Graduate School of Management

COVER SHEET

COURSE NAME: GLOBAL MARKETING SERVICES.

Faculty Member and Supervisor: Professor Tarun Das

DUE DATE: 15 JANUARY 2007

Submission of this assignment constitutes a declaration that:

• No part of this work has been copied from any other person’s work except where due
acknowledgement is made in the text; and

• No part of this work has been written by any other person except where such collaboration
has been authorised by the course lecturer concerned, and

• No part of this work has been submitted for assessment in another course in this or another
part of the University except where authorised by the lecturer(s) concerned.

STUDENT NAME and SIGNATURE (and ROLL NUMBER in brackets):

Names Roll Numbers Signatures Date

1. DEEPTI SUDEVAN FT-05-552 D.S 10-01-07

2. DHEERAJ DUGGAL FT-05-554 D.D 10-01-07
3. FARAH AHMED FT-05-561 F.A 10-10-07
4. VIJAY SINGH FT-05-721 V.S 10-01-07

Date: 10 Jan. 07

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 KNOWLEDGE PROCESS OUTSOURCING – (KPO)

Introduction

Knowledge Process Outsourcing is a highly value added process in which the

achievement of goals is highly dependent on the skills, knowledge and experience of the
people carrying them out. KPO deals with executing standardized processes, involves
higher-end services which require advanced analytical and technical skills, knowledge
process outsourcing involves legal works carried out at law firms like patent document
writing, global filing, search, trademark search, trademark registration, prior art searches,
legal advise on infringements, invalidation search, freedom of use search, etc.

By 2010, INDIA would emerge as a major knowledge process outsourcing (KPO)

destination. The Confederation of Indian Industry (CII) study predicts that KPO would
grow at 46 per cent to become a $17 billion dollar sector of which $12 billion will be
outsourced to India. NASSCOM projects that the KPO sector in India may reach $15.5
billion by 2010, up from $1.2 billion currently.

 What KPO can deliver to you?

KPOAsia.com work in close association with the client and provide services that are
predefined in terms of quality and standard of work. With a good firm you get the
following:

• Good quality work.

• Lower costs.
• On time delivery of services.
• Uninterrupted services.

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  Why should your company invest in knowledge process outsourcing?

The fundamentals of outsourcing apply to knowledge based services as well. A

shortage of trained professionals shoots up the cost of maintaining such services
in the host country when the same job can be done with similar precision and
quality and at less than half the cost abroad.

Benefits of KPO

Standardized technical education is now widely available to all in the developing

countries. This trained manpower is also accessible at very low cost as well. It therefore
makes sense to utilize their services.

Outsourcing to KPO firms can provide the following benefits:

• Valuable cost savings that can be utilized elsewhere.

• Standard operational efficiency.
• Trained professionals at work.
• Savings in time and management energy for maintaining in house services.
• Increase in profits.
• Option to recruit a larger work force without raising costs.

KPO Skills Defined

The following skills form the basis of knowledge-based firms and their workforce.

• Analyzing data and information to produce meaningful documents.

• Researching information from various sources.
• Converting raw technical data into presentable documents.
• Use of high levels of conceptualization and theoretical knowledge.
• Proficiency with various advanced software and hardware devices.

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According to a report by GlobalSourcing Now, the Global Knowledge Process
Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD
12 billion (almost 70%) would be outsourced to India alone. Indian KPO sector has
already taken steps in employing highly educated and talented people and number of
KPO professionals is expected to cross more than 250,000 by 2010 compared to the
current figure of 25,000 employees. The graph on the right suggests that Expected
Growth in Global BPO and KPO Markets (2003-2010).

Scope and Future of KPO

According to a report of National Association of Software and Services Companies

(NASSCOM), the Indian chamber of commerce that serves as an interface to the Indian
Software industry, Knowledge Process Outsourcing industry (KPO) is expected to reach
USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. Another
report predicts that India will capture more than 70 percent of the KPO sector by 2010.
Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel
are also expected to join the KPO industry.

