OUTSOURCE2INDIA FINDINGS AND REPORT ON KPO

“Over the past year or two, the outsourcing industry has been throwing up jobs for Doctors, Engineers, CAs, Architects,” says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and offers services in the big-buzz, big-bucks area of knowledge process outsourcing. “Unlike the first wave which was more about entering data and answering phone calls, these jobs involve skill and expertise.”

The high-end KPO opportunities are immense for Indian firms. For instance, look at some of the figures pertaining to intellectual property research.

Drafting and filing of patent applications in the US is quite expensive. A typical application costs about $10,000 to $15,000 to draft and file with the United States Patent and Trademark Office. Cost savings from offshoring even a portion of the patent drafting process can easily save up to 50 per cent of the cost for the end client, according to Alok Aggarwal, chairman of Evalueserve. According to Pangea3, the cost of 10 patents in USA is approximately $30000 whereas around 50 patents can be got filed by outsourcing the said activity at a cost of less than $10000.Also, of course, the talent is much more affordable. “Law firms in the US charge an average of $400-450 per hour, and we do the same work for $75 to $100 an hour” says Kamlani” who is an outsourcing provider in the same area.

Quite predictably, law business firms such as Patent Metrix, Cantor-Colburn and Schwegman, Lundberg, and Woessner & Kluth, have already established their offices in India.There are a few others who are associating with Indian companies to encash the emerging opportunity. Offshoring R&D in pharmaceuticals and biotechnology is another area where there is enormous potential for KPO. Aggarwal says destinations such as India offer significant cost advantages (as much as 40 to 60 per cent) in the areas of contract research and clinical trials.

Companies such as AstraZeneca and GlaxoSmithKline have recently set up drug discovery centres at low-cost destinations to offshore R&D activities.

Chip design and embedded systems is another critical area. A paper presented by Aggarwal says the reason why all major integrated design manufacturers such as Motorola, Intel, Analog Devices, National Semiconductor, IBM, Cisco, Cypress Semiconductor, Nokia and Philips have set up offshore design centres is simple.

The compensation for a chip design engineer with a master’s degree and five years’ experience is about $7,000 a month in the US.An engineer with the same qualification and experience in India gets about $1,200 a month.

Naturally, the cost savings in KPO is enormous. For example, data-mining services companies can save as much as 60 to 70 per cent on analytics and inventory management costs by off-shoring them.The cost differential between PhDs/engineers in the US and India is almost $60,000 to $80,000.

Companies like Evalueserve, GE Caps, MarketRx have set up centres at low-cost destinations to provide these services. And more are expected to follow soon.

A major reason why companies in India will have no option but to move up the value chain from BPO to KPO is quite simple. By 2010, India may have become too costly to provide low-end services at competitive costs.For example, Evalueserve says Indian salaries have increased at an average of 14 per cent a year. If this trend continues, they are expected to increase 2.5 times the current salaries (in constant dollars) by FY 2010, thereby reducing the cost-arbitrage benefit from the present 40 to 25 per cent.This, the low-end work may move to relatively cheaper countries like Ukraine, the Czech Republic and Malaysia.

Moreover, commoditisation of BPO services will further boost the transition of present low-end destinations to the higher end of the value chain. The better margins expected at the higher end of the value chain might act as a deterrent for companies in accepting low-end work.

The number of professionals working in the offshore industry is expected to increase as more and more companies decide to become involved in BPO and KPO. This will further drive the trend towards the migration of low-end services to high-end services, especially as offshore service vendors (as well as professionals working in this sector) gain experience and capabilities to provide high-value services.

During 2000 to 2003, the US offshored 2,38,000 IT service jobs. Evalueserve predicts that this is likely to increase to 7,75,000 jobs by FY 2010.

Further, by the end of March 2004, the US had offshored about 1,36,000 BPO (non-IT) jobs, mostly in the call centre segment.

Forrester predicts that it is likely to offshore 1.314 million BPO (non-IT) jobs by FY 2010.

 Source: www.kpoexperts.com

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