The offshore legal services industry has also been caught in the grip of the tough times that the legal services industry is going through. The industry had seen rapid growth until 2007, but the slowdown in the buyer market took its toll on the offshore industry, resulting in a drop in the growth rate. A compounded annual growth rate (CAGR) of 40% over the last four years until 2007, dropped to 28% in 2007-08, and was further reduced to 16% in 2008-09. Revenues from the offshore legal services industry amounted to $320 million for 2008 and are expected to touch $440 million by the end of 2010, according to ?Legal services outsourcing: Crisis creates new opportunities for LPOs?, a report by ValueNotes.
The drop is primarily due to recessionary cost pressures that have hit the global legal services market and the subsequent affect on the number and value of offshoring contracts. Many existing contracts were exploratory projects (in the form of pilots), and these were not expanded into larger engagements. A reduction in offshoring from the buyer-end also affected the number of contracts.
Service providers of the offshore legal services industry have changed remarkably in the last four years. In 2005, there were a total of around 40 players in the industry. The number grew to 100 in 2007. Currently there are more than 140 service providers in the legal services offshoring segment in the country offering services ranging from legal transcription to complex contractual analysis and patent-related services.
Suheil Patel, analyst and co-author of the report says, ?While there are various reasons for these shutdowns, the economic slowdown added to the woes of some of the service providers. Fewer contracts over the last one year have made it difficult for them to survive during the downturn. Moreover, some of the players failed to pay attention to learning processes and acquiring the required knowledge.?
Neeraja Kandala, lead analyst Legal Services says, ?In the current scenario, almost all offshore legal service providers are battling it out, while in some cases billing rates have come under pressure. The volume of work has shrunk in other cases. As the global legal industry suffers, the offshore industry has also felt the impact of the crisis. While revenue estimates till 2010 are not very encouraging, we believe that the slowdown is a short-term one. Post 2010, we expect the industry to pick up pace as the global economy recovers.?
The ease of entry and over-hyped prospects led to a rapid increase in the number of players in the industry. The huge ?potential? opportunity also led entrants to believe that getting businesses would be easy. Only a few bothered about the potential risks or the competitive dynamics of the industry. This, coupled with the uncertain economic conditions, resulted in many weaker players fading away from the competitive landscape. Over the last two years, more than 20% of the total service providers in the industry discontinued their operations.
Post 2010, one may see consolidation in the industry, with larger players acquiring capacity and capability, as well as international law firms looking for control over capacity. However, in the medium-term, numerous smaller businesses will continue to mushroom, which will, in turn, create a large pool of acquisition targets and potential joint venture partners, the report pointed out.