Why are people shifting from BPO to KPO?

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Topic : BPO V/s KPO

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India's Knowledge Process Outsourcing (KPO) industry

	Why are people shifting from BPO to KPO? Asked by : Ankit Singh, Sales/BD Manager, ADP Industry : IT Services Functional Area : Outsourcing Keywords : People BPO KPO Shifting Activity: Question posted: 05 30 2008 00:53:52 +0000, 2 answers, 412 views, last activity 07 06 2010 20:18:08 +0000	Answer

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Answered by sachin , Team Leader -(NonTechnical), Infor Global Solutions | 06 11 2008 02:26:05 +0000

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Drivers Behind the BPO to KPO Shift

The gradual shift from BPO to KPO in some offshore countries is expected to change the dynamics of job migration. Evalueserve predicts that more low-end jobs will migrate to emerging low-cost countries (from a percentage perspective and not as an absolute number) such as Ukraine, the Czech Republic, Belarus, Romania, China, the Philippines, and Malaysia. At the same time, KPO jobs are likely to be created in India, Russia, Ireland, Israel, and Canada. Even though some emerging countries, especially those in the Central and Eastern European Region (e.g., Ukraine and the Czech Republic), can provide KPO services, the ‘brand equity’ of these countries is quite low. Therefore, it is predicted that these emerging offshore locations will not attract KPO services, at least for the time being.

Factors Fuelling the BPO to KPO Movement

Some key factors that may fuel the transition from BPO to KPO are discussed in the following sections.

Buyers of Offshoring Services Save More at the Higher End

Buyers of offshoring services save more at the high end of the value chain, compared to the low end. Therefore, many of the current low-cost destinations will become a logical choice for companies for offshoring their high-end processes.

Scarcity of Highly Trained Specialized Talent Pool in the Developed Countries

Developed economies such as the US, the UK, and Western European countries are already facing a shortage of highly trained and specialized professionals in some knowledge-intensive high-skill sectors, such as R&D in VLSI, engineering design, IT, financial risk management, etc. One way to mitigate this skill shortage is to source talent from low-wage developing countries, which produce highly educated scientists and professionals. This has been the practice in the US for the past several decades. The US permits emigration of engineers, scientists, and medical doctors from developing countries, such as India and China. With tighter visa regulations (in the developed countries) and cost-reduction pressures on MNCs, global offshoring of high-end services to low-wage countries to tap the existing talent pool in a costeffective manner is a viable and lucrative option.

Maturity and Evolution of Present Low-end Destinations to the Higher-end of the Value Chain

The evolution of present low-end destinations to the higher end of the value chain, aided by the maturity of the processes, will result in organizations moving up the value chain to provide KPO services. Commoditization of BPO services will further boost this transition and 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 barriers to entry in the KPO industry are also higher, and therefore, offshoring companies may not have the same competitive pressures as are there in traditional BPO.

Some of the Present Low-cost Destinations May No Longer Remain Low Cost

Some current low-cost destinations may no longer remain low-cost due to increase in salaries and hence, may not be able to provide cost-arbitrage benefits to companies that want to offshore these services. For example, Indian salaries have increased at an average of 14 percent per 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 percent.

Increasing Number of Professionals in the Offshoring Industry

The number of professionals working in the offshoring 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 the professionals working in this sector) gain substantial experience and capabilities to provide highvalue services.

During 2000-2003, the US offshored 238,000 IT service jobs. Evalueserve predicts that this is likely to increase to 775,000 jobs by FY 2010. Further, by the end of March 2004, the US had offshored about 136,000 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.

Evalueserve estimates that the UK had offshored 35,000 IT service jobs by FY 2003, and this is expected to grow to 110,200 jobs by FY 2010. Evalueserve also estimates that 30,000 BPO (non-IT) jobs (mainly in call centers) have already been offshored by the UK by FY 2003, and 201,100 BPO (non-IT) jobs are expected to move from the UK by FY 2010.

Answered by Anamika Tiwari, Sales/BD Manager, Satyam Computer Services Ltd | 05 30 2008 00:59:50 +0000

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