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Move over BPO, here comes LPO - Views on News from Equitymaster
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  • Dec 29, 2008

    Move over BPO, here comes LPO

    One man's meat is another man's poison, it is said. The legal process outsourcing (LPO) industry should know. At a time when many sectors are registering negative growth, LPO firms are growing by leaps and bounds. A tell tale indication is the amount of fresh recruitment in the sector.

    The epicenter of the global financial meltdown is the US housing sector. It has witnessed a record number of foreclosures this year. This is expected to result in a huge volume of legal work. The LPO sector is gearing up in anticipation of this opportunity.

    As per a leading business daily, LPO companies are scouting law college campuses for talent, but unlike their IT and BPO counterparts they are wary of bidding up cost to unsustainable levels. They realise that if US comes out of recession, the opportunity might turn out be less lucrative than expected. Hence, they are focusing on optimal capacity utilisation in terms of infrastructure and manpower from the very beginning. If they can stick to these principles in times to come, the future certainly looks bright for the sector.

    Airlines to cut prices
    Speaking of bright futures, it is well known that the airlines industry inherently suffers from very difficult economics. It has a tough time coping with input costs, mainly fuel, as well as the lack of pricing power, given the travelers sensitivity to fares. Not to mention the capital intensive nature of operations.

    In recent times, air carriers in India were reeling under record jet fuel costs. Now that those costs have tumbled due to a crash in crude oil prices, the lack of pricing power is coming to the fore. As per a leading business daily, Kingfisher Airlines has announced that it will slash fares in the coming year. Jet Airways had taken a similar decision. Air India is also contemplating a similar move. In fact, most airlines have already cut the fuel surcharge by Rs 400.

    While this is good news for the consumer, an investor should be wary of companies which suffer during bad times but are unable to recoup losses when the tide turns. It is also a matter of concern because capital formation is discouraged in such sectors. Indian infrastructure needs all the capital it can get.

    Satyam's board wakes up
    An independent director on Satyam's board recently owned the moral responsibility for the recent debacle and resigned. Some others are now trying to bring about a turnaround in the company's image by taking radical steps like change of management, seeking a takeover etc. While it remains to be seen how it works out, the entire episode highlights the importance of the saying, a stitch in time saves nine. Satyam has a lot of stitching to do now.



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