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Archive for August, 2009

The global recession is beginning to end. Asia is beginning to recover: South Korea, Taiwan, and India are doing very well. Some countries outside are also faring better, and we’re beginning to see commonalities as to why. In this post, I’ll point to two examples.

The first is from the Economist, Aug 8-14, on the strength of the German economy:

Germany’s economic machine is made of honest iron and steel, not subprime mortgages, collateralised debt obligations and other financial chicanery. Having been concocted in Wall Street and the City of London, the crisis, it is said, has proved the merit of Germany’s solid social-market economy.

The second insight is about Brazil, which was “one of the last [countries] to enter recession and now looks like being one of the first to leave it.” The ingredients are:

  • responsible economic policies, ignoring pressures from left-wing Workers’ Party.
  • insistence on “rational economics” and free trade, and.
  • “ambitious social policies have helped to lift 13m Brazilians out of poverty; searing inequalities of income are narrowing steadily.”

See any commonality? Social safety nets. Social policies–public support for good health, good education, minimum income, and crisis assistance. In fact, this insight is supported by decades of serious research. (I will write about that in another post.) And it’s not just policy (frequently and stupidly derided in the US as big government), but an economic culture that is thankfully more social-ist.

In America, of course, sustaining social support needs an astonishing amount of selling, so much so that the government finds it easier to bail out big investment banks and big insurance companies, whose criminally-negligent incursions into risky financial products helped create the crash in the first place, than extending funds for a sound healthcare system. Funds for public education, similarly, have been difficult to come by for years.

Yes, in the end big banks got us in the mess, and as Paul Krugman says, big government has saved us. But that’s true if “save” = “getting worse more slowly.” 

If saving = learning so that the next recession may be less of a surprise, then it’s another story. The American style of capitalism–the type that has prioritized home ownership over thrifty spending habits as the mark of success, and typically promotes the likes of Rumsfeld and Paulson as the main shapers of fiscal priorities–is sure to not learn well from this recession. The priorities of the economic culture of Brazil and Germany are quite different.

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Note: A fuller version of this article was published as “India’s Edge in Legal Process Outsourcing” on August 10, 2009, in China Daily. It was co-authored with Matthew Sullivan, a principal at Red Bridge Strategy, where he leads the LPO Advisory Practice.

Despite the global export slump, India’s emerging Legal Process Outsourcing (LPO) industry has been booming.

In the last 12 months, the LPO sector in India has reported 200 percent growth, unaffected by the economic crunch.
LPO revenues grew from $80 million in 2006 to $225 million in 2007, and are expected to reach $640 million by 2010.
Just a few years ago, there was virtually no industry called LPO.
Some multinationals such as GE and Microsoft, which had become comfortable working in the Indian environment, decided to experiment with the use of English-speaking Indian lawyers to process legal work in other jurisdictions.
Local vendors quickly adapted India’s tested outsourcing model to offer routine legal services such as e-discovery and document review.
And so began the growth of the LPO industry.
Noting India’s success in offshore services, China has been trying to grow its own footprint in the industry, especially since 2000.
But China has managed to get only 10 percent of the world’s share of outsourced services, compared to India’s 37 percent.
If China wants LPO coming its way, it will need to pay attention to four factors that helped the process grow in India.
The first, of course, is India’s command of English, the language of not just LPO but most offshore industries.
The Indian legal system, in addition, is built upon the British system, which makes Indian lawyers familiar with Western legal concepts.
Thanks to the government’s emphasis, 200 million Chinese are now learning English. But getting trained in the law in English is a different game and will require decades of sustained effort.
A shortcut, though expensive, might be government sponsorship of Chinese graduates to attend English-speaking law schools in the region, including those in South Asia.
Second, India’s federal and state governments have invested heavily in the economic infrastructure of IT and business process outsourcing. LPO uses the same infrastructure.
China has made strides in IT infrastructure, as well, but Chinese outsourcing firms are still small compared to Indian giants like Infosys and Wipro.
The influence of Chinese outsourcing firms over State policies and resources is also correspondingly smaller.
Third, even though LPO can offer savings of 30 percent to 70 percent for Western firms, many have yet to come on board because of concerns about information and data security.
Any vendor that wants to win business must maintain the confidentiality and sanctity of privileged attorney-client information.
As long as the Chinese government remains interested in controlling Internet activity, India will retain a big advantage.
Finally, the Indian government has undertaken worldwide campaigns to showcase India’s strengths to reduce investor sensitivity to economic and political risks.
Successive campaigns, from BJP’s much-criticized “India Shining” to the current “Incredible India” initiative, have ensured that Indian policymakers make frequent friendly visits to Western countries, and that each visit is accompanied by productive discussions and events with bankers, investors and trade organizations.
India’s success in LPO came from a regional competitive strategy that weds skillful private entrepreneurship, wise economic policy and strong public diplomacy.
While China has a stronger infrastructure than India, it will probably need to rethink some aspects of its political and diplomatic strategies if it wants to wrest a bigger share of the lucrative knowledge-based services market.
Jalal Alamgir, Ph.D., is the author of India’s Open-Economy Policy (London: Routledge, 2009), and teaches international relations at the University of Massachusetts, Boston. Matthew Sullivan is a principal at Red Bridge Strategy, where he leads its LPO Advisory Practice.

In the last 12 months, the LPO sector in India has reported 200 percent growth, unaffected by the economic crunch. LPO revenues grew from $80 million in 2006 to $225 million in 2007, and are expected to reach $640 million by 2010.

Noting India’s success in offshore services, China has been trying to grow its own footprint in the industry, especially since 2000. But China has managed to get only 10 percent of the world’s share of outsourced services, compared to India’s 37 percent.

If China wants LPO coming its way, it will need to pay attention to four factors that helped the process grow in India.

The first, of course, is India’s command of English, the language of offshore industries. The Indian legal system, in addition, is built upon the British system, which makes Indian lawyers familiar with Western legal concepts.

Thanks to the government’s emphasis, 200 million Chinese are now learning English. But getting trained in the law in English is a different game and will require decades of sustained effort. A shortcut, though expensive, might be government sponsorship of Chinese graduates to attend English-speaking law schools in the region, including those in South Asia.

Second, India’s federal and state governments have invested heavily in the economic infrastructure of IT and business process outsourcing. LPO uses the same infrastructure.

China has made strides in IT infrastructure, as well, but Chinese outsourcing firms are still small compared to Indian giants like Infosys and Wipro. The influence of Chinese outsourcing firms over State policies and resources is also correspondingly smaller.

Third, even though LPO can offer savings of 30 percent to 70 percent for Western firms, many have yet to come on board because of concerns about information and data security.

Any vendor that wants to win business must maintain the confidentiality and sanctity of privileged attorney-client information. As long as the Chinese government remains interested in controlling Internet activity, India will retain a big advantage.

Finally, the Indian government has undertaken worldwide campaigns to showcase India’s strengths. Indian policymakers make frequent friendly visits to Western countries, and each visit is accompanied by productive discussions and events with bankers, investors and trade organizations.

India’s success in LPO came from a regional competitive strategy that weds skillful private entrepreneurship, wise economic policy and strong public diplomacy.

While China has a stronger infrastructure than India, it will probably need to rethink some aspects of its political and diplomatic strategies if it wants to wrest a bigger share of the lucrative knowledge-based services market.

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