KPO: Moving towards third party outsourcing

Knowledge process outsourcing industry in India is poised to head towards being a $12-14 billion market by 2012. The trend in this fragmented industry is towards moving captive services to third-party outsourcing as large IT services firms are set to take to this wave. While large IT services providers are better placed, some tier II companies are making a mark operating in niche segments.

The Managing Director of Deloitte Consulting, Sam Balaji, said these are exciting times for the IT industry and present a tremendous opportunity for growing at about 40-50 per cent per annum. While the KPO industry itself is projected to grow to about $17-18 billion by 2010, we expect India to garner a big chunk of this market, potentially $12-14 billion.

Speaking at a national event on "From BPO to KPO" organised by the Nasscom here today, Balaji said the largely fragmented KPO currently engages about 25,000 people and has the potential to employ 2.5 lakh by 2010. However, this calls for economics of skill and not scale as in other areas such as BPO.

"Indian technology companies need a paradigm shift in the way they do business bringing in a lot of consultancy expertise to offer these services. The build, own and transfer model will continue to fuel this growth as companies deliberate seriously before outsourcing this function," Balaji said.

The Vice-President of Evalueserve, Mohit Srivastava, said the KPO industry in the country is estimated at about $1 billion. Both demand side requirements and supply side pulls are fuelling its growth. Indian knowledge workers have clear edge. KPO services can reduce design times, manage hardware efficiently and provide research on markets thereby helping in informed-decision making.

The Associate Director of Knowledge Services at WNS, Mudit Kulshreshtha, said KPO is not a natural progression to BPO. This has gradually emerged as a huge opportunity for Indian manpower given the consolidation witnessed in the industry. The deal sizes too have increased. While the Gesics deal was worth about $500 million, IBM-Daksh was $120 million and Citibank Eserve was about $100 million, reflecting the changing patterns in the industry landscape.

The KPO services fetch higher returns than the BPO deals offer. However, this calls for high investments. The high income and associated investments in KPO translate into the higher revenues bringing in a multiplier effect, Kulshreshtha said.

The Managing Director of Kale Consultants, Vipul Jain, said: "Kale was a predominantly a products company, which chanced upon the KPO handling transaction processing. As we partner companies, companies seek to outsource more and more services if they are convinced about the deliverables".

The Chief Executive Officer of SciTech Patent Art Services, a company that helps companies offering patent related services, Uma Parameswaran, said increasingly companies are concerned about data security related issues. Once they are sure that their valuable information is secure, they do not hesitate to outsource. In fact, some of them demand a separate server to host their invaluable information.

The Vice-President of Satyam Computer, Sridhar Srigiriraju, said cross selling of services offers great opportunity in KPO. This is being addressed through the business intelligence and data warehousing division of the company.