But even in this tough new environment, LPO has considerable room for growth and the most adaptable providers can continue to thrive.
Fronterion, the leading legal outsourcing consultancy, today releases the third edition of its influential report on the top 10 trends affecting the LPO industry.
In 2012, LPO firms, which have grown rapidly in recent years to transform the legal landscape, face the first obstacles to their expansion. The most significant hurdle is the shrinking wage gap between East and West.
The initial, and frequently the most compelling proposition for legal outsourcing is that some types of work can be done just as well and much more cheaply by attorneys in India. Now, thanks to rising salaries in emerging markets and a continued recession in developed markets, it is nearly as cost-efficient, in some cases more cost-efficient, to outsource legal work to Ohio as it is to Mumbai (see Trend 1).
Fronterion research shows that law firms can hire contract attorneys in the Midwest of the United States for $25-$35 an hour or retain an LPO vendor in India for approximately the same amount. With Indian wage inflation above 10% annually, LPO firms, which still do most of their work on the subcontinent, will have their profit margins squeezed next year.
To continue growing, LPO providers will have to increase their presence in low-cost onshore regions in Europe and the U.S. to respond to demand for cheaper legal services closer to home.
LPO vendors will also have to embrace new technology (see Trend 3), and expand into new legal practice areas outside of litigation (see Trend 2), which dwarfs all other LPO service segments as the most popular and easiest to sell to clients.
Despite the challenges, LPO will continue to make its presence felt in a legal industry also facing a tough 2012. Additionally, the greatest validation of LPO comes as law firms and corporate legal department adopt the innovative techniques – based on process, reporting and rigorous project management – pioneered by LPO vendors (see Trend 4).
Even relationships between law firms and their clients are shifting (see Trend 10). Lawyers are no longer simply advisers; they must be project managers and procurement specialists, as well.
“While we certainly did not avoid the tough issues facing the LPO industry in 2012, don’t count this industry out. Legal professionals continue to embrace the LPO approach based on process-driven legal services and a strong focus on value.”
“Now, more than ever, it is important for legal professionals to keep up with these unfolding trends.”
Below is a brief summary of the Top 10 for 2012. The full version of the report is at: www.fronterion.com/
1. Profitability Squeeze for LPO – The shrinking gap between wages in the developing and developed countries and accelerating growth of onshore LPO services will combine to squeeze margins for LPO vendors in 2012.
2. Growth Beyond Litigation Support - The unsustainable concentration of litigation support services presents one of the most fundamental challenges facing the industry in 2012. LPO firms must diversify into other practice areas such as M&A and contract management.
3. Technology and LPO Combine – In the coming year, legal technology platforms will increasingly be bundled together with traditional LPO offerings. This means using software systems, as well as low-cost human labor, to provide cheaper and more efficient legal services.
4. Adoption of LPO Techniques - The broad adoption of LPO techniques in 2012 comes as a supreme validation of the LPO approach and will, more than ever, reshape the practice of law.
5. Law Firm Insurers Target LPO - As outsourcing becomes more common, the unique nature of LPO services creates new risks for legal professionals that will be addressed by law firm insurers in the coming year.
6. Changes in the Executive Ranks - The shifting skill sets required for leading an LPO in this evolving industry, along with growing pressure on existing management to produce results, will drive changes in executive ranks at many LPO vendors in the coming year.
7. LPO Faces Formidable Competition - As LPO achieves greater acceptance in the coming year, LPO vendors face intense competition from more formidable and established mainstream legal vendors including staffing firms and large law firms.
9. Changing Professional Guidelines - Professional and regulatory bodies in the U.S. and U.K., which have been slow to address alternative legal services delivery, are due next year to publish the results of studies on the impact of outsourcing.
10. Evolution of the Law Firm-Client Relationship – The injection of third party legal vendors into the law firm-client relation has significant implication for the role of the lawyer.
About Fronterion: Fronterion is the leading consulting firm exclusively focused on advising law firms and corporate counsel on outsourced legal services. Working with some of the largest law firms in the world, Fronterion helps clients structure and implement highly innovative legal outsourcing engagements.
Fronterion is in a unique position to comment on the industry and forthcoming industry trending through its unrivaled market-wide perspective of the legal outsourcing industry
For more information about Fronterion contact firstname.lastname@example.org. Additional resources are available at www.fronterion.com.
Fronterion managing principal Michael Bell is available for interviews on Friday December 9, 2011. Please call +1.312.204.7250.
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Fronterion is an independent legal outsourcing advisory firm that provides focused expertise enabling clients to confidently engage in successful legal outsourcing initiatives.