According to a recent study by “Evalueserve, a Gurgaon based outsourcing company

having service chart for global world”, the global KPO market is expected to grow at a
cumulative annual growth rate (CAGR) of 46 per cent, from $1.2 billion in 2003 to $17
billion in 2010. Compare this with the prediction for the low-end outsourcing services

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market. This is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8
billion in the same period.

Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT) services in
2003 and is expected to grow at a CAGR of 36 per cent during 2004 to 2010. Hence, it is
likely to earn $30 billion in 2010 by providing these services.

Says country general manager, Kelly Services, Achal Khanna “India still maintains the
competitive advantage for providing, the combination of the most cost-effective and high
quality manpower- this is India's strength in the off-shoring business”.

In the future, it is envisaged that KPO has a high potential as it is not restricted only to
Information Technology (IT) or Information Technology Enabled Services (ITES)
sectors, and includes other sectors like Intellectual Property related services, Business
Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research
(Market research KPO), etc.

"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."

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.

In the Indian context, KPO salaries could be 25-50 per cent higher than those offered to
the same domain experts such as Engineer, Doctor, CA, Lawyer, Architect,
Biotechnologist, Economist, Statistician and MBAs, it said.

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In its annual publication Strategic Review 2005, Nasscom has said the high-end activity
of the BPO industry—the KPO or knowledge process outsourcing could be worth $15.5
billion by 2010.

According to earlier estimates, the BPO industry itself was expected to be about $20bn
by 2008, hence a very significant portion of the sector—in excess of 50% is now
projected to be knowledge based. This represents significant metamorphosis of call centre
sector business to completely different model. Interestingly, Sunil Mehta, Nasscom vice-
president research, distances himself from the estimates.

The projections are based on a white paper released by Evalueserve. The paper cites
reasons for a possible KPO boom. It says higher savings by outsourcing knowledge based
activities combined with the scarcity of specialized talent in developed countries could
lead to growth in the KPO sector.

Billing rates for KPO are higher at $30-45 per hour compared to just $10-14 in the BPO
business. However, the paper also warns of several challenges like higher quality
standards, greater investments and inadequate talent.

The study estimates that while the compounded growth rate of BPO till 2010 would be
just 26% KPO is expected to be grow at almost 46%.

Bottlenecks in Future Growth

A study on Knowledge Process Outsourcing (KPO) sector shows a huge supply gap that
threatens to cripple its growth. Rocsearch, a UK-based research services company, has
gathered evidence suggesting that the KPO market may just about reach a size of $5
billion by 2010, manned by 100,000 people instead of projections of a $12 billion market
supported by 250,000 employees.

This accentuates Nasscom's projections of a shortfall of 500,000 workers in ITES and

BPO sectors by 2010.

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Assuming an average revenue per person of $55,000 over the next four years, 100,000
knowledge workers point to a $5 billion market. This size, though based on a CAGR of
32%, is still 60% less than the $12 billion potential projected by big KPOs, like
Evalueserve, last year.

Rocsearch COO, Ashish Sinha says the sector is restricted by low employability despite
high graduate turnout, and competing demand from other sectors as jobs grow faster than
the workforce.

For example, all the 2,000-odd IIM and top 10 B-School graduates are employable, while
less than half the 84,000 graduates from Tier-II B-Schools would make the grade.

The study sees only 500,000 of the over 3 million workers added to the labour pool in
2005 as employable in global firms and of these, just 2 in every 100 are likely to opt for
work in knowledge space.

Major differentiating characteristics of KPO’s from BPO’s

1. KPO (Knowledge Process Outsourcing) implies outsourcing of knowledge intensive

business processes that require specialized domain expertise. Unlike BPO (Business
Process Outsourcing), which follows pre defined and structured processes that can be
performed by virtually anybody, these processes demand advanced analytical and
specialized skill of knowledge workers who have specific domain proficiency.

2. Therefore, outsourcing of knowledge processes face more challenges than BPO.

KPO’s employ highly qualified professionals. For instance, a legal outsourcing firm
employs lawyers; a pharma R&D outsourcing company recruits doctors, PhDs in life
sciences and an auto engineering outsourcing firm requires engineers with CAD/CAM
expertise. Unlike traditional BPOs where relatively low-level skills were required, here
knowledge and professional education is the key.

