After Conquering the BPO Wave, India is Ready to Flourish in the KPO Sector

chillibreeze writer — Deepa Doraiswamy

Outsourcing – this is by large the most uttered word today, right from global corporates during their business planning to being the butt of school and household jokes. The rapid proliferation of globalization and liberalization has revolutionalized global business as it is conducted today. Regional market boundaries have been erased, compelling all closed economies to open their markets for global trade and business. This being viewed as a very healthy sign for the global economy has paved way for the conception and implementation of new business models such as outsourcing.

Dawn of BPO

The sustenance and success of any business is determined by its cost competitiveness and time-to-market window. Companies across the world are constantly striving to devise business models that will enhance the efficiency of these two critical parameters. The origin of the outsourcing business model is a culmination to this effort. Companies identified outsourcing a part of their business functions to cheaper locations overseas that have an abundance of skilled labor and necessary infrastructure, aided in significantly reducing their operational expenses and in improving their return on investments. It also resulted in a faster turn around time as the outsourcing arrangement resulted in a round-the-clock, 24/7 business model. India, China, Malaysia, The Philippines, Russia, Eastern European countries and a few Latin American countries were identified as ideal targets for outsourcing locations by more developed economies. India with its wealth of English speaking, skilled and talented unemployed youth became the most sought after destination for business process outsourcing during the mid and late 90’s when the outsourcing industry was gaining pace globally.

India Rules the BPO Roost

The late 90’s witnessed a surge in the services sector of the Indian economy with numerous BPO centers for global conglomerates emerging in all the metros. From technical customer support to bill handling to medical transcription services to banking back-end operations to insurance services, BPO put India on the world map and identified that it was a force to reckon with in the post-globalization world. BPO services in India initially started with email and voice only customer support services that later led to the mushrooming of numerous call center hubs across the length and breadth of the country. While this created employment opportunities for numerous graduates and part time job seekers, there was a progressive transition of these call centers into more professional outsource service centers offering specialized high end services to overseas clients. India was reckoned as the preferred outsourcing location by global majors that evinced the fact that India had taken a definite lead over its counterparts to make the most of this BPO boom. Though manufacturing is yet to evolve as India’s forte, the success of the services sector more or less balanced the void created in the Indian economy by the lack of adequate manufacturing activity.

The dawn of the new millennium signaled the expansion of the bandwagon of BPO services that were outsourced to India by foreign companies. The Indian BPO industry saw an increased demand for services including healthcare – medical billing and coding, claims processing; insurance and tax processing; data entry and management services; software and engineering services and other similar outsource-able functions. The Indian BPO industry was making waves and was amassing revenues to the tune of $4 billion by 2004-05. This constituted a major chunk of the global pie of BPO revenues.

Graduating to KPO

While the BPO industry in India was flourishing, the dusk of 2005 saw the emergence of a new spectrum of outsourcing services termed knowledge process outsourcing (KPO). Considered to be the next tsunami of outsourcing services, countries across the globe were preparing themselves to ride the KPO tide; India being no exception. Knowledge process outsourcing as the name indicates is the outsourcing of specialized services that warrant the expertise of highly skilled persons. It includes engineering, legal, medical, banking, market research and consulting services. Unlike BPOs that could employ people with a basic education base and good English speaking skills, KPO requires the services of employees with qualification and experience in that particular area.

KPO – Triggering the Next Bull Ride in the Indian Economy!

Numerous studies on the global outsourcing industry indicate that while BPOs shall enjoy a cumulative annual growth rate (CAGR) of around 25 percent in the next 4-5 years, KPOs, which are currently in a nascent stage, are expected to grow at a CAGR of over 45 percent during the same period. Research also indicates that the global KPO industry is expected to be worth over $15 billion by 2009, with India expected to account for nearly 70 percent of this revenue. This shows the enormous potential the KPO industry holds for the future of the Indian economy. The emergence of numerous R&D outsourced centers, business research and consulting firms, firms offering legal services to overseas attorneys and clients and data analytics centers all indicate the propitious growth of the KPO sector in India in the ensuing years.

The immense growth estimated for the KPO industry in India indicates the large volumes of employment opportunities that the educated mass of the country could foresee. It also portends the growth in infrastructure and increase in FDI that the country will enjoy in the coming years. The continuing boom in the Indian BPO sector is a promising bellwether to what lies ahead for the KPO sector. It is not an exaggeration to believe that India will surely emerge among the global super powers through the growth of its services sector in the next five to ten years. The next few years could well be the golden period of the Indian economy, thanks to the outsourcing boost!

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Deepa writes for chillibreeze.

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