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Knowledge Process Outsourcing 170708 PDF
Knowledge Process Outsourcing 170708 PDF
CONTENTS
KPO Industry in India 2
Emerging Trends 12
India Advantage 13
Indian KPO Industry – Evolution sent to the client. In contrast a KPO vendor functions at
a different level viz, as follows: KPO focuses on delivering
The evolutionary phases of the Indian KPO industry are very value-added services to the clients. Its prime objective is to
similar to that of the Indian IT industry. Activities related to provide clients with useful insights that may assist them in
IT offshoring/outsourcing commenced in India in the late their strategic decision making process.
1980s. During this period, foreign companies such as IBM, • KPO companies provide knowledge-intensive work and
Texas Instrument, Motorola, HP, etc preferred establishing engage highly skilled professionals such as MBAs, CAs,
captive centres in India. A few third-party players were also CFAs, engineers, PhDs, doctors, lawyers, etc.
active in India during this period. Subsequently, the number • Training is an essential component of the KPO industry.
of IT vendors in India increased with more companies As the market is highly dynamic, one has to keep abreast
venturing into IT. The Nascent KPO industry is following with the latest trends, technologies and developments.
the footsteps of the IT industry. Both industries started with KPO professionals continuously hone their skills through
captives, and subsequently saw the rise of vendors. rigorous training plans.
KPO will follow the IT model with a time lag of 10 years. • Hourly charge rates for KPO services are significantly
higher. The number of players in the KPO domain is also
Evolution of IT and KPO Industries in India
less as compared to the BPO industry. This results in less
Indian vendors
surpass
congestion in the KPO market, which eventually translates
Globalisation
and domain
captives into better profit margins.
specialisation
Rise of of services
Overall, KPO creates value for the client by focussing on
Indian KPO
Arrival of domain expertise rather than process expertise.
vendors
Western
captives Indian vendors KPO Services vs BPO Services - A Comparison between
Expansion surpass Different Industry Segments
of Indian captives
Rise of Vendors
Indian BPO KPO
Arrival of vendors
Western Insurance Contract centre Claim analysis Underwriting
Captives and customer and asset
support management
1985 1990 1995 2000 2005 2010 2015 Consulting Back office Global research Synthesised
support reports
n IT Industry n KPO Industry to clients
Source: Evalueserve I-Bank Settlement Financial Equity research
analytics
Pharma/ Contact centre Patent design IP portfolio
Although KPO and BPO sound synonymous, they are Healthcare and customer analytics
support
involved in activities which are completely different. In the
Telecom/ Contact centre Analytics Strategy
BPO sector, the vendor acquires a process from the end- Retail/etc. and customer research
client and runs it at its site until the process reaches its support
logical conclusion, after which the results, if any, are then Source: Evalueserve
K no w l e d g e P ro c ess O utsour c in g
Indian KPO vendors operate mainly through three business Virtual Captives
models, i.e., captives, third-party and virtual. The selection
of a business model depends on many parameters such Virtual captive centres have both the functionality of
as the complexity of the work, internal competency levels, captives and third party service providers. It is a hybrid
nature of business (core or non-core) and costs involved. business model. There is no upfront investment undertaken
by the parent company in establishing the centre as in a
Captive Centres captive centre. This centre acts as an overseas resource
centre for a client in the third-party service provider setup.
In a captive centre set-up, a multinational company The major advantage of virtual captive is that, it provides
establishes its dedicated operations in countries offering higher quality of services involving higher transparency,
high talent availability and low cost of operations. Captive control and security. The clients are usually willing to pay a
centres cater only to the requirements of the parent premium for virtual captive services.
MARKET & OPPORTUNITIES
Indian KPO industry is witnessing a significant growth The following are some of the major services that are
of third-party service providers with respect to captives. currently being provided by KPO players:
The prominent reasons include the range of services, cost
advantage and scalability which is driving higher growth of With India becoming an important player in the KPO
industry, the range of services being outsourced is
Knowledge Process Outsourcing Business
Models in India continuously increasing.
