The roots of outsourcing in India can be traced back to the 1980s, when India became an IT support center. This was followed by the 1990s, which saw the emergence of the Business Process Outsourcing (BPO) sector, wherein companies based in developed countries outsourced some of their elementary processing, administrative, and support functions to Indian firms. Over the past few years, the focus has shifted to the Knowledge Process Outsourcing (KPO) sector, which primarily deals in the outsourcing of high-end activities or the white label support services—core operations of the business. Thus, the KPO industry represents the third wave of process outsourcing undertaken by global organizations. While cost reduction was the mantra behind the IT and BPO waves, intellectual arbitrage is the KPO buzzword.
India, with its enormous pool of talented professionals, has been consistently rated as one of the top destinations for the KPO industry. According to ASSOCHAM, theIndian KPO sectoraccounts for about 70% of the global KPO industry and is expected to grow at a CAGR of 30% to reach $30Bn in 2015, with financial services being the largest contributor. The industry has also finally come of age, with the sector now providing a variety of services such as legal processing, clinical trial management, along with advanced research &analytics. Popular KPO services include services to the financial sector (such as insurance & actuarial services, corporate credit & project finance services, equity research, and investment banking), intellectual property research, medical &legal research, and research in biotechnology &pharmaceuticals.
A possible talent crunch and increasing competition from other countries such as China and the Philippines are the major challenges currently faced by the industry. The high growth forecasted above may outpace the number of professionals joining the industry, leading to a talent crunch. According to the Economic Times, the Indian KPO industrywill need at least 0.60–0.80Mn professionals by 2015 from the current 0.35 Mn. Also, countries such as China and the Philippines have emerged as low-cost outsourcing destinations and pose a significant threat to India’s dominance in the KPO sector.
Given the high growthforecasted for this sector, the following three key trends are expected to shape the future of the industry, particularly the financial services domain:
1. Exploring new geographies and localization of operations
In line with the model adopted by the IT and BPO companies, the KPO service providers—including some of the major Indian research & analytics providers—have also started setting up delivery centers abroad.