KPO Industry

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

India’s Service Sector

India’s service sector has grown at 8.1% per annum between 1993 and 2003 against 6.7 % per annum between 1983 -1993

The share of service sector in GDP has increased from 28% in the 1950s to almost 55% in 2006

IT software and Outsourcing are the chief contributors of the booming service sector

India’s service sector accounted for 55% of the GDP in 2006 which is one of the highest in the world

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1950 2000 2003 2006 2009E

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Service Sector Revenue (USD Billion)

Revenue

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Service Sector as a % of GDP

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History of Outsourcing (1/2)

IT Services, System Analysis Network Design Software

Implementation System

Integration R&D Report Network

Management

IT/ITES BPO KPO

Transaction processing

Selling Insurance policy

Technical Support Voice and Email

Support

Business Research

Investment Research

IP Research Legal Process

Outsourcing Data Analytics

and Financial Analytics

History of Outsourcing (2/2)

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

Started in 1990s 1998 2000

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

India’s share in the Global KPO sector would increase from 56% in 2003 to 71% in 2010

KPO services would form 2% of the Indian Services sector by 2010

KPO services would be a USD 12 billion opportunity by 2010

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Market Share %

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Others

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2003 2004 2005 2006 2007 2010

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KPO Revenues - USD Billion

KPO Revenue

Who is Outsourcing?

Asset Mgmt Firms

Research Firms

Start-up Law Firms

Industries

Consultants

Banks

KPO Services

KPO Sector - Exports

Some of the factors resulting in high export of BPO/KPO services are

A growing and highly educated English workforce

Huge Cost Advantage Competent Management

of Data Security Risk World Class Telecom

Infrastructure Government Support

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BPO KPO

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Exports in BPO and KPO Sector in 2010 - Billion USD

Exports

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Destination

Export Destinations - KPO

Export Destination

Segments in KPO Industry and Potential

29%

18%

12%

12%

12%

9%

8%

Data Search, Integration and Management

Biotech and Pharma

Engineering and Design

R&D

Remote Education and Publishing

Others

Animation and Simulation

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

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

.

Value Chain in KPO (1/2) Consulting Value Chain

Data Search Data Integration

and Analysis Recommendation

KPO Players can executethis portion of the value chain, e.g. Go to Market Strategy

This value chain can benefit:

•Consulting Companies•Research Firms•PR Firms•Companies in various sectors like

•Telecom•Retail•Media•Energy

Value Chain in KPO (2/2) Financial Services Value Chain

Deal Identification Due Diligence Deal Execution

KPO Players can executethis portion of the value chain, e.g. Target Acquisition by a Bank or Private Equity Player

This value chain can benefit:

•Investment Banks•Merchant Banks•Private Equity •Hedge funds•Mutual Funds•HNI

KPO – Value Proposition

KPO Services help clients in following manner

Reduce Design to market lead time

Provide research on markets, competition and products

Enhance organization effectiveness in business administration

Help in dealing with rapidly evolving business scenarios

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Before Outsourcing After Outsourcing

Value Creation

Profit

Variable Cost

Fixed Cost

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 and

analytical skills

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

KPO Business Models

Captive Model Companies set up their KPO KPO would have only one client Examples – JP Morgan, Mckinsey

Knowledge Centre

Third Party Model Companies outsource their work to a

Third Party organisation The third party company would have

several clients Examples – Evalueserve, Copal

Partners, EXL

Hybrid Model Companies outsource their work to

Third party as well as their own KPO This model is usually used to test

effectiveness of a company’s KPO

OutsourcingOrganisation

KPO –Outsourcing Organisation

Outsourcing

Organisation Third Party

KPO

Make or Buy? – Developments Similar to IT Outsourcing

2015 KPO vendors surpass captives and address SME Market

2010 Globalization and Specialization of Vendors

Indian vendors surpass captives

2005 Rise of KPO Vendors

Expansion of Indian Vendors

2000Early KPO Captive set up

Rise of Indian 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

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

Key Players in KPO SectorKPO 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 Development)

Netscribes Nipuna

IBM (Technology Research) RocSearch EXL

Delphi (Automotive) Scope e-Knowledge

GM (Automotive) Pangea3

Key Players in KPO SectorCompany Employees Centres in India Services

Evalueserve 1900+ Gurgaon Business, Market, Investment Research, Data & Financial Analytics, IP, LPO

Genpact 14000 Gurgaon, Hyderabad, Jaipur, Bangalore, Kolkata

Finance & Accounting, Sales & Marketing Analytics, Supply Chain & Procurement, Information Technology Services, Customer Service

Inductis It is part of EXL Services

Gurgaon Management 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 Source

Gurgaon Business Research, Investment Research

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KPO Industry

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