HIGH
• ata management, search and analytics
D
• Contract research and biotech.
Third-party Virtual Captives • Engineering design
Service Captives • Remote education and publishing
Provicers
• Animation and gaming services
• Banking, securities and insurance
• Market research and competitive intelligence
• Scientific and medical content publishing
• Business and consulting research
LOW
LOW Management Control HIGH • Network optimisation and analytics
Source : Evalueserve • Legal research and IP
• Translation and localisation
third-party service providers. According to a study by Everest • Remote logistics services and procurement
Research Institute, third-party service providers are 5 to 15 per • Human resource research and analytics
cent less expensive than their captive peers, in terms of the • Marketing and sales support
total cost of operations.
The seven largest segments of the KPO industry in terms
Major Segments of KPO Industry of revenue are described below:
The Indian KPO industry is estimated to be worth US$ 3.05 Data Management, Search and Analytics
billion in 2006-07. Indian players provide a wide range of
solutions to diverse industry segments such as FMCG, Data Management, search and analytics services include
engineering, automobile, telecom, R&D, banking and information regarding the market, competition, products
financial services, insurance, etc. It is expected that in the and services, customers, etc. These services assist clients in
coming years both the volume and complexity of the work gaining a better understanding of their business issues and
being outsourced to Indian KPO players will increase. developing effective solutions to mitigate these. This service
segment is availed by a large number of clients across
KPO Services Outsourced to India industries such as FMCG, telecom, banking services, etc.
A clear understanding of the subject, an in-depth
Product development, R&D, knowledge of the industry and specialised software such
simulation services, engineering as SPSS, SAS, etc., facilitate the provision of insightful data
design services
to the clients. Some of the major data analytics services
Biotechnology research, legal services, employed by KPO firms include the following:
intellectual property research, engineering • Customer analysis (mainly used for FMCG companies,
services
telecom operators, insurance firms, banks, etc.)
Business and technical analysis, business and market research, • Supply chain analysis (mainly used for manufacturing and
data analytics, software development, animation services, logistics firms)
pharmaceutical research, content development
• Retail analysis (mainly used by FMCG companies to
2006 2008 2010 2012 understand the buying behaviour of customers)
Source: Evalueserve
K no w l e d g e P ro c ess O utsour c in g
Contract research is among the fast-growing segments in Engineering design outsourcing or Engineering Services
the biotech and pharma R&D domain. Outsourcing (ESO) as it is popularly known refers to
the outsourcing of engineering-related work to other
The growth of the global healthcare and pharma companies to leverage the differential cost advantage. For
industry has been hindered by high development costs, example, an intensive automotive design involves US$ 800
lower number of unique molecules discovered, increased per man hour in Europe as compared to US$ 60 per man
development timelines and dynamic market conditions. hour in India.
These factors expose the industry to high risks as a large ESO involves the outsourcing of activities ranging
number of investments are involved in research-related from design to production and maintenance. The major
activities. Currently, the outsourcing of research and industrial sectors benefiting from ESO include automotive,
development work seems to be a viable option available aerospace, hi-tech/telecom, utilities and construction/
to mitigate the risks involved. India has been receiving industrial machinery. Apart from India, other countries that
substantive works in the biotech and pharma fields. have developed expertise in ESO are Canada, China, Mexico,
and countries in Eastern Europe.
