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Knowledge Process OutsourcingMARKET & OPPORTUNITIES
KnowledgeProcessOutsourcingMARKET & OPPORTUNITIESCONTENTSKPO Industry in India2Market Size and Growth Trends of the KPO industry9Emerging Trends12India Advantage13Major KPO Hubs in India16A report by Evalueserve for IBEF
MARKET & OPPORTUNITIESKPO Industry in IndiaIndian KPO Industry – EvolutionThe evolutionary phases of the Indian KPO industry are verysimilar to that of the Indian IT industry. Activities related toIT offshoring/outsourcing commenced in India in the late1980s. During this period, foreign companies such as IBM,Texas Instrument, Motorola, HP, etc preferred establishingcaptive centres in India. A few third-party players were alsoactive in India during this period. Subsequently, the numberof IT vendors in India increased with more companiesventuring into IT. The Nascent KPO industry is followingthe footsteps of the IT industry. Both industries started withcaptives, and subsequently saw the rise of vendors.KPO will follow the IT model with a time lag of 10 years.Evolution of IT and KPO Industries in IndiaArrival ofWesterncaptivesArrival ofWesternCaptives19851990n IT IndustryRise ofIndian KPOvendorsRise ofIndianvendors1995Globalisationand domainspecialisationof servicesExpansionof IndianVendors2000Indian vendorssurpasscaptivessent to the client. In contrast a KPO vendor functions ata different level viz, as follows: KPO focuses on deliveringvalue-added services to the clients. Its prime objective is toprovide clients with useful insights that may assist them intheir strategic decision making process. KPO companies provide knowledge-intensive work andengage highly skilled professionals such as MBAs, CAs,CFAs, engineers, PhDs, doctors, lawyers, etc. Training is an essential component of the KPO industry.As the market is highly dynamic, one has to keep abreastwith the latest trends, technologies and developments.KPO professionals continuously hone their skills throughrigorous training plans. Hourly charge rates for KPO services are significantlyhigher. The number of players in the KPO domain is alsoless as compared to the BPO industry. This results in lesscongestion in the KPO market, which eventually translatesinto better profit margins.Overall, KPO creates value for the client by focussing ondomain expertise rather than process expertise.KPO Services vs BPO Services - A Comparison betweenDifferent Industry SegmentsIndian ract centreand customersupportClaim analysisUnderwritingand assetmanagementConsultingBack officesupportto clientsGlobal lanalyticsEquity researchPharma/HealthcareContact centreand customersupportPatent designIP portfolioanalyticsTelecom/Retail/etc.Contact centreand customersupportAnalyticsStrategyresearchn KPO IndustrySource: EvalueserveAlthough KPO and BPO sound synonymous, they areinvolved in activities which are completely different. In theBPO sector, the vendor acquires a process from the endclient and runs it at its site until the process reaches itslogical conclusion, after which the results, if any, are thenKPOSource: Evalueserve
K no w l e d g e P ro c ess O utsour c in gValue Proposition of KPOThe increasing competition in global businesses hasresulted in a smaller cycle time for introducing productsand services. With customers demanding high-qualityservices, enterprises are forced to adopt systems andbusiness models that will not only provide operationalefficiency, but also add strategic value to their products andservices. This is where KPO helps enterprises by enablingcompanies to reduce design-to-market lead times; managecritical hardware efficiently; provide research on markets,competition, products and services; enhance organisationaleffectiveness in business administration; and help in dealingwith rapidly evolving business scenarios. Customisationenhances the value proposition of KPO.KPO Services and Value CreationProfits 20%VariableCosts 60%Value Creation32%Other VariableCosts 35-40%Profits 20%Employees35%VariableCosts 30%Fixed Cost 20%Fixed Cost 18%Before OutsourcingSource: EvalueserveProfits 15-25%After OutsourcingKPO VendorCLIENTCompanies outsourcing work to a KPO vendor can helpsave costs up to 32 per cent on revenues, assuming that theprofit margin remains constant.Business ModelIndian KPO vendors operate mainly through three businessmodels, i.e., captives, third-party and virtual. The selectionof a business model depends on many parameters suchas the complexity of the work, internal competency levels,nature of business (core or non-core) and costs involved.Captive CentresIn a captive centre set-up, a multinational companyestablishes its dedicated operations in countries offeringhigh talent availability and low cost of operations. Captivecentres cater only to the requirements of the parentcompany. The investment required to establish a captivecentre is incurred by the parent company. As the capitalinvestment involved (in establishing a captive centre) islarge and the payback period is also high, these set-upsare generally established only by large MNCs. Moreover,the scalability of the captive centre is dependant on