Scope and Future of Knowledge Process OutsourcingThe future of Knowledge Process Outsourcing (KPO) business in India presents an encouraging picture to rejoice for everybody in the country. Not only the scope of business opportunities shall give endless area for businesses to explore but also shall create lacs of jobs for the large amount of the talented and skilled workforce of engineers, MBAs, doctors, lawers and other professionals having skill in the core areas and computer knowledge.
We give below data published and prepared by various organizations which give a broad idea about the amount of the scope of business opportunities and potential likely to be created in the KPO sector in the immediate and long term future.
1. National Association of Software and Services Companies Study Report (NASSCOM):According to a published report of National Association of Software and Services Companies (NASSCOM), the chamber that serves as an interface to the Indian Software industry, Knowledge Process Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. Another report predicts that India will capture more than 70 percent of the KPO sector by 2010. Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also expected to join the KPO industry.In its annual publication Strategic Review 2005, Nasscom has said the high-end activity of the BPO industry—the KPO or knowledge process outsourcing could be worth $15.5 billion by 2010.According to earlier estimates, the BPO industry itself was expected to be about $20bn by 2008, hence a very significant portion of the sector—in excess of 50% is now projected to be knowledge based. This represents significant shift of call center sector business to different model.
2. Evalueserve StudyAccording to a recent study by “Evalueserve, an outsourcing company having service chart for global world, the global KPO market is expected to grow at a cumulative annual growth rate (CAGR) of 46 per cent, from $1.2 billion in 2003 to $17 billion in 2010. Compare this with the prediction for the low-end outsourcing services market. This is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8 billion in the same period.
Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT) services in 2003 and is expected to grow at a CAGR of 36 per cent during 2004 to 2010. Hence, it is likely to earn $30 billion in 2010 by providing these services. Says country general manager, Kelly Services, Achal Khanna “India still maintains the competitive advantage for providing, the combination of the most cost-effective and high quality manpower- this is India's strength in the off-shoring business”. The projections are based on a white paper released by Evalueserve. The paper cites reasons for a possible KPO boom. It says higher savings by outsourcing knowledge based activities combined with the scarcity of specialized talent in developed countries could lead to growth in the KPO sector. Billing rates for KPO are higher at $30-45 per hour compared to just $10-14 in the BPO business. However, the paper also warns of several challenges like higher quality standards, greater investments and inadequate talent.The study estimates that while the compounded growth rate of BPO till 2010 would be just 26% KPO is expected to be grow at almost 46%.
3. Rocsearch, a UK-based research services company StudyAnother study on Knowledge Process Outsourcing (KPO) sector shows a huge supply gap that threatens to cripple its growth. Rocsearch, a UK-based research services company, has gathered evidence suggesting that the KPO market may just about reach a size of $5 billion by 2010, manned by 100,000 people instead of projections of a $12 billion market supported by 250,000 employees.
This accentuates Nasscom's projections of a shortfall of 500,000 workers in ITES and BPO sectors by 2010. Assuming an average revenue per person of $55,000 over the next four years, 100,000 knowledge workers point to a $5 billion market. This size, though based on a CAGR of 32%, is still 60% less than the $12 billion potential projected by big KPOs, like Evalueserve, last year.Rocsearch COO, Ashish Sinha says the sector is restricted by low employability despite high graduate turnout, and competing demand from other sectors as jobs grow faster than the workforce.
For example, all the 2,000-odd IIM and top 10 B-School graduates are employable, while less than half the 84,000 graduates from Tier-II B-Schools would make the grade.
The study sees only 500,000 of the over 3 million workers added to the labour pool in 2005 as employable in global firms and of these, just 2 in every 100 are likely to opt for work in knowledge space.
In the future, it is envisaged that KPO has a high potential as it is not restricted only to Information Technology (IT) or Information Technology Enabled Services (ITES) sectors, and includes other sectors like Intellectual Property related services, Business Research and Analytics, Legal Processes Outsourcing, Web Development Application, CAD/CAM, Finance and Accountants Management and Consultancy, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO), etc.
