New York—A recent report reduced the projected growth rate for India’s knowledge process outsourcing (KPO) industry, reflecting increasing shortages in skilled professionals and growing competition from other domiciles. The lowered forecasts for India do not imply that demand for outsourced research and other analytics is slowing—demand, especially from investment managers, is increasing. Although India has tempered its projections, it remains the market leader in KPO, and is expected to remain so.
A report by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) revised the country’s KPO opportunity from an earlier estimate of US $15 billion in 2012 to $10.5 billion in 2012, from a current base of $3.8 billion. KPO represents the outsourcing of professional ‘white collar’ skills, such as accounting or legal, and includes the outsourcing of research and other analytic functions from the sell- and buy-side. Tower Group estimates the outsourcing of research to be $550 million from the sell- and buy-side combined.
The ASSOCHAM report cited a shortage of skilled professionals and an absence of appropriate number of educational institutions providing KPO skills. India’s KPO industry is also facing a stiff competition from the emerging KPO destinations, such as the Philippines, Russia, China, Poland, and Hungary, compounded by the appreciation of the Indian Rupee against the US dollar.
According to ASSOCHAM, the Indian KPO industry comprises more than 260 companies including Evalueserve, Genpact, WNS Global Services, 24/7 Customer, EXL Service, Copal Partners, and Wipro, and the number is likely to increase to 350 by 2008. KPO providers active in outsourcing research include Evalueserve (which recently purchased an expert network), Copal, Amba Research, Irevna, SmartAnalyst, Aranca, Integreon and Adventity, among others. The KPO industry is expected to provide employment to more than 100,000 professionals in 2008 as against the current figure of 30,000.
Increased demand for Indian talent has put upward pressure on salaries. The other issue for clients of KPO services is turnover, which runs at a higher rate than domestic hiring, typically around 15% to 25%. KPO firms provide a salary premium over more generic business process outsourcing (BPO) which includes back office functions such as billing or purchasing. KPO also tend to attract talent through better work environments, more and higher level client contact, and more domain focused organizations. However, there is an inherent ceiling on career growth for the most talented KPO workers which is determined by the nature of the skills that are outsourced. Outsourced investment research, for example, usually comprises more routine maintenance research rather than the most value added components.
Despite the lowered projections, growth in the outsourcing of research and other analytic functions continues at a brisk pace. The compound annual growth (CAGR) of the revised forecast is 23% over the five year period, still a strong number though less than the 32% CAGR of the previous forecast. KPO providers have also diversified their resources beyond their Indian base. For example, Amba Research has facilities in Sri Lanka and Costa Rica.
It would be premature to say that the KPO market is maturing, or that India is losing its competitive edge. The KPO segment we know best is investment research, which continues to be a growth area, particularly as investment managers increasingly outsource research functions. The KPO business is also counter-cyclical—if the US is going into a recession, demand for outsourcing will only increase.