theamount of work, which is generally low as the centre caterssolely to the requirements of the parent company. Examples of prominent captives in India include GoldmanSachs, Morgan Stanley, McKinsey, JP Morgan, UBS,Deutsche Bank, etc. Lack of adequate management integration andmanagement supportThird-party Service Providers (Third-party players)Since the cost associated with captive centres is high,especially if the volume of work is not large, third-partyservice providers offer a viable option to companies. Anumber of large and small companies are working asthird-party services providers and supplementing KPOservices from India. One of the key benefits of third-partyservice vendors is that operations can be ramped up asand when required. At the same time, third-party vendorsoffer greater flexibility and customisation to clients. Someof the companies operating on this service model includeEvalueserve, Irevna, Aranca, etc.Since KPO services involve the assimilation anddissemination of sensitive information, clients place greatemphasis on data security and other data confidentialityparameters. Third-party service providers address theseconcerns by formulating service-level agreements withclients and certifying their process under quality auditssuch as ISO 27001.Virtual CaptivesVirtual captive centres have both the functionality ofcaptives and third party service providers. It is a hybridbusiness model. There is no upfront investment undertakenby the parent company in establishing the centre as in acaptive centre. This centre acts as an overseas resourcecentre for a client in the third-party service provider setup.The major advantage of virtual captive is that, it provideshigher quality of services involving higher transparency,control and security. The clients are usually willing to pay apremium for virtual captive services.
MARKET & OPPORTUNITIESIndian KPO industry is witnessing a significant growthof third-party service providers with respect to captives.The prominent reasons include the range of services, costadvantage and scalability which is driving higher growth ofKnowledge Process Outsourcing BusinessModels in IndiaThe following are some of the major services that arecurrently being provided by KPO players:With India becoming an important player in the KPOindustry, the range of services being outsourced iscontinuously aptivesLOWLOWCaptivesHIGHManagement ControlSource : Evalueservethird-party service providers. According to a study by EverestResearch Institute, third-party service providers are 5 to 15 percent less expensive than their captive peers, in terms of thetotal cost of operations.The Indian KPO industry is estimated to be worth US 3.05billion in 2006-07. Indian players provide a wide range ofsolutions to diverse industry segments such as FMCG,engineering, automobile, telecom, R&D, banking andfinancial services, insurance, etc. It is expected that in thecoming years both the volume and complexity of the workbeing outsourced to Indian KPO players will increase.KPO Services Outsourced to IndiaProduct development, R&D,simulation services, engineeringdesign servicesBiotechnology research, legal services,intellectual property research, engineeringservicesBusiness and technical analysis, business and market research,data analytics, software development, animation services,pharmaceutical research, content development200620082010 ata management, search and analyticsD Contract research and biotech. Engineering design Remote education and publishing Animation and gaming services Banking, securities and insurance Market research and competitive intelligence Scientific and medical content publishing Business and consulting research Network optimisation and analytics Legal research and IP Translation and localisation Remote logistics services and procurement Human resource research and analytics Marketing and sales supportThe seven largest segments of the KPO industry in termsof revenue are described below:Major Segments of KPO IndustrySource: Evalueserve 2012Data Management, Search and AnalyticsData Management, search and analytics services includeinformation regarding the market, competition, productsand services, customers, etc. These services assist clients ingaining a better understanding of their business issues anddeveloping effective solutions to mitigate these. This servicesegment is availed by a large number of clients acrossindustries such as FMCG, telecom, banking services, etc.A clear understanding of the subject, an in-depthknowledge of the industry and specialised software suchas SPSS, SAS, etc., facilitate the provision of insightful datato the clients. Some of the major data analytics servicesemployed by KPO firms include the following: Customer analysis (mainly used for FMCG companies,telecom operators, insurance firms, banks, etc.) Supply chain analysis (mainly used for manufacturing andlogistics firms) Retail analysis (mainly used by FMCG companies tounderstand the buying behaviour of customers)
