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INTRODUCTION TO

KNOWLEDGE PROCESS
OUTSOURCING (KPO)
Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
India’s Service Sector Service Sector Revenue (USD Billion)

700
India’s service sector has grown

Revenue (USD
 600
500
at 8.1% per annum between

Billion)
400
1993 and 2003 against 6.7 % 300
per annum between 1983 -1993 200 Revenue
100
0
 The share of service sector in 1950 2000 2003 2006 2009E
GDP has increased from 28% in Period
the 1950s to almost 55% in
2006
Service Sector as a % of GDP
 IT software and Outsourcing are
the chief contributors of the 100
booming service sector 80
% of GDP
60
 India’s service sector accounted 40 2003
for 55% of the GDP in 2006 2009E
which is one of the highest in 20
the world 0

France
UK
US

Germany
Japan

Canada

China
Brazil

Malaysia
India

Phillipines
History of Outsourcing (1/2)

IT/ITES BPO KPO

 IT Services,  Transaction  Business


 System Analysis processing Research
 Network Design  Selling Insurance  Investment
policy Research
 Software
Implementation  Technical Support  IP Research
 System  Voice and Email  Legal Process
Integration Support Outsourcing
 R&D  Data Analytics
 Report Network and Financial
Analytics
Management
History of Outsourcing (2/2)
Started in 1990s 1998 2000

IT/ITES BPO KPO

Market Size – 2003


(USD Billion)

21.5 2.78 0.72


CAGR (2003 – 2010)
(%)

27.5 30.6 49.5


Share in Indian
Service Sector (%)
(2006)
7.03 0.91 0.24
Difference Between IT & KPO
 KPO is run as a professional services firm and not a
‘White Collar Factory’
 Critical mass of KPO is 2-3 times smaller than IT/BPO
companies
 Scalability is a big challenge in the KPO sector due to
complexity of work
 Sales force commissions are higher in KPO sector as
compared to IT/BPO
 The size of IT industry is 10 times that of KPO sector
and the number of professionals working in this
industry is 15 times that of KPO industry
KPO Sector – Present and Future
Market Share %
 India’s share in the
80
Global KPO sector would 70
increase from 56% in 60
50
2003 to 71% in 2010 40
30 India
 KPO services would form 20 Others

2% of the Indian Services 10


0
sector by 2010 2003 2010
Year
 KPO services would be a KPO Revenues - USD Billion
USD 12 billion
opportunity by 2010 12
10
8
6
4
2
0
2003 2004 2005 2006 2007 2010

Year

KPO Revenue
Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
Who is Outsourcing?

Banks

Asset Mgmt
Consultants
Firms

KPO Services
Research
Industries
Firms

Start-up Law Firms


KPO Sector - Exports
Exports in BPO and KPO Sector in
2010 - Billion USD

 Some of the factors 20

resulting in high 15

export of BPO/KPO 10

services are
Exports

 A growing and highly 0


BPO KPO
educated English Sector

workforce Export Destinations - KPO

 Huge Cost Advantage 60

Contribution
50
Competent
to Indian
 40

KPO
% 30
20
Management of Data 10
0

Security Risk US UK& Canada Europe and


SEA

 World Class Telecom Destination

Infrastructure Export Destination

 Government Support
Segments in KPO Industry and
Potential
8%
9%
29%

Data Search, Integration and Managem ent


12% Biotech and Pharm a
Engineering and Design
R&D
Rem ote Education and Publishing
12% Others
18% Anim ation and Sim ulation

12%
 Data Search, Integration and Management would include Business, Market, Investment Research,
etc.
 It is the largest segment growing at a CAGR of >50% YOY
 Biotech and Pharma segment would include contract research outsourcing and clinical trial research
which is cheaper in India
 Engineering & Design activities are specifically for manufacturing firms, e.g. Auto companies are
outsourcing their idea generation and implementation activities to players in India
 Development of animation games are being outsourced to players in India
 A new wave – PEOPLE TO PEOPLE OUTSOURCING
Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
Location Attractiveness
Location Attractiveness
 India & China – Battling Giants
 India has low wages, pool of skilled talent, favourable tax structure. English language
skills is a big advantage
 China trails India in BPO experience and advantage. It has cost advantage and large
educated population. Outsourcing from Japan and Korea is picking up.
Both China and India score low on political and economic risk and weak infrastructure

 Malaysia and Philippines – Emerging Asian Contenders


 Malaysia has attractive business environment, low cost of infrastructure and high level of
global integration
 Philippines has cultural affinity to US, English talent pool

 The Czech Republic, Poland and Hungary : The Emerging Europeans


 Excellent outsourcing destination for European countries due to cost options, cultural
similarities, good language skills, technical capabilities and minimum regulatory issues
for European firms
 The Czech Republic scores fourth on the scale due to competitive infrastructure cost, a
stable business environment and strong education system.

