A Handful of LatAm LPO Challengers Aim to Chip Away at India’s Dominance

By the end of this year, the global market in Legal Process Outsourcing will be worth up to $2.4 billion, according to some estimates. However, only a fraction …

By the end of this year, the global market in Legal Process Outsourcing will be worth up to $2.4 billion, according to some estimates. However, only a fraction of that will be heading in the direction of Latin America. The Nearshore LPO sector remains stuck in its infancy and the expansion in LPO services has so far been something that happens elsewhere – in India to be precise. The outsourcing behemoth has cornered a massive 85% of the market through successfully leveraging its outsourcing experience, significant cost savings and vast labor pool of English speaking lawyers trained in a similar legal system to the U.S. – English is the official judiciary language in India and the legal system, as in the U.S., is based on British common law.

In addition to this, the Indian LPO sector has pushed its time difference as an advantage – as work can be handed over at the end of the working day in the U.S. and given back completed the next morning.

A handful of Latin American companies, though, have been challenging not only India’s virtual monopoly in LPO but also the perception that Latin America is not well-placed to capitalize on the LPO market.

Among the first LPO companies with a Nearshore presence was Novadios, who have been providing U.S. companies with legal support out of Cordoba, Argentina since 2008. “Like any new venture that is pursuing a model that is largely unproven it was certainly a big risk,” said Ash Anderson, the Novadios president. “But the economic indicators were there that led us to conclude pretty confidently that Latin America and in particular Argentina was ready for this type of activity.”

That risk has now become a safe bet for Anderson, who over the last four years has seen the company post steady growth and compile an impressive client list that includes the likes of Yahoo and MGM resorts.

Rivaling India

According to Anderson, the key to the company’s success was not to eat into India’s market share but to build a new customer base among companies who had previously dismissed outsourcing over concerns about sending work half way across the world. “Our model was to appeal to some industries and businesses that had rejected the LPO model because it was too far away – physically and philosophically,” he said.

“They wanted a shop that was more contemporaneous, that operated within their own business hours where you could have real time support and institute real time changes to their projects and form a relationship that is more akin to an outside service provider as opposed to a kind of overnight-shipment-service.”

For Anderson, the proximity is not just geographical but also cultural. “We’re in the Americas, we share this side of the world together and there is a certain ease of communication that comes with that,” he said.

Novadios has managed to back this alternative value proposition with a competitive cost structure through a policy of blended billing, which mixes low-level, low cost labor-intensive work carried out by mid-level Argentine lawyers with higher end, higher cost work carried out by senior U.S. based lawyers. This hybrid service – which Novadios highlights as one way Latin America could look to differentiate itself from the more mechanistic, process  based work carried out in India – results in costs that, while significantly higher than India, are a fraction of U.S. prices.

Jim Boeckman, a  Texas attorney and LPO expert, blames the sector’s arrested development on two factors – a language skill gap and a lack of common law training

Opportunities in Central America

Another company leading the way in the region is intellectual property, biotechnology and IT law specialists Arias and Muñoz, who operate in six Central American countries and serve clients from both the U.S. and Latin America.

Arias and Muñoz have taken a different approach to standing out from the crowd – pitching clients an integrated service that not only takes care of their legal issues but also helps them develop related business strategies.

“We are not just offering legal solutions but business solutions,” said Alejandra Castro, one of the firm’s junior partners. “We are putting ourselves in the place of the customer and trying to develop strategies that they will understand and they will feel that they have not only the support of a lawyer but also support to start their business, grow their business, manage their business and [to ensure] legal compliance.”

Castro also believes that differentiating themselves from what is already on offer has been central to the firm’s success and could be the key to LPO development in the region. “I believe that outsourcing legal areas is a great opportunity for Latin American companies,” she said. “This is the value we are offering – quality services with high expertise, it is not only cheaper outsourcing but a specialized outsourcing as well.”

Nevertheless, despite their promising starts, Novadios, Arias and Muñoz and other companies, such as Costa Rica’s NextLaw and El Salvador’s The Office Gurus, still seem to operating in isolation rather than blazing a trail for others to follow.

Jim Boeckman, a Texas attorney and LPO expert, blames the sector’s arrested development on two factors – a language skill gap and a lack of common law training (most Latin American countries have civil law systems). However, he said: “I think the first issue is real but the second is more of perception that can be dealt with appropriate training as to the needs of any particular client or project.”

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LPO companies already operating in the region agree the difference in legal systems is little more than a minor obstacle. At Novadios, young lawyers are trained in common law practices as soon as they join the company. “It is not that difficult to understand the differences and these are bright young lawyers who are able to ingest what sort of rules they are working under,” said Anderson.

Aside from these challenges, the main obstacle to LPO growth in Latin America may simply be loosening India’s grip on the sector. Having seen first-hand what it is possible to achieve in the region, Anderson believes Latin America’s time will come. “India is the region of choice right now, the region of the moment, it is very fashionable,” he said. “There’s only so much focus to go around and in the meantime we will continue to build and become a more robust presence and when the world does turn its attention towards Latin America, I think we will be positioned quite advantageously.”

For Jim Broeckman, though, if that moment is to arrive, Nearshore companies will have to think carefully about how best to capitalize on Latin America’s natural advantages.

“They’ve got a long way to catch up with the market presence and with the capital base of the top tier LPOs that have the lion’s share of the market today,” he said. “They are going to have to figure out what their niche is that isn’t being served or isn’t being served well where that time zone can really play to their advantage.”

Argentina’s Role

With a highly educated population, a large pool of English speakers and a developed outsourcing sector, Argentina has the raw materials for a thriving LPO sector. While costs are not as low as elsewhere in the region, Novadios’ success has shown it is still possible to offer a Nearshore alternative that competes financially and on quality. On the downside are a strained economy and a volatile political environment that has been putting foreign investors on edge in recent times.

Costa Rica’s Edge

As one of the most mature BPO and ITO markets in the Nearshore region, Cost Rica has the outsourcing experience and infrastructure to back an expansion into LPO. It also has an educated population and is reaping the benefits of the aggressive promotion of English language training schemes. So far, the pace is being set by NextLaw, a three-year-old operation with clients in the U.S. and Europe, whose cost structures are comparable to India.

El Salvador’s Rise

“El Salvador has over 30,000 lawyers driving cabs,” said outsourcing guru Gokul Agarwalla, who picked out the country as a prime candidate for LPO in an interview with Nearshore Americas earlier this year. It also has high bilingualism rates, strong cultural ties to the U.S. – where a quarter of the population live – and a steadily maturing outsourcing sector. However, with an economically active population of just 2.8 million people, El Salvador is unlikely to be challenging India for market share. In 2009, El Salvadorian BPO service providers, The Office Gurus, showed the way by teaming up with Florida-based law firm Tucker and Ludin to provide clerical and legal support services.

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