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3. In BPOs, there is a pre-defined way to solve a problem which the employees can be
trained to learn. In KPO’s no pre-defined process can be created and replicated each time
as every project is unique.

How Buyer’s chose the KPO market

The reasons that usually influence buyers' decisions regarding choice of destination for
outsourcing a high knowledge related work are:
• Availability of qualified manpower
• Political stability
• Infrastructure
• IPR/Data security issues
• Communication skills
• Lower wages(not as important as in case of BPO)
• Proven delivery capabilities

Many countries are now trying to build capabilities in specific KPO areas. Russia claims
to be a good destination for healthcare- and technology-related KPOs. The Philippines
has established itself as a successful animation outsourcing destination. But India,
however, remains the proven and favored destination, way ahead of other competitors in
most areas, especially financial research, legal and healthcare/pharma research.
Segment Country
Animation Philippines, India, China
Content India, Philippines
Financial services India, China
Healthcare Russia, India
IT/R&D India, China, Russia
Legal New Zealand, India
Pharma India, Russia

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The NASSCOM (National Association of Software and Service Companies) estimates
the KPO market to grow by gargantuan proportions to US$ 15.5 billion by 2010. The
number of Indian KPO professionals is set to leap from 25,000 to 250,000 employees by
2010.
Major KPO Players in India

Since 2004, India has seen a proliferation of vendors in every niche. Apart from the large
number of entrepreneurs and professionals starting KPO outfits, almost all the large
multi-service BPOs (like WNS and MphasiS) are joining in, attracted by growth and
higher margin business. Some of the prominent KPO segments and players in India are
given below.
Segment Leading companies in space
Evalueserve, SmartAnalyst, Netscribes, ValueNotes, Ugam
Research/analytics
Solutions, marketRx, Inductis, Allsec, Scope eKnowledge,
Legal research Pangea3, Atlas Legal, Manthan Services, Intellevate
Finance &
Outsource Partners International, Sureprep, Karvy
accounting
Pharma/Biotech Biocon, Avesthagen, Eli Lilly, Saintlife, Pfizer, Bayer,
research AstraZeneca, GlaxoSmithKline, Novo Nordisk
Clinical research Clingene, Avesthagen, Ranbaxy
Telecom R&D Alcatel, Nokia, Qualcomm, Ericsson, Lucent Technologies
Microsoft, Google, Baan, Yahoo, Adobe, SAP Labs, BMC
Software R&D
Software, IBM, HP, Phillips, Sun Microsystems
Chip design Cisco, Intel, Texas Instruments, Motorola, AMD
Delphi, DaimlerChrysler, General Motors, Whirlpool, Neilsoft,
Auto/engineering
Plexion, Quest
TechBooks, Thomson Digital, Macmillan, Knowledgeworks
Publishing
Global, Newgen Imaging
Brainvisa Technologies, NIIT Smartserve, Lionbridge, Tata
E-learning
Interactive Systems, Maximize Learning
Animation Pentamedia Graphics, Crest Animation Studios, Entertainment

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 KPO : Skills for Success

Segments Services Skill sets required

Reviewing transactional &
litigation documents; drafting
Knowledge in US/UK laws; adept in legal
Legal services contracts; research memoranda
application; ability to reason & research
& due diligence reports;
prosecuting patents; negotiations
3D modeling; conversion: 2D to
3D; finite analysis;
Engineering
computational fluid dynamics CAD/CAM; drafting & modeling; product design
R&D
analysis; technical specifications
for tenders; value engineering
Secondary & primary research;
Market research conversion of findings to Statistical tools; research techniques; report writing
& analytics knowledge; writing & editing; & presentations; database research
formatting client reports
Editorial; content delivery;
digitization of content; data
Writing &
enrichment & warehousing; pre- English communication skills; journalism;
content
press work; proofreading; experience in writing
development
template designing; text
composition
Research & development; drug
Pharma R&D Doctors; master's degree in science, PhDs
discovery; clinical research
Healthcare Diagnostic; genetic profiling;
Medical degree; specialized subject knowledge
services oncology tests; HIV & allergy
Education & K-12;private tutors; pedagogy Teaching methods/techniques; cultural sensitivity;
training currclm &content Devlopment online teaching methods