India offers a strong advantage in clinical research and trials Earlier, the quality of work outsourced to India was low-
due to the following factors: end engineering and design work. However, the availability
of a versatile, high-quality workforce at a low cost has
- A
vailability of a large and diverse patient pool resulted in ESO work moving up the outsourcing value
- R
educed time for data analysis chain, from design work using computer-aided design
- A
vailability of large skilled workforce (CAD) to high-end engineering activities. The figure below
depicts the transition of ESO services in India:
India’s success in contract research and biotech
ESO Vendors in India
outsourcing can be attributed to the confluence of KPO Services in the Engineering and Design Segment
several factors such as a high degree of support from the
1980s 1990s Onwards
government, low cost, highly skilled professionals (scientists
- S canning and digitisation of - 2 D and 3D modelling
and research personnel), a large number of patients from engineering drawings - Finite element analysis
diverse backgrounds and quality infrastructure. Further, - Migration of CAD work from - Computerised fluid dynamics
one system to another analysis
the Indian contract research and biotech KPO firms have - Technical specifications for
established strong position in contract research, generic tenders
- Value engineering
research and manufacturing, and innovative product - Process simulation study
developments. - Prototyping
- Product performance testing
Pharma research relates to innovative drug discovery, through virtual simulation
drug development, generic manufacturing, contract - Research and development
- Engineering design and
manufacturing, etc. Contract manufacturing services detailing
outsourced to Indian vendors include clinical development
services, bioavailability, bioequivalence, clinical trial Industries being catered are : telecom, utilities, heavy engineering,
automotives, aerospace and electric/electronic machinery design
management and monitoring, data management offerings,
Source : Evalueserve
etc. It is estimated that there are approximately 400 large
and small pharma companies operating in India, which cater
to the domestic demand while fulfilling the outsourcing IT companies are gearing up to take advantage of the ESO
requirements of global players. services potential in India.
companies such as the Ford Motor Company, General particular geography by directly associating (joint venture
Motors, Boeing and Airbus are offshoring their engineering operations) with the schools, for example, Educomp
and related works to Indian companies. Some of the Datamatics.
prominent examples of ESO work undertaken in India are • In the retail services model, the company provides services
mentioned below: in a specific geography through a tutor base in India – for
• I nfosys played a pivotal role in developing a portion of the example, Growing Stars.
Airbus A380 wing
• H CL Technologies provided software and hardware Writing Content and Publishing
development services to Boeing’s 787 Dreamliner project
• TCS provides IT and engineering services to Ferrari for the Since publishing is time bound, labour intensive and process
development of F1 racing cars specific, offshoring it to developing countries results in cost
Further, many semiconductor and electronic goods advantage to companies. Approximately 40-50 per cent
manufacturing companies and mobile handset vendors costs can be saved by outsourcing publishing work to India.
are also leveraging ESO opportunities. Indian markets Further, Indian vendors are also leveraging the technology
basically offer two categories of players, i.e., captive units effectively to re-engineer the processes and improve the
and independent services providers. turnaround time.
The main market target segments of offshored
ESO Vendors in India
publishing services include publishing houses, educational
Captives Independent Vendors
institutes, information aggregators, professional societies,
- echtel
B - T ata Consultancy Services
government agencies, universities, corporations, etc. Many
- Flour Daniel - Wipro Technologies
- Ford - Satyam Computer Services large content developers such as Reed Elsiever, Blackwell,
- Daimler Chrysler - HCL Technologies
Academic Press, University Press, Thomson Learning,
- General Motors - Infosys
- Caterpillar - Rolta McGraw Hill, etc., are outsourcing publishing related work
- Texas Instrument - Eicher Engineering Solutions to India.
- Motorola - Mahindra Engineering
- Intel - Neilsoft
- Nokia - Geometric Software
Remote Education and Publishing The increase in the global demand for animation
content is accompanied by a corresponding increase in
Remote Education the outsourcing of creative content development. By
outsourcing, companies can save approximately 40-60
India is an attractive destination for work related to remote per cent of the cost associated with animation content
education due to the availability of a large number of development.
professionals at a low cost as compared to major markets Indian animation services have witnessed a broad
such as the US. Various companies that have ventured into transition in services from merely data cleaning to
offshore education services and are currently expanding content development. Some of the major international
their operations to utilise the untapped potential production houses are outsourcing animation and related
Companies operate in the remote education segment work to Indian companies such as Toonz Animation, Crest
through three different models, subcontract model, direct Communication, Maya Entertainment, UTV Toons, etc.
model and retail services model. The in-house production of animation movies/content
• I n the subcontract model, the company collaborates with is another trend that is fast gaining in popularity in this
another company in a particular geography and provides service domain.
its services in that region through that company, for The companies operating in India function through the
example, Career Launcher collaborating with eSylvan, following three different business models, based on their
Smart Thinking, tutor.com, etc. level of engagement with the project/partner.
