Pune, Maharashtra - The US$146 m (in 2006) legal process outsourcing (LPO) industry in India is on a rapid growth path, and is expected to grow to $640 million by the end of 2010 according to ValueNotes’ estimates. Corporates and law firms are offshoring large volumes and more complex work and have started to take advantage of the labor arbitrage that has been exploited by other industries for well over a decade. Increasing workload and rising costs are forcing legal counsel and law firms to offshore to cost effective service providers.

The difference between legal and other industries is that corporate legal departments, and not law firms, were the early promoters of legal outsourcing. Outsourcing in the legal market has been client driven rather than industry driven. This fact is further validated by a recent survey conducted by ValueNotes to find the willingness of law firms and corporate legal departments to offshore legal services. The survey reveals that corporates will offshore more aggressively by 2010.

It was found that corporates find offshoring more suitable as they have substantive legal work and are more comfortable with the concept of offshoring compared to law firms. Moreover, successful precedents in offshoring of IT, BPO, F&A and other processes have made them more confident. Given the benefits of offshoring and its cost-economics, corporate in-house counsel will be able to provide a wider range of in-house legal services, while sending the manpower intensive work offshore.

Some industry estimates show that document review generally accounts for 58% - 90% of the total litigation cost. This type of legal work is routine for corporate clients who are increasing pressure on law firms to outsource to low cost destinations like India and the Philippines where qualified lawyers and other professionals are available at a much lower rates per hour. Outsourcing will help corporates save on inflated fees of $300- $400 plus per hour charged by law firms in UK and US.

Neeraja Kandala, analyst at ValueNotes says, “Early adopters among US and UK law firms are gaining comfort with the idea of offshoring. There are several law firms that are inhibited by various concerns. Those who have held back are now seeing the success stories of some of their competitors, leading to more optimism now.”

Source: money.cnn.com

NEW YORK - The outsourcing of technology jobs has been a lucrative and controversial trend over the past 10 years. But with the dollar declining against foreign currencies, it’s getting more expensive for U.S. firms to pay for foreign labor, a factor that has increasingly become a source of concern for Wall Street analysts.

According to Janney Montgomery Scott analyst Joseph D. Foresi, outsourcing is based almost solely on labor arbitrage; if U.S. companies can hire labor cheaper in India and other developing countries, they will continue to take their business there.

“So far, there has been a pinch on margins for U.S. companies, but it is still less expensive for them,” he said.

There has even been some relief as the rupee depreciated against the dollar during the quarter ended March 31, making it more affordable for U.S. companies to hire Indian firms. A drop in the rupee’s value has not come fast enough for Satyam Computer Services Ltd., one of India’s largest technology outsourcing companies. Its U.S.-traded shares fell more than 5 percent April 22 after the company reported fiscal fourth-quarter profit below Wall Street expectations.

Goldman Sachs analyst Thomas Quinteros said that “rapid appreciation of the Indian rupee” has been one of the key risks for Satyam Computer Services Ltd., one of India’s largest technology outsourcing companies. Satyam last week reported fiscal fourth-quarter profit that missed Wall Street estimates.

The results were not that surprising _ in February, Satyam’s chairman said he expected “significant implications” from the U.S. economic downturn for Indian outsourcing companies.

The majority of Satyam’s sales are from the U.S. The company provides data-warehouse, systems integration, software development and other information technology services to General Electric, the U.S. government and other major clients.

Banc of America Securities analyst Abhishek Gami said the stock has been a strong performer but fundamental gains may be difficult because of the weak dollar, wage inflation and the need for expansion beyond the U.S. market.

Gami acknowledged the newly weakened rupee has “turned into a tailwind” for Indian companies.

“Though the rupee depreciation is not significant enough to deliver major margin upside, at least…offshore vendors have been saved from this source of margin headwind,” he said.

While the rupee stabilized in the last quarter , the weak U.S. economy is also bad news for U.S.-reliant outsourcing businesses like U.S-traded Wipro Ltd., which includes General Motors, Sony, and communications company Nortel among its customers.

According to Wachovia Securities analyst Edward S. Caso, Wipro is expecting muted growth in the first half of fiscal 2009 because of ongoing U.S. economic turbulence. A customer has already canceled a major project while other customers have said they want to defer projects.

While both Satyam and Wipro are hoping to ride out any rupee appreciation and the U.S. economic weakness, they are hoping for a turnaround later this year or 2009.

Wipro management has, says Caso, “emphasized the pause nature of new business, not its elimination.”