The Problem Solving Process in a KPO

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The problem solving process involves collection of the relevant data and sometimes even
its creation when ready data is not available. Aggregation and organization of the data is
then done so that the mountain of data would provide useful information ( This process is
called data mining- when useful information is derived out of mountains on seemingly
useless data). The information is then analysed and interpreted by experienced
professionals. This is then provided to the client as intelligence for making vital
decisions.

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 DEMAND - SUPLY SIDE FACTORS

DEMAND SIDE FACTORS:

• Large potential for SME customers

KPO started initially in captive centers of large companies, but has today moved on
to specialised vendors, who provide such services to large companies such as
Investment Banks. This sector holds immense potential for the SMEs in the long-
term. There are millions of SMEs, which can benefit from KPO. While large
companies predominantly use KPO for gaining access to talent and cost reduction,
SMEs can further benefit from buying KPO services from specialised vendors by
being able to gain access to very large resource pools quickly at no upfront costs.

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 Additionally, it allows them to vary their cost base in the face of short-term demand
swings, which creates the possibility of new business models.

• Customers want focus rather than breadth or size

Buyers of offshoring services are increasingly looking for those KPO players, which have
the necessary expertise, depth and experience in focussed areas of KPO. KPO players
need to focus on particular market segments, in terms of services provided, industry
verticals, functional skills as well as the type of clients served. Typically, customers look
for the skill rather than for the size of a vendor and prefer focussed vendors over vendors
offering large varieties of BPO, IT and KPO services. They want vendors who will totally
customize their solutions and offer both project-based delivery models as well as
dedicated centres. Flexibility and speed are critical.

SUPPLY SIDE PERSPECTIVE OF KPO.

KPO is centred on professionals possessing the right skill sets. Therefore, access to a
large, high-quality skill pool is a precondition for successful KPO operations, captive or
third party.

The ingredients of successful KPO are recruiting and training the right professionals,
providing consistent quality over time, improving productivity to or beyond Western
levels and successfully marketing the services to sceptical customers.

Setting up successful KPO companies, captives and third-party vendors, is very difficult
and there are significant barriers to enter have been reflected in the past and the huge list
of unsuccessful entries clearly reflect this.

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 • People Philosophy and Development

KPO companies are professional services companies and not white collar factories ( like
BPO’s). Therefore, world-class people development processes are at the root of
successful KPOs. Developing professionals faster and better than anyone else will
translate directly into better quality, productivity, retention and success in the market
place. Meritocracy and true employee care are only a few elements of such a philosophy.

• Recruiting

Recruiting the right people is critical and requires significant hiring, building brand
equity at the right schools and in the open market. Successful players can attract better
people. The interview-to-offer ratios of successful players are about 25:1 and the offer
acceptance rates are as high as 80%. Hiring mistakes inevitably translate into quality
issues further down the road and need to be eliminated immediately, which can affect up
to 5% of new hires.

• Training

One of the Best practices in KPO is the huge investment in training (about 15% of the
total work time) and developing skills sets such as, functional skills, cross-cultural skills,
as well as managerial skills.

• Quality and Expertise

The objective must be to deliver world-class quality and often even improved service
levels. Successful KPOs measure quality and get feedback for each individual project
(sometimes projects as small as a few thousand US dollars in value). In-depth expertise is
required as well. For example, customers require Junior Equity Research analysts to
understand the market dynamics in Oncology when creating a valuation model for a
pharmaceutical company active in Oncology.

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The expertise required can be in industry verticals, functional areas (e.g. Risk
Management) or in geographic knowledge (e.g. understanding mid-sized German
companies).

