End of Recession May Restart Stalled Growth of India’s Knowledge Process Outsourcing Industry
In 2005 NASSCOM, the chamber of commerce of the IT-BPO industries in India, boldly predicted that KPO or knowledge process outsourcing would grow from $1.2 billion in 2003 to $17 billion by the end of 2010. The real figures, however, fell significantly short of the mark with the Indian knowledge process outsourcing market currently standing at only $4 billion, according to a report released by the agency at the start of this year.
While the global recession that hit the world’s biggest nations certainly has something to do with the cooling down of India’s knowledge process outsourcing industry, experts say there is more to this failure to launch than the widespread economic woes.
Martyn Hart, chairperson of UK’s National Outsourcing Association (NOA), says knowledge process outsourcing makes a lot of business sense and the benefits for companies looking into this are obvious. When certain skills are very in short supply domestically, companies can access skilled workers at reasonable costs through knowledge process outsourcing.
Those companies dealing with knowledge process outsourcing services also stand to benefit from the increasing complexity of tasks, Hart wrote in Silicon.com. “The more complex and challenging the task, the more likely workers are to be mentally engaged – and thus the more able companies are to attract high-quality staff.”
However, despite the advantages of knowledge process outsourcing he said many companies continue to adhere to the so-called cardinal rule of off shoring: outsource only non-core business operations.
Knowledge process outsourcing’s predecessor, business process outsourcing (BPO), focuses on hiring third-party service providers to do business functions that are considered non-core to the primary business strategy. These include accounting and payroll, financial and administration, HR and employee benefits management, as well as call center and customer service activities functions.
On the other hand, knowledge process outsourcing, often considered to be a subset of BPO, includes activities that require greater skill, knowledge, education and expertise. Typically, knowledge process outsourcing encompasses R&D, intellectual property research services, software and product development, legal processes, healthcare and medical processes, quantitative analysis, e-discovery, as well as a number of other business functions that require the efforts of a more knowledgeable set of workers than non-core business functions.
Although the more developed skills and proficiencies required for knowledge process outsourcing to be successful are available, many companies hesitate to engage in these deeper kinds of business relationships for fear of giving too much sensitive company information away to knowledge process outsourcing firms, said Hart.
Protection of intellectual property rights (IPR) is of critical importances because knowledge process outsourcing services are more central to the business, according to Indy Banerjee, Director of Technology Partners International (TPI). Existing legal restrictions and licensing requirements may also prevent companies from sending out high-end critical services in an organization.
Another major issue that kept the knowledge process outsourcing sector from duplicating the success of the BPO industry is the inability of companies to transition to this new outsourcing model, Hart explained. Knowledge process outsourcing is easier where there are existing higher-value service providers.
However, initiating new knowledge process outsourcing relationships is a much bigger and complicated process than setting up, say, an offshore data entry operation. Higher value services are often fragmented across functions and industries. This makes it more difficult to break down knowledge process outsourcing services and package them into smaller, manageable segments, said Banerjee.
The governance time involved in knowledge process outsourcing can also increase quite significantly because of this, Hart explained. It can be jarring for companies that did not anticipate this aspect of knowledge process outsourcing.
Still, Hart remains optimistic about the future of knowledge process outsourcing. An increasing number of traditional BPOs are either consolidating or moving up the value chain. If the global BPO market grows to $450 billion by 2012 as predicted by analyst NelsonHall, the prospect for up-selling specialized services is indeed very promising.
Now the recession appears to be fading out, the opportunities for companies to grow and enhance through knowledge process outsourcing look much more achievable, he said. All that is left is for knowledge process outsourcing service providers to keep pushing and end-users to work at overcoming their qualms. Advisors, analysts, associations and suppliers all have a part to play here; and though it is a long road, knowledge process outsourcing will make it in the end, according to Hart.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) shares Hart’s optimism, Provided a strong chain of qualified professionals is built, particularly in the field of biotechnology and nanotechnology, ASSOCHAM projects growth to reach $10 billion 2012.
