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Their processes, our minds

KPO cannot achieve its potential in India if attrition rate remains close to that in BPO, writes Alok Aggarwal. Pay & perksIn '06-11 | BPO vs KPO

business Updated: Aug 02, 2007 11:31 IST
Alok Aggarwal

If BPO is juicy, KPO is juicier. BPO is about repeatable processes that can be done on a large scale to lower costs for clients. KPO is about in-depth work, tailored to a client in close contact, often involving high skills and analytical work — and, therefore, higher billing rates.

During the late 1990s, the success of information technology and business process outsourcing to low-wage countries like India and the resulting cost savings prompted several multinational companies to experiment with outsourcing higher-end knowledge-based work.

The term ‘knowledge process outsourcing’ (KPO) was coined by Evalueserve in 2003. It published the first article on this industry, which estimated its potential market size to be $17 billion worldwide and $12 billon for India (by 2010-11). Since then, KPO has been used to refer to those outsourcing activities that require significant domain expertise — for example, market research, business research, investment research, and data mining — and it has found its way into the global outsourcing industry’s lexicon.

At present, at least 12 firms providing such services have KPO as part of their name. There are at least five annual conferences worldwide that are solely about KPO; about 120 captive units of large multinationals are providing KPO services to their offices in North America and Europe; the majority of the mid-sized and large IT and BPO companies in India have a KPO division; and there are over 280 companies in India providing niche, third-party KPO services.

Given this rapid growth in the Indian KPO industry, there are abundant career opportunities for fresh university graduates or post-graduates, as well as experienced professionals.

Getting a grip on the present

Not surprisingly, experienced professionals can leverage their expertise to generate more revenues for the KPO firm. Such professionals can earn anywhere between $75 and $125 per hour in the US, Canada or the UK and between $20 and $60 in India. Clearly, the more experience its professionals have, the more the firm can earn. For example, an Indian telecom expert with 10 years of experience can easily fetch up to $60 an hour, whereas a corresponding professional with two years of experience only fetches about $30.

Since expertise is the key factor, not only companies but also countries can easily differentiate themselves on its basis. The countries that will emerge as strong contenders in the KPO business are those that have large numbers of engineers, medical doctors, graduates in sciences and technology (including biotech and pharmaceuticals), MBAs, certified financial analysts, accountants, statisticians, lawyers, etc. Low-wage countries that seem to have these professionals in large numbers include India, China, Russia, the Philippines, Poland and some other East European nations.

According to Evalueserve’s research, the revenue earned by the KPO industry worldwide was approximately $1.2 billion in 2003-04 and $4.4 billion in 2006-07; this implies an annual growth rate of 54 per cent. Further, offshored KPO work employed about 34,000 and 106,000 professionals in 2003-04 and 2006-07, respectively.

Our forecasts also show that the industry is expected to grow to $16.7 billion in revenues in 2010-11 worldwide, at an annual growth rate of 39 per cent during the next four years; and it would employ 350,000 professionals globally.

The number of KPO jobs in high-wage countries that can potentially be sent offshore is more than 11.5 million. Hence, even if the KPO industry ends up employing 350,000 in 2010-11, it would represent less than 3 per cent of the jobs that can be potentially offshored.

Looking at the horizon

Our research predicts that the KPO industry in India will grow to $11.2 billion by 2010-2011 and will employ approximately 255,000 professionals by March 2011. Although this industry had only 9,000 billable professionals in India who generated total revenues of $260 million during 2000-01, this had grown to 75,400 by 2006-07 and combined billings of $3.05 billion.

But employee turnover has been a key problem for Indian KPO companies. If the attrition is not controlled properly within the KPO industry in India then this growth may be stymied, and this industry may not be able to generate more than $9.9 billion in revenue (or employ more than 225,000 professionals) during 2010-11.

The sector’s rapid growth has become a double-edged sword. On one hand, this has created lot of opportunities for KPO professionals; on the other, it is increasing domain problems for the companies in the industry. India needs to ensure that this attrition does not become a bigger problem. We have to mind that there is competition for employers and employees alike.

The author is co-founder and chairman of Evalueserve, a US-based KPO company.