 Brazil and Chile : The Latin Leaders


 Cost Advantage and experience in BPO sector are in Brazil’s favour
 Chile offers the best business environment and infrastructure in the region
Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
Value Chain in KPO (1/2)
 Consulting Value Chain

Data Integration
Data Search Recommendation
and Analysis

This value chain can benefit:

•Consulting Companies
•Research Firms
•PR Firms
KPO Players can execute •Companies in various sectors like
this portion of the value •Telecom
chain, e.g. Go to Market •Retail
Strategy •Media
•Energy
Value Chain in KPO (2/2)
 Financial Services Value Chain

Deal Identification Due Diligence Deal Execution

This value chain can


benefit:

•Investment Banks
•Merchant Banks
KPO Players can execute •Private Equity
this portion of the value •Hedge funds
chain, e.g. Target Acquisition by a •Mutual Funds
Bank or Private Equity Player •HNI
KPO – Value Proposition
 KPO Services help 100%

clients in following 90% 20


32
manner 80%

70%
 Reduce Design to
market lead time 60%
20 Value Creation
Profit
 Provide research on 50% 60 Variable Cost

markets, competition 40% Fixed Cost

and products 30%


30
 Enhance organization 20%

effectiveness in 10% 20 18
business 0%

administration Before Outsourcing After Outsourcing

 Help in dealing with


rapidly evolving
KPO – Value Creation for Clients
 Cost Saving
 Average annual salary of an MBA in US is USD 85000 whereas in
India it is USD 12000
 Availability of skilled knowledge workers
 Indian universities churn out about 2 million graduates every year.
Every year about 0.3 million engineers are added to the existing
labour pool
 Peak Load Absorption
 Provides flexibility and agility to organisations
 Organisations are not required to invest in infrastructure or
resources
 Complexity Reduction
 Organisations are not required to manage huge amount of
knowledge and resources
 SME Solutions
 SMEs usually have small set up and overhead costs are very high
for them
 SMEs can avoid the initial set up costs and associated fixed costs
simply by outsourcing some of their activities
 Enhancement of service quality
 KPO sector comprises of graduates with excellent English speaking
KPO – Value Creation for Employees
and Vendors
 Job Creation
 KPO industry would grow at a CAGR of 49.5% till

2010.
 Number of jobs in KPO industry would increase from

existing 75,000 to 250,000


 Salary Increase
 The revenue per unit is more in KPO than in BPO

 Hence KPOs have higher average salary than BPO


Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
KPO Business Models
 Captive Model
 Companies set up their KPO
 KPO would have only one client
 Examples – JP Morgan, KPO – Outsourcing
Mckinsey Knowledge Centre Outsourcing Organisation
Organisation

 Third Party Model


 Companies outsource their
work to a Third Party
organisation
 The third party company would
have several clients
Third Party Outsourcing
 Examples – Evalueserve, Copal
KPO Organisation
Partners, EXL

 Hybrid Model
 Companies outsource their
work to Third party as well as
their own KPO
 This model is usually used to
Make or Buy? – Developments Similar
to IT Outsourcing
2015 KPO vendors
surpass
captives and
address SME
Market
2010 Globalization Indian
and vendors
Specializatio surpass
n of Vendors captives
2005 Rise of KPO Expansion of
Vendors Indian
Vendors
2000
Early KPO Rise of
Captive set Indian
up Vendors in
IT
1995
1990
1985 Arrival of IT
western
captives
Phase I Phase II Phase III Phase IV
Make or Buy
 Shift has been observed towards vendor model due to
following reasons:
 Faster initial set-up

 Faster and easier initial staffing

 Better long term employee retention

 More Flexibility

 Better Control

 IT & Compliance
Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
Drivers for KPO
 Shortage of talent in developed countries
 Tighter emigration laws make offshoring of
these services a viable solution
 In order to remain competitive companies
need to:
 Cut cost
 Reduce time to market for their services and
products
 Economies of scope generated by entry of
many IT players in KPO domain
 BPO companies moving up the value chain
 Availability of all types of services through a
single vendor
Inhibitors for KPO
 Talent Crunch
 Though 3 million students graduate from

Indian Universities every year, only a


fraction are employable
 Cost Increase
 Average wages have been increasing at a

fast pace which may affect India’s


competitiveness vis-à-vis other low-cost
locations
Key Trends in KPO
 Spinning off captives
 Genpact spun off from GE in 2004
 Plans of Citibank Global Services being spun off
 Moving from Captive only to Dual-Sourcing
 Peak Load Absorption
 Complementary Services
 Global Support
 Not setting up Captives anymore
 Estimates show that the share of companies working
with vendors instead of setting up captives would be
75-80%
 Shift to vendor model and SME customer
would drive long term growth
Presentation Plan
 Introduction to KPO Business
 History of Outsourcing
 Who and What is Outsourced
 Location Attractiveness for KPO
 Value Chain & Value Creation in KPO
 KPO Business Models
 Drivers, Inhibitors and Trends in KPO
Industry
 Key KPO Players
Key Players in KPO Sector
KPO Captives Focused KPO Vendors ‘BPO adding KPO’ vendors

Goldman Sachs Evalueserve Pregeon

Morgan Stanley Amba Research Genpact

JP Morgan Irevna WNS

UBS (2006) Copal Partners Office Tiger

Credit Suisse Inductis Wipro

Deutsche Bank Aranca Accenture

SAP (Product Development) Manthan Integreon

GE (Technology Research) Market Rx Mphasis

Microsoft (Product Netscribes Nipuna


Development)
IBM (Technology Research) RocSearch EXL

Delphi (Automotive) Scope e-Knowledge

GM (Automotive) Pangea3
Key Players in KPO Sector
Company Employees Centres in India Services

Evalueserve 1900+ Gurgaon Business, Market,


Investment Research,
Data & Financial
Analytics, IP, LPO
Genpact 14000 Gurgaon, Hyderabad, Finance & Accounting,
Jaipur, Bangalore, Sales & Marketing
Kolkata Analytics, Supply
Chain & Procurement,
Information
Technology Services,
Customer Service
Inductis It is part of EXL Gurgaon Management
Services Consulting and
Analytics Services
Irevna It is part of CRISIL Chennai Equity Research,
Quantitative Research,
Credit Research
Copal Partners NA Gurgaon Investment Research,
Business Research

Pipal Research It is part of First Gurgaon Business Research,


Source Investment Research
Questions???