K no w l e d g e P ro c ess O utsour c in gContract Research and BiotechEngineering DesignContract research is among the fast-growing segments inthe biotech and pharma R&D domain.Engineering design outsourcing or Engineering ServicesOutsourcing (ESO) as it is popularly known refers tothe outsourcing of engineering-related work to othercompanies to leverage the differential cost advantage. Forexample, an intensive automotive design involves US 800per man hour in Europe as compared to US 60 per manhour in India.ESO involves the outsourcing of activities rangingfrom design to production and maintenance. The majorindustrial sectors benefiting from ESO include automotive,aerospace, hi-tech/telecom, utilities and construction/industrial machinery. Apart from India, other countries thathave developed expertise in ESO are Canada, China, Mexico,and countries in Eastern Europe.Earlier, the quality of work outsourced to India was lowend engineering and design work. However, the availabilityof a versatile, high-quality workforce at a low cost hasresulted in ESO work moving up the outsourcing valuechain, from design work using computer-aided design(CAD) to high-end engineering activities. The figure belowdepicts the transition of ESO services in India:The growth of the global healthcare and pharmaindustry has been hindered by high development costs,lower number of unique molecules discovered, increaseddevelopment timelines and dynamic market conditions.These factors expose the industry to high risks as a largenumber of investments are involved in research-relatedactivities. Currently, the outsourcing of research anddevelopment work seems to be a viable option availableto mitigate the risks involved. India has been receivingsubstantive works in the biotech and pharma fields.India offers a strong advantage in clinical research and trialsdue to the following factors:- A vailability of a large and diverse patient pool- R educed time for data analysis- A vailability of large skilled workforceIndia’s success in contract research and biotechoutsourcing can be attributed to the confluence ofseveral factors such as a high degree of support from thegovernment, low cost, highly skilled professionals (scientistsand research personnel), a large number of patients fromdiverse backgrounds and quality infrastructure. Further,the Indian contract research and biotech KPO firms haveestablished strong position in contract research, genericresearch and manufacturing, and innovative productdevelopments.Pharma research relates to innovative drug discovery,drug development, generic manufacturing, contractmanufacturing, etc. Contract manufacturing servicesoutsourced to Indian vendors include clinical developmentservices, bioavailability, bioequivalence, clinical trialmanagement and monitoring, data management offerings,etc. It is estimated that there are approximately 400 largeand small pharma companies operating in India, which caterto the domestic demand while fulfilling the outsourcingrequirements of global players.ESO Vendors in IndiaKPO Services in the Engineering and Design Segment1980s1990s Onwards- S canning and digitisation ofengineering drawings- Migration of CAD work fromone system to another- 2 D and 3D modelling- Finite element analysis- Computerised fluid dynamicsanalysis- Technical specifications fortenders- Value engineering- Process simulation study- Prototyping- Product performance testingthrough virtual simulation- Research and development- Engineering design anddetailingIndustries being catered are : telecom, utilities, heavy engineering,automotives, aerospace and electric/electronic machinery designSource : EvalueserveIT companies are gearing up to take advantage of the ESOservices potential in India.The automotive and aerospace industries have beenresponsible for the surge in ESO activities, which is evidentfrom the fact that a number of automotive and aerospace
MARKET & OPPORTUNITIES companies such as the Ford Motor Company, GeneralMotors, Boeing and Airbus are offshoring their engineeringand related works to Indian companies. Some of theprominent examples of ESO work undertaken in India arementioned below: I nfosys played a pivotal role in developing a portion of theAirbus A380 wing H CL Technologies provided software and hardwaredevelopment services to Boeing’s 787 Dreamliner project TCS provides IT and engineering services to Ferrari for thedevelopment of F1 racing carsFurther, many semiconductor and electronic goodsmanufacturing companies and mobile handset vendorsare also leveraging ESO opportunities. Indian marketsbasically offer two categories of players, i.e., captive unitsand independent services providers.ESO Vendors in IndiaCaptivesIndependent Vendors-- echtelB Flour Daniel Ford Daimler Chrysler General Motors Caterpillar Texas Instrument Motorola Intel NokiaT ata Consultancy Services Wipro Technologies Satyam Computer Services HCL Technologies Infosys Rolta Eicher Engineering Solutions Mahindra Engineering Neilsoft Geometric SoftwareSource : EvalueserveRemote Education and PublishingRemote EducationIndia is an attractive destination for work related to remoteeducation due to the availability of a large number ofprofessionals at a low cost as compared to major marketssuch as the US. Various companies that have ventured