• I n the direct model, the company provides its services in a • In-house production – Animation studios create their own
K no w l e d g e P ro c ess O utsour c in g
animation content and market it to global companies. Market Research and Competitive Intelligence
Studios developing the content own the IP rights and thus
earn revenues from royalties and the sale of the content. McKinsey Knowledge Centre (McKC) supports its global
• O
utsourced Animation – Such animation studios primarily research-related activities from its centre in India.
cater to the requirement of global companies. The content
is developed as required by the global company that also The offshoring of market research services commenced
holds the IP for it. The content development company to with data collection and data cleaning. However, market
which the work is outsourced earns revenues on a per- research service vendors started receiving high-end MR
hour per-project basis. work such as industrial and customer surveys, data analysis
• C
ollaborative Animation – It involves multiple animation through statistical tools and techniques, report and
studios that develop the content collaboratively. The IP presentation preparation, etc. Therefore, a clear shift from
rights are shared among the companies involved. information gathering to knowledge-intensive operations
became obvious. Some of the prominent companies
operating in India in the market research domain include
Banking, Securities and Insurance AT Kearney, Bain & Co., Evalueserve, Monitor Group, Everest
Group, AC Nielsen, Pipal Research, Irevna, etc.
Equity research captive centres in India
- JP Morgan
- Standard Chartered
- Goldman Sachs
- ABN AMRO
- Lehman Brothers
different service segments require a different skill-set and Data capture, data
industry experience. Some of the major skill set required
E- learning Instructional design, content
are listed below:
Some of the KPO players have diversified their service Creating story boards
KPO Market Size 2006-07, the number of billable professionals had increased
to approximately 75,000 employees, who were responsible
Although the KPO industry evolved during the mid 1990s for generating revenues of US$ 3.05 billion. Thus, during the
in India, its growth phase only started after 2000-01. 2001-07 period, the industry witnessed a CAGR of 51 per
According to Evalueserve, during 2000-01, the KPO industry cent in revenues and 43 per cent in the number of billable
in India consisted of only 9,000 billable professionals who professionals.
generated total revenues of US$ 260 million. However, by
By 2010-11, the contribution of the Indian KPO sector
Indian KPO Industry - Market Size
to the global KPO industry will be in the range of
(2001-07)
65-70 per cent.
2006-07 3.05
2003-04 1.08
2010-11 11.2
2002-03 0.72
2009-10 8.8
2001-02 0.41
2008-09 6.3
2000-01 0.26
2007-08 4.4
It is estimated that by 2010-11, the Indian KPO market data management, search and analytics segments. By 2011,
will be valued at approximately US$ 11-12 billion. According it is estimated that the animation and gaming services
to recent forecasts by Evalueserve, the industry will witness segment along with engineering design will employ a large
a CAGR at 38 per cent in revenue and 36 per cent in the number of professionals.
number of billable professionals during the next four years.
Growth in Number of Professionals - Indian KPO Market
2006-11
2006-07 2010-11
KPO Services Segment’s Contribution
Data Management, Search and Analytics 15,000 60,000
to the KPO Market
Contract Research and Biotech 15,000 50,000
Remote Education and Publishing 9,000 25,000
Data management, search and analytics services and
Engineering Design 8,000 21,000
contract research services form the largest segments
Animation and Gaming Services 7,000 22,500
in the KPO industry. The legal services and intellectual
MR and Competitive Intelligence 4,500 12,000
property outsourcing services segment is expected to gain
Banking, Securities and Insurance Research 3,500 12,000
momentum in the near future. A substantial growth is also
Business and Consulting Research 3,200 11,000
predicted in various segments such as HR research and
Network Optimisation and Analytics 3,100 9,000
analytics, marketing and sales support, contract research Legal Research and IP 2,500 12,000
and biotech, data management and search and analytics.
