Is KPO the next big thing in India?

(This also appeared in the IIT Kanpur e-newsletter Avant Garde, Jan 2006 edition)
My 7th grade cousin was playing ‘One Word’ with me. It’s a game where one has to say one word to describe a given situation. He asked – “One word that changed the way youngsters work in India”. I really did not know the answer. As I went to bed that night, I felt disappointed. As an MBA student at an IIT, I should have known it. I thought a lot over it. And by morning I was looking for my cousin. I knew the answer – It’s BPO!
So what now? Should I feel too excited about it, or should I look at it with caution, or should I be confused like most of the others around?

BPO to KPO: What difference does it anyway make by replacing the B with a K? Well, it does! The difference is simple – you just move up the value chain of Outsourcing. In the BPOs there is a pre-defined way of solving a problem. The agent there works like a programmed machine who just knows what to say or do in a given situation. Needless to say such ‘human machines’ cost more in the west, so India becomes the obvious choice. A BPO would normally include jobs like voice and e-mail support, transaction processing, selling insurance policies, opening bank accounts, technical support etc. In contrast a KPO would involve high end processes that require a higher utilization of one’s innovation, skill set and hence educational specialization on the job. As Pavan Bagai, VP, EXL Services puts it: “Imagine unsorted data going through a black box and coming out as useful information. In KPOs the black box is your mind. There is no pre-defined process to reach a conclusion.”
The arrival of KPO to India is a sign that the Indian BPO sector has evolved and matured. The success in BPO operations in India has encouraged many firms to start outsourcing their high-end knowledge work as well. While the underlying objectives of outsourcing remain the same – cost savings, operational efficiencies, access to a highly talented workforce and improved quality, but companies now have more confidence in the intellectual ability of India looking at its past record of 5-8 years.

Some of the KPO services that would be outsourced to India are: Research & Development, Business and Technical Analysis, Learning Solutions Animation & Design, Business & Market Research, Pharmaceuticals and Biotechnology Medical Services, Writing & Content Development, Legal Services, Intellectual Property (IP), Research Data Analytics, Network Management and Training & Consultancy. Depending on how well India delivers in these fields and how do the global companies look at the Indian potential, it won’t be surprising to find Rocket Science in that list tomorrow!

Now and the Future: A recent study says that 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. Of this $12 billion (70%) would come to India. Although revenues in absolute terms would still be more from BPO (nearly double than KPO) but the per-capita revenue generation would be much higher in KPO. Further a KPO requires a higher understanding of how a client works. The contracts in KPO will be shorter than in BPO and would be more stringent on the quality of work delivered. Captive KPOs will therefore hold an advantage over third-party KPOs.
India and who else? With its large army of chartered accountants, doctors, engineers, MBAs, lawyers and research analysts India emerges as the first choice for KPO destinations. India will have more than 2.5 lakh KPO professionals by 2010. At present, the figures stand at 25,000. But there will be competition from Russia, Malaysia, Ireland, Czech Republic, Ukraine, Belarus, Israel and China among others. Together these countries may try to upset the Indian apple cart. This may largely happen due to the gradual rise in cost of outsourcing in India, as already seen in the case of low end operations.
But isn’t this Cost Arbitrage? Yes, it is. But so is most of software development. In fact a KPO is very similar to software development. By theory this must continue till the cost of these services in India becomes equal to that in the west, which is not going to happen in our lifetime. Not even in my 7th grade cousin’s lifetime!

Rohit Saini
MBA Class of 2007
IIT Kanpur, India