intooffshore education services and are currently expandingtheir operations to utilise the untapped potentialCompanies operate in the remote education segmentthrough three different models, subcontract model, directmodel and retail services model. I n the subcontract model, the company collaborates withanother company in a particular geography and providesits services in that region through that company, forexample, Career Launcher collaborating with eSylvan,Smart Thinking, tutor.com, etc. I n the direct model, the company provides its services in aparticular geography by directly associating (joint ventureoperations) with the schools, for example, EducompDatamatics. In the retail services model, the company provides servicesin a specific geography through a tutor base in India – forexample, Growing Stars.Writing Content and PublishingSince publishing is time bound, labour intensive and processspecific, offshoring it to developing countries results in costadvantage to companies. Approximately 40-50 per centcosts can be saved by outsourcing publishing work to India.Further, Indian vendors are also leveraging the technologyeffectively to re-engineer the processes and improve theturnaround time.The main market target segments of offshoredpublishing services include publishing houses, educationalinstitutes, information aggregators, professional societies,government agencies, universities, corporations, etc. Manylarge content developers such as Reed Elsiever, Blackwell,Academic Press, University Press, Thomson Learning,McGraw Hill, etc., are outsourcing publishing related workto India.Animation and Simulation ServicesThe increase in the global demand for animationcontent is accompanied by a corresponding increase inthe outsourcing of creative content development. Byoutsourcing, companies can save approximately 40-60per cent of the cost associated with animation contentdevelopment.Indian animation services have witnessed a broadtransition in services from merely data cleaning tocontent development. Some of the major internationalproduction houses are outsourcing animation and relatedwork to Indian companies such as Toonz Animation, CrestCommunication, Maya Entertainment, UTV Toons, etc.The in-house production of animation movies/contentis another trend that is fast gaining in popularity in thisservice domain.The companies operating in India function through thefollowing three different business models, based on theirlevel of engagement with the project/partner. In-house production – Animation studios create their own
K no w l e d g e P ro c ess O utsour c in ganimation content and market it to global companies.Studios developing the content own the IP rights and thusearn revenues from royalties and the sale of the content. O utsourced Animation – Such animation studios primarilycater to the requirement of global companies. The contentis developed as required by the global company that alsoholds the IP for it. The content development company towhich the work is outsourced earns revenues on a perhour per-project basis. C ollaborative Animation – It involves multiple animationstudios that develop the content collaboratively. The IPrights are shared among the companies involved.Banking, Securities and InsuranceEquity research captive centres in India- JP Morgan- Standard Chartered- Goldman Sachs- ABN AMRO- Lehman BrothersOffshoring of research-related activities by the banking,securities and insurance domain fall under the preview ofinvestment research, which involves financial modelling,preparing the valuation of companies, stock processtracking, detailed company analysis and profiling, etc.India has gained prominence in the various servicesrelated to investment research due to the availability of alarge, skilled workforce that includes MBAs, CAs, CFAs, etc.,who are capable of handling complex problems related toinvestment research.A large number of investment banks have eitherestablished or are planning to establish their operationsin India. For example, Goldman Sachs has establishedits centre in Bangalore, which provides services in assetmanagement, equity and treasury operations, investmentbanking and corporate services. Further, Morgan Stanleyhas a research division in India for equity and fixed incomeresearch. Almost all of these banks have adopted a dualsourcing strategy and outsource their work to a third-partyprovider along with the captives.Market Research and Competitive IntelligenceMcKinsey Knowledge Centre (McKC) supports its globalresearch-related activities from its centre in India.The offshoring of market research services commencedwith data collection and data cleaning. However, marketresearch service vendors started receiving high-end MRwork such as industrial and customer surveys, data analysisthrough statistical tools and techniques, report andpresentation preparation, etc. Therefore, a clear shift frominformation gathering to knowledge-intensive operationsbecame obvious. Some of the prominent companiesoperating in India in the market research domain includeAT Kearney, Bain & Co., Evalueserve, Monitor Group, EverestGroup, AC Nielsen, Pipal Research, Irevna, etc.
