by releasing job vacancies. Even the LPO players are to be blamed for the scenario. In the last one year every other faction has come up with a LPO. A majority of these mushroomed LPO neither have infrastructure, team, marketing people nor understand the LPO processes. For many it is a money generating tactic. True is the fact that there are certain LPO services/processes which does not require great legal acumen. Those are rather PLPO's (paralegal process outsourcing) but definitely the industry is not all about that. These concerns however need greater unanimity. Suffice it is to mention at this point that Lexadigm a LPO drafted briefs for submission to both Circuit Courts of Appeals as well as the U.S. Supreme Court. There are other players who are helping US law firms and attorney into active litigation support. So the variety is immense.

The crux of the matter is that the US outsourced work is going to minimize and would be streamlined and channelized in the near time to come. This would mean a greater challenge for the LPO players. "Survival of the fittest" and the Darwin's theory of natural selection would apply to globalized LPO industry. Once the recession is over, or atleast in the last quarter of 2009 and in the beginning of 2010, there would be large inflow of work with every US body looking for outsourcing to gain savings. "A perfectly unanimous group breaks unanimously", once outsourcing regains pace all would compete to outsource. But for the next couple of quarters survival for many mushroomed player is vital.

SURVIVAL KIT: - There is a difference between Captive and Vendor off shoring. The views expressed herein may not hold true for captive. Any legal department of company is not revenue generating department and its fate would fade or bloom with the fate of the company. To the contrary the vendors are service providers who rely on generated revenue. This is a 10 step sequential evaluation for a vendor. In case if a vendor fails on any of these steps the survival kit collapses and such company is due to exit with financial losses in the next couple of quarters. The vendors' need to look within themselves to answer this 10 step sequential test:-

  1. Do you have a website, if yes, what have you revealed about yourself and your team?
  2. Do you have an infrastructure in place, at least enough to invite a client visit?
  3. Do you have a minimum team of 10 attorneys, which can be extended on demand?
  4. Do you have sufficient other English speaking staff, who can at least understand US client guidelines?
  5. Are your attorneys trained in the basic American Court structure and the LPO processes?
  6. What is the expertise of higher management?
  7. What are your quality deliverables guarantees?
  8. Do you have US attorney to supervise your deliverables?
  9. Do you have access to high end technology, database and software?
  10. Do you have client references and sample work product document?

In case if a vendor fails this sequential test and still claims to be a leading LPO, it is causing injury to the entire industry. Those vendors will wither away like dry leaves of tree with more challenges to come for a reason that every client in US whether it is a corporation or law firm will pose the exact queries for all to reply. Even a vernacular consumer buying potato chips is concerned about quality, and vendors need to deal with quality skeptical American Lawyers.

Those passing this sequential test have greater responsibility to shoulder. You are a leading LPO and now your endeavor should be to succeed the perfect competitive market. To face the challenges outside, first ensure a talented and united team within. Hiring is the most vital of all steps that makes you a LPO. Hire good attorneys and then retain your employee as they are your biggest asset. Remember that every service cannot be outsourced and learn to say "no" for something you are not capable to perform. Emphasize and reemphasize on training and retraining your attorneys. Create a perfect MIS, ERP and R & R to ensure that the productive time is not lost due to demotivation. Ensure Intellectual and monetary appraisals.

Now that you are rock within, understand what your core competencies are. Never deviate from your core competency for the sake of monetary gain. You cannot cater the entire spectrum of legal services outsourced; ascertain your priorities. This will ensure introspection, learning lessons and process development. Business development is a steady process and might cause irritation in inception but patience needs to be instilled. This is an investment into not just a process but knowledge based high-end quality offshore process. For all the work you procure organize meeting to clarify and ascertain the scope of project. Never hesitate to seek clarification from client for two reasons, 1> There is no question like "Stupid question" and 2> Rather than wasting time on a wrong approach you can donate more time on better quality.

Once you deliver quality deliverables client would come automatically and one would refer other for your services. That is how business grows.


Hurricane said...

Well said, Well written!!

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