Need for players with Multi Service Capability in LPO Space

There has been an explosive growth in the LPO industry in India in last few years.

Currently, bulk/majority of the revenue in LPO currently comes out of Document Review which is considered to be lower end of LPO value chain. The fear surrounding such work is always that over a period of the time these services get commoditized. The commoditized business is easier to replicate and hence entry barriers for competition is lower. To add to woes of LPO Service Provider beyond cost arbitrage client do not perceive any value add of the service provider. This creates significant long term sustenance issue for LPO service provider.

LPO service providers in India have also ventured in the following services:

• Contract Management
• Intellectual Property Services
• Legal Research Services
• Litigation and Administrative Support Services

I have an analogy here.

One can't help but notice the growth of IT services just a decade ago. The services offered then were largely on labor cost arbitrage, application development and maintenance (ADM) to be specific. Now India is a leading IT Service provider. Now, top IT services providers manage end to end processes rather than just ADM. Moreover the nature of outsourcing has moved deeper from one that required single capability to multi-capability like ADM, Infrastructure Management, Project Management, Consulting, PLM, Validation and testing, analytics, business intelligence, predictive modeling, BPO to name a few .

LPO Industry as it matures will also move from primarily traction processing to process outsourcing to being a value added legal services partner.

However to be a true legal service partner, clients will require transformation partners who can understand their business and provide value added services.
This leap however requires a different set of skills, mindset, organizational capabilities and strategies.

If one goes by the same trend as IT Services, I reckon that the following skills and capabilities (not exhaustive though) will be a part of any legal services engagement in very near future:

Quality and Process Management: These skills are key to any successful engagement.

Utilization of Technology for LPO Domain: This involves continuous improvement on the quality, process, turnaround time, consistency etc., through development of specific and reusable technology, IT tools, most of them developed in house.

Knowledge Management: This is key for knowledge intensive services like LPO. As any (fast) growing industry, attrition will be a problem in future in thin industry which makes this skill critical for this industry. Every client in LPO space has its own associated processes, terminologies, methods, procedures, rules, nuances, a lot of which may change routinely. A robust KM process will ensure alignment of the LPO engagement with the client.

Project Management and Transition Management: These capabilities will be required for management of any large/complex project or engagement especially in a multi service LPO environment.

Associated BPO Services: There are associated services with any process and LPO domain is not an exception. These services will be required as the client engagement in LPO domain deepens.

Global Sourcing: Getting right skills at right place and time will go a long way in maintaining competitive edge for LPO firms. Deeper engagements will require onsite-offshore model.

Consulting: These services are provided as a value add and for upselling. These services will be offered as the LPO firms build domain expertise. The services can be as varied as consultation on CRM to benchmarking for law firms.

One may simply argue that any new service starts as a simple offering and progressively gets inclusive, deeper, complex with interdependent disciplines as the service matures. Hence, the same will also apply to LPO services. My point is that though that is true, standalone transaction focused LPO service providers will find it incredibly hard to scale up on the skills mentioned above.

Hence the LPO industry today requires multi-service players as it matures. These players are/will be much better placed in terms of business value add to customer and also in terms of overall competitiveness.

Standalone transaction processing oriented players unless they are able to find niche or acquire domain skills, will be acquired or loose competitiveness.

India's Public Debt is Manageable

There has been a lot of discussion about high fiscal deficit that India is experiencing right now especially with respect to the current debt crises in Europe and America. Here are my thoughts:

Composition of Public Debt:
Currently India's Central Government debt is 54.35% of GDP which looks relatively high especially given India's high fiscal deficit.
Central Government's public debt is largely internal. Out of the total public debt, only about 8.5% is external debt (about $250 Billion). Out of the total external debt, only about 20% represents short term debt. (See Source: 1 below)
Keeping external debt at manageable levels has been a conscious policy of the GOI, especially after the 1991 crises.

However, India is in a different league all together.
India's tax regime will go through a paradigm shift in next few years. There are other factors, apart from GDP growth that'll lead to a sustained northward movement of tax to GDP ratio.
Here's how:

GST and Direct Tax Code:

Implementation of GST and direct tax code, by all indications should happen from April 2011.
Direct tax code will simplify the indirect tax regime and procedure. This is expected to bring in more direct tax due to increase in compliance. Ditto with GST. GST will simplify the indirect tax structure and India will truly become a single market.

Inflation:

India's WPI inflation for past decade has averaged 5.2%. (See Source: 2 below) There is no reason to believe that the there will be any substantial downward movement in the trend in medium term. This high inflation will also lead to higher tax collection in nominal terms, everything else being equal.

UID Project:

Enrolling for Unique ID Project (UID) will start in FY12. This initiative will go a long way in ushering in transparency. This initiative will also simplify governance and bring in capabilities to the government that they have only dreamed of. Transparency will (hopefully) reduce the black market activities, tax leakage and should lead to tax buoyancy apart from the benefit of sharply targeted subsidies.

Demographic Dividend:

India starts getting demographic dividend now. Demographic dividend causes economic boom as the proportion of working population to total population peaks.

The combined effect of all the above, over a period of time is substantial movement of TAX-GDP ratio northwards.


References:
Govt of India : http://finmin.nic.in/stats_data/nsdp_sdds/index.pdf
RBI : http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/BCCED060410.pdf