MARKET & OPPORTUNITIESKPO Skill-set with respect to VariousSegmentsSince the KPO domain is a knowledge-intensive industry,different service segments require a different skill-set andindustry experience. Some of the major skill set requiredare listed below:Some of the KPO players have diversified their serviceofferings by nurturing the talents and skills requiredto initiate high-end work such as intellectual property,analytics, investment research, etc.Level of Complexity in KPO ServicesBusiness intelligence, modelling, equityResearchAnalyticsMarket research, analyticsData capture, dataInstructional design, contentE- learningCreating story boardsEnterprise solutionsSTM journals: content, editing, designingPublishingXML tagging, Scope editingType setting, pre-pressKPO Services Segments and Skills RequiredServices SegmentServices OfferedSkill SetLegal ServicesDrafting contracts,reviewingtransactionaland litigationdocuments, researchmemoranda,prosecutions, etc.Proficiency toundertake legalresearch, draftlegal applications,knowledge of the USand UK laws, etc. (E.g.lawyers)2D and 3Dmodelling,conversion, finiteanalysis, valueengineering,dynamics analysis,etc.CAD/CAM, drafting andmodelling, productdesign, etc. (E.g.engineers)Primary andsecondary research,writing and editingreports, dataanalysis, etc.Statistical tools,research techniques,report writings,presentations, databaseresearch, etc. (E.g. MBAsand Engineers)ContentDevelopment andPublishingData enrichmentand warehousing,proofreading, prepress work, editorial,etc.English language andcommunication skills,journalistic experience,report writing, etc.Healthcare andPharmaClinical research,R&D drug discovery,etc.Graduates in science,master’s degree inscience, medicaldegree, etc. (E.g. PhDsand doctors)Education andTrainingPrivate tutors,content developers,curriculum design,etc.Teaching experience,subject knowledge,etc., professors andteachers)Engineering andDesignMarket Researchand Data AnalysisSource : Evalueserve and Value notes ResearchEngineeringDesignConcept generation, developmentModelling, analysis, tool designBasic CADPharmaR&DDrug discovery, gene mapping, molecularClinical research, dataTestingLegalServicesPatent drafting, prior art search, contractsLegal research, litigation supportLegal coding, transcriptionIncreasing Complexity and Charge RateSource : Value notes Research
K no w l e d g e P ro c ess O utsour c in gMarket Size and Growth Trendsof the KPO industryKPO Market SizeAlthough the KPO industry evolved during the mid 1990sin India, its growth phase only started after 2000-01.According to Evalueserve, during 2000-01, the KPO industryin India consisted of only 9,000 billable professionals whogenerated total revenues of US 260 million. However, by2006-07, the number of billable professionals had increasedto approximately 75,000 employees, who were responsiblefor generating revenues of US 3.05 billion. Thus, during the2001-07 period, the industry witnessed a CAGR of 51 percent in revenues and 43 per cent in the number of billableprofessionals.By 2010-11, the contribution of the Indian KPO sectorto the global KPO industry will be in the range of65-70 per cent.Indian KPO Industry - Market Size(2001-07)3.052006-072005-062.18Indian KPO Industry - Expected Market 02-032007-0811.52US billion2.533.5Source: Evalueserve; FTE: Full time employee4.42006-073.50Indian KPO Industry - Number of FTEs Involved(2001-07)2006-07468US billion1012Source: Evalueserve; FTE: Full time employeeIndian KPO Industry - Number of FTEs 22552010-11421122006-072030405060number of FTES (‘000)Source: Evalueserve; FTE: Full time employee708075050100150200250number of FTES (‘000)Source: Evalueserve; FTE: Full time employee300
10MARKET & OPPORTUNITIESIt is estimated that by 2010-11, the Indian KPO marketwill be valued at approximately US 11-12 billion. Accordingto recent forecasts by Evalueserve, the industry will witnessa CAGR at 38 per cent in revenue and 36 per cent in thenumber of billable professionals during the next four years.KPO Services Segment’s Contributionto the KPO MarketData management, search and analytics services andcontract research services form the largest segmentsin the KPO industry. The legal services and intellectualproperty outsourcing services segment is expected to gainmomentum in the near future. A substantial growth is alsopredicted in various segments such as HR research andanalytics, marketing and sales support, contract researchand biotech, data management and search and analytics.Growth in India KPO Market Sizeby Services Segments: 2006-11 (US million)2006-072010-11Data