Translation and Localisation 2,000 9,000
Remote Logistic Services and Procurement 1,100 4,000
Growth in India KPO Market Size HR Research and Analytics 600 2,500
by Services Segments: 2006-11 (US$ million)
Marketing and Sales Support 500 3,000
2006-07 2010-11
Scientific and Medical Content Publishing 400 2,000
Data Management, Search and Analytics 590 2,510 TOTAL 75,400 255,000
Contract Research and Biotech 570 2,500
Source: Evalueserve
Engineering Design 315 1,000
Remote Education and Publishing 290 1,000
Animation and Gaming Services 245 950 The following are the three sectors that are set to register
Banking, Securities and Insurance Research 185 600 a substantial growth:
MR and Competitive Intelligence 175 450
Scientific and Medical Content Publishing 165 450 Banking, Securities and Insurance Research Services
Business and Consulting Research 125 450
Network Optimisation and Analytics 125 400 This sector currently employs 3,500 billable professionals,
Legal Research and IP 95 360 out of which approximately 1,100 are involved in insurance
Translation and Localisation 85 160 research as well as in research related to risk management
Remote Logistic Services and Procurement 40 150 for credit card and capital leasing companies. The remaining
HR Research and Analytics 25 120 2,400 billable professionals help sell-side and buy-side
Marketing and Sales Support 20 100 analysts in bulge-bracket banks (e.g., Citigroup, Merrill
TOTAL 3,050 11,200 Lynch, Morgan Stanley and JP Morgan), mid-tier M&A banks,
independent research providers, hedge funds, mutual
Source: Evalueserve
funds, pension funds and private equity groups. This sub-
sector is expected to witness an increase in revenues from
Professionals Employed in KPO Service US$ 185 million in 2006-07 to US$ 600 million by 2010-11.
Segments
Contract Research Organisations and
The growth in the number of KPO projects is indicative Bio-Pharmaceutical Services
of an increasing demand for professionals. Currently,
professionals are mainly absorbed in the contract research, As a result of the cost pressures involved in the research and
K no w l e d g e P ro c ess O utsour c in g 11
Emerging Trends
India Advantage
KPO centres have flourished predominantly in those areas On the basis of these parameters, the following figure
which already house IT centres mainly because the skill-set compares various locations in India:
requirements for both industries are similar. The centres
Ranking of different Cities on listed Parameters
that have developed as KPO hubs in India include Mumbai,
Hyderabad, Delhi NCR, Pune, Bangalore and Chennai. Infrastructure Cost Manpower
Being the financial capital of India, Mumbai has attracted Delhi NCR Pune Mumbai
a number of KPO players providing knowledge services in Mumbai Delhi NCR Delhi NCR
the investment research domain. Bangalore Hyderabad Hyderabad
Research Services The Indian KPO industry comprises four different types of
Mumbai
Pune • UBS vendors on the basis of their operations or the initiation
Hyderabad
• Date Monitor of operations. The following are the different categories of
vendors:
Bengaluru Chennai Engineering Services • BPO companies venturing into the KPO services domain
Biotech/Pharma • GM (eg., Progeon, WNS)
• Biocon • TCS
• Individual companies providing specialised services locally
Source : EVS Analysis and globally; captive centres included in this segment
(e.g., Evalueserve)
KPO vendors use various parameters to select a location for • Highly specialised groups of individuals offering
setting up a centre in India, which include the following: specialised services to global markets (e.g., the Pharma
• I nfrastructure: Roads and IT infrastructure research team)
• M anpower: Availability of skilled talent and presence of • Individuals residing at one place providing their services
educational institutions inputs to a process elsewhere (e.g., a mathematics tutor)
• E xpenses: Cost of employees and operations
K no w l e d g e P ro c ess O utsour c in g 17
Disclaimer
This publication has been prepared for the India Brand Equity
Foundation (“IBEF”).