KPO Experts India

The Five Most Likely Outsourcing Trends

With the opening of the world economy, many surprises have taken place in the business scenario. This is true for countries across the globe both from outside and within the countries. The western world have started realizing the potential and the importance of smaller countries of Asia in providing quality services at much lesser rates and are treating this fact as a revolution. Similarly, within the Asian countries revolutionary trends are taking place in terms of expansion and spread of service providers to small cities. BPO is giving place to a new name i.e. Knowledge Process Outsourcing (KPO). The buzzword is to take advantage of the outsourcing booming conditions.

 

In the above stated scenario, several trends are emerging in the outsourcing activities in India-based outsourcing industry. Few of the emerging trends of the future are listed below which are likely to shape the future of the outsourcing industry.

 

1. Need of Professionals

Boom in the knowledge process outsourcing industry is an established fact now and as per estimates of various studies the industry shall range from anywhere between $12 billion and $15.5 billion for 2010. This envisages a growth rate of 40 to 50 percent for the industry for the next five years.

 

The above growth will necessarily mean a quantum increase in the workforce engaged in providing KPO services. There have been predictions of looming labor shortages for the Indian outsourcing industry and the beginning of the trend is likely to be witnessed from the year 2006, at least in KPO. Higher level compensation than BPO for employers and the high-end work requirements will help KPO jobs to be hot through 2006.

 

Hiring of professionals such as chartered accountants, doctors, lawyers and engineers will see sharp rise. In fact, a recent ValueNotes report on legal offshoring predicts that employment in legal outsourcing in India will grow more than ten-fold by 2010. Another ValueNotes research shows that the number of employees in publishing outsourcing will grow 5.6 times by 2010.

 

2. Consolidation and fragmentation of outsourcing fields in KPO

The emergence of “KPO” will see a proliferation and entry of new service providers in the arena of the industry. “The emerging opportunities in knowledge services are attracting a new breed of entrepreneurs, absolutely professionals like lawyers, chartered accountants, doctors, engineers, scientists, etc. into the outsourcing business..

 

Minimal entry requirements, low infrastructure and set-up costs will encourage the smaller technically strong companies to establish a KPO set-ups. Unlike commodity services of BPO such as call centers, CRM or large-scale back-end processing, the minimum critical size for KPOs need not be very large. What is more important is to have a high degree of specialization which will allow even small firms to function profitably. Further, since the knowledge process outsourcing business is not necessarily scale driven, smaller business entities having total strength of around 20 professional are also gaining popularity along with concept of freelance work. This style of functioning is driving the increasing fragmentation of service providers.

 

3. Small Towns –New areas joining the outsourcing buzz

India’s status as the No. 1 destination in the offshore business is not in doubt. However, lf the growth has been concentrated in a few cities, like NCR Delhi, Mumbai, Hyderabad, Bangalore, Pune and Chennai. But rising wage costs and rising attrition in the larger cities coupled with attractive benefits being offered by many state governments are driving the BPO move to the hinterland.
Various state governments in association and coordination with STPI India are developing IT/software parks with complete infrastructure to encourage companies to move to smaller cities.
States like Punjab, UT Chandigarh,Rajasthan, Uttar Pradesh taking the cue from Maharashtra, Andhra Pradesh and Karnataka, have taken initiatives and have started investing heavily in IT Parks.
Identified Hotspots in 2006

 

Jaipur, Jodhpur (Rajasthan), Gandhinagar, Ahmedabad (Gujarat), Amritsar, Mohli, Patiala (Punjab), Nasik, Nagpur, Navi Mumbai (Maharashtra), Lucknow, Agra, Kanpur (Uttar Pradesh), Hubli, Mangalore (Karnataka), Bhubhaneshwar (Orissa), Gurgaon (Haryana), Vishakhapatnam (Andhra Pradesh), Kochi, Thiruvananthapuram (Kerala), Coimbatore, Madurai (Tamil Nadu)

4. Expansion of offshore centres in India

As benefits of offshoring business are becoming evident, large multinational corporations, are expediting the process of spreading the offshore presence.
The bulk of this is towards fully owned captives, driven by two factors. i.e. firstly, the increasing sensitivity towards data security , IPR, and confidentiality; all of which make captives center to be the most preferred choice. Added to this, many large companies that have been testing the offshore waters are looking to plunge into the water in a bigger way. In the recent past several Fortune 500 and FTE 100 already have established their captive centers in India. The trend is to further accelerate keeping in mind the changing forces and dynamics of the industry.”
However, after a certain size, the economics of captive offshore centers becomes unfavorable as compared to contracting and outsourcing to third-party vendors; and many corporations will prefer this route as they expand in India.

 

5. Acquisitions and mergers to increase

Acquisition and merger activity has reached new heights and is expected to be much higher in the coming years as a mode of expansion. However, along side mega deals, large number of small deals shall also become fruitful. This will be driven by acquisitions in the knowledge services domain, where acquirers will find it worthwhile to enter into small deals to acquire domain knowledge, new clients and position themselves in this small, but fast growing segment.

 

Indian IT companies have been entering the both BPO and Knowledge Process Outsourcing (KPO) industry in a big way, and Systems integrators and IT companies formed the maximum percentage of acquirers. The acquisitions are found to be an easy way to acquire domain specific capabilities. Cognizant, KPIT and Patni were among the larger IT companies are examples in the category of BPO.

 

In the coming years, we expect KPO to become a major target area for acquisitions. KPO acquisitions and mergers will form the growth strategy of two types of companies:

 

• Already existing KPO companies which want to get benefited specific domain expertise, or clients in a particular area or geographic region

• Multi-service and multi directional BPO companies wishing to climb the value chain by adding high-end capabilities to their portfolios.

 

Deal sizes will be smaller mainly because KPO outfits are normally smaller than CRM or back-end processing service providers, since their business is dependent more upon domain knowledge than on scale.