Management, Search and Analytics5902,510Contract Research and Biotech5702,500Engineering Design3151,000Remote Education and Publishing2901,000Animation and Gaming Services245950Banking, Securities and Insurance Research185600MR and Competitive Intelligence175450Scientific and Medical Content Publishing165450Business and Consulting Research125450Network Optimisation and Analytics125400Legal Research and IP95360Translation and Localisation85160Remote Logistic Services and Procurement40150HR Research and Analytics25120Marketing and Sales Support201003,05011,200TOTALSource: EvalueserveProfessionals Employed in KPO ServiceSegmentsThe growth in the number of KPO projects is indicativeof an increasing demand for professionals. Currently,professionals are mainly absorbed in the contract research,data management, search and analytics segments. By 2011,it is estimated that the animation and gaming servicessegment along with engineering design will employ a largenumber of professionals.Growth in Number of Professionals - Indian KPO Market2006-112006-072010-11Data Management, Search and Analytics15,00060,000Contract Research and Biotech15,00050,000Remote Education and Publishing9,00025,000Engineering Design8,00021,000Animation and Gaming Services7,00022,500MR and Competitive Intelligence4,50012,000Banking, Securities and Insurance Research3,50012,000Business and Consulting Research3,20011,000Network Optimisation and Analytics3,1009,000Legal Research and IP2,50012,000Translation and Localisation2,0009,000Remote Logistic Services and Procurement1,1004,000HR Research and Analytics6002,500Marketing and Sales Support5003,000Scientific and Medical Content Publishing4002,000TOTAL75,400255,000Source: EvalueserveThe following are the three sectors that are set to registera substantial growth:Banking, Securities and Insurance Research ServicesThis sector currently employs 3,500 billable professionals,out of which approximately 1,100 are involved in insuranceresearch as well as in research related to risk managementfor credit card and capital leasing companies. The remaining2,400 billable professionals help sell-side and buy-sideanalysts in bulge-bracket banks (e.g., Citigroup, MerrillLynch, Morgan Stanley and JP Morgan), mid-tier M&A banks,independent research providers, hedge funds, mutualfunds, pension funds and private equity groups. This subsector is expected to witness an increase in revenues fromUS 185 million in 2006-07 to US 600 million by 2010-11.Contract Research Organisations andBio-Pharmaceutical ServicesAs 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 gdevelopment of new drugs, biotech and pharmaceuticalcompanies are outsourcing a major share of their clinicalresearch trials to countries in Eastern Europe, India andChina. Further, this sub-sector is expected to witness anincrease in revenues from US 570 million in 2006-07 toUS 2,500 million by 2010-11.Data Management, Search and AnalyticsThis sector is expected to increase from US 590 million in2006-07 to US 2,510 million by 2010-11. Within this sector,some verticals – banking, finance, securities and insurance;biotech, pharmaceuticals and healthcare; and wireless, wireline and cable, oil and gas – are likely to witness a massivegrowth. Large data providers (e.g., Thomson Financial,Reuters and Standards & Poor) already have a considerablepresence in India. Collecting and scrubbing data at fairly lowcosts while providing high-quality services seem to offer anirresistible proposition for other data providers also.11
12MARKET & OPPORTUNITIESEmerging TrendsIndian Companies Exploring ExpansionOpportunities OverseasIndian KPO companies are establishing offshore centresacross the globe.A large number of Indian companies are looking towardsexpanding their operations by setting up delivery centresacross the globe. Indian players are targetting regions suchas China, Latin America and Eastern Europe to set up newoffshore locations. Some of the prominent reasons for thistrend include the following: C lients are increasingly demanding localised services.Thus, Indian KPO vendors are exploring offshore locationswhere they can leverage the local talent and languagecapabilities. O perating in different geographies with varying timezo
management and monitoring, data management offerings, etc. It is estimated that there are approximately 00 large and small pharma companies operating in India, which cater to the domestic demand while fulfilling the outsourcing requirements of global players. Engineering design Engineering design outsourcing or Engineering Services