Outsource2india Findings and Report on KPO"Over the past year or two, the outsourcing industry has been throwing up jobs for Doctors, Engineers, CAs, Architects," says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and offers services in the big-buzz, big-bucks area of knowledge process outsourcing. "Unlike the first wave which was more about entering data and answering phone calls, these jobs involve skill and expertise."
The high-end KPO opportunities are immense for Indian firms. For instance, look at some of the figures pertaining to intellectual property research.
Drafting and filing of patent applications in the US is quite expensive. A typical application costs about $10,000 to $15,000 to draft and file with the United States Patent and Trademark Office. Cost savings from offshoring even a portion of the patent drafting process can easily save up to 50 per cent of the cost for the end client, according to Alok Aggarwal, chairman of Evalueserve. According to Pangea3, the cost of 10 patents in USA is approximately $30000 whereas around 50 patents can be got filed by outsourcing the said activity at a cost of less than $10000.Also, of course, the talent is much more affordable. "Law firms in the US charge an average of $400-450 per hour, and we do the same work for $75 to $100 an hour" says Kamlani" who is an outsourcing provider in the same area.
Quite predictably, law business firms such as Patent Metrix, Cantor-Colburn and Schwegman, Lundberg, and Woessner & Kluth, have already established their offices in India.There are a few others who are associating with Indian companies to encash the emerging opportunity.
Offshoring R&D in pharmaceuticals and biotechnology is another area where there is enormous potential for KPO. Aggarwal says destinations such as India offer significant cost advantages (as much as 40 to 60 per cent) in the areas of contract research and clinical trials.
Companies such as AstraZeneca and GlaxoSmithKline have recently set up drug discovery centres at low-cost destinations to offshore R&D activities.
Chip design and embedded systems is another critical area. A paper presented by Aggarwal says the reason why all major integrated design manufacturers such as Motorola, Intel, Analog Devices, National Semiconductor, IBM, Cisco, Cypress Semiconductor, Nokia and Philips have set up offshore design centres is simple.
The compensation for a chip design engineer with a master's degree and five years' experience is about $7,000 a month in the US.An engineer with the same qualification and experience in India gets about $1,200 a month.
Naturally, the cost savings in KPO is enormous. For example, data-mining services companies can save as much as 60 to 70 per cent on analytics and inventory management costs by off-shoring them.The cost differential between PhDs/engineers in the US and India is almost $60,000 to $80,000.
Companies like Evalueserve, GE Caps, MarketRx have set up centres at low-cost destinations to provide these services. And more are expected to follow soon.
A major reason why companies in India will have no option but to move up the value chain from BPO to KPO is quite simple. By 2010, India may have become too costly to provide low-end services at competitive costs.For example, Evalueserve says Indian salaries have increased at an average of 14 per cent a year. If this trend continues, they are expected to increase 2.5 times the current salaries (in constant dollars) by FY 2010, thereby reducing the cost-arbitrage benefit from the present 40 to 25 per cent.This, the low-end work may move to relatively cheaper countries like Ukraine, the Czech Republic and Malaysia.
Moreover, commoditisation of BPO services will further boost the transition of present low-end destinations to the higher end of the value chain. The better margins expected at the higher end of the value chain might act as a deterrent for companies in accepting low-end work.
The number of professionals working in the offshore industry is expected to increase as more and more companies decide to become involved in BPO and KPO. This will further drive the trend towards the migration of low-end services to high-end services, especially as offshore service vendors (as well as professionals working in this sector) gain experience and capabilities to provide high-value services.
During 2000 to 2003, the US offshored 2,38,000 IT service jobs. Evalueserve predicts that this is likely to increase to 7,75,000 jobs by FY 2010.
Further, by the end of March 2004, the US had offshored about 1,36,000 BPO (non-IT) jobs, mostly in the call centre segment.
Forrester predicts that it is likely to offshore 1.314 million BPO (non-IT) jobs by FY 2010.