Retention and managing attrition

Unfortunately, many young professionals do make naïve, short-term decisions during the
first 2-5 years of their careers (‘job hopping’), which results in unnecessary attrition,
damaging the professionals’ CVs and the KPO’s ability to provide continuity of service, a
highly critical factor in KPO. These professionals do not take a five year perspective in
optimising their careers, but feel that they have to move on for short-term gains of a few
percent more in salary or because of peer pressure. More successful KPOs can retain their
people for longer.

• Focus

The ‘Jack in all Trades’ approach is not likely to work in KPO. The work at KPO
requires domain expertise and therefore the culture and customer requirement of KPOs
and BPOs vary significantly. Hence, it is important that KPOs develop expertise in few
areas and excel in them. There is a reason for why Western Law Firms, for example, do
not offer R&D and Insurance Claims Analytics and Call Center Operations at the same
time.

• Innovation and Differentiation

KPO companies have the unique opportunity to create new markets, since their price
points allow them to offer new types of services simply not available in high-wage
countries for cost reasons. However, players who provide innovative services will
differentiate as successful KPO companies from players who offer cost-arbitrage, as they
too have a niche that cannot be replicated by low cost players. This ensures them a
sustainable place in the world markets.

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 • Marketing & Sales and Branding

Selling KPO services in the West will require a Western sales force and significant
branding efforts in the medium-term. As of now, tapping the SME potential and selling
into Continental Europe, requires local support. Successful branding will be another
necessary ingredient to generate a sufficient ‘pull’ in the market.

BILLING RATES FOR KPO’s - - The Key driver

The fact that qualified professionals in India are paid approximately half the salaries
earned by their counterparts in the US has been one of the biggest drivers for the sector.
This has resulted in lower billing rates per hour from vendors in India. The diagram
below gives approximate billing rates across various segments.

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Captives Outnumber Third-party Vendors in the KPO Space

Keen to reap the benefits of outsourcing yet not willing to expose themselves to risks, a
number of companies have opted for the captive route. This enables them to protect
themselves against possible IPR threats and feared loss of patented material. For instance,
several pharma and legal companies that deal with sensitive data have opted for captives.
(Nineteen of the top 20 global pharma R&D companies have established R&D centers in
India.)

These captive KPOs are expanding their India presence:

• Google has set up its second research center in Hyderabad; the first center is in
Bangalore.
• Goldman Sachs is expected to grow its India headcount to reach employee
strength of approximately 2,000 by the end of 2007.
• JPMorgan Chase plans to double its headcount in India from the current 3,000 by
2007.

New Verticals and New Markets

Though the US has traditionally been identified as the single largest market, other
countries such as Japan have also commenced outsourcing of knowledge activities. Some
of the latest verticals that are traveling the outsourcing route include architecture and civil
engineering.

Hitachi, provider of software development and systems maintenance services, established

a niche outsourcing captive in India to increase its overseas business and revenue from
foreign operations.

The joint venture between Harris Smriga & Associates and Taj Design Services will cater
to the infrastructure design needs of HS Associates. The decision was taken keeping in
view a shortage of civil engineers in the US owing to the growth of the IT sector.

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Challenges Ahead...

With significant hype surrounding the industry, the KPO ring will only grow louder with
time. However industry experts envisage a shortage of qualified personnel in the next
couple of years. Increased employee attrition will also make KPOs innovate their
recruitment and retention strategies. The industry needs to take significant initiatives to
grapple with the shortage of quality supply of professionals and ensure strong training
methodologies for their recruits.

To get more complex jobs, hence higher billing rates, issues of data security and patent
infringement need to be addressed more proactively. With a positive buildup and
expectation from India in the KPO space, the onus on the industry to deliver weighs even
heavier.

Given that projects can be relatively small and infrastructure requirements minimal, entry
barriers are low. Domain expertise and qualified personnel rather than size are the keys to
success. Owing to this fact new KPOs emerge on the outsourcing scene every other day.
For every single large KPO player in an area, there are an estimated 10 small players
offering similar services -- usually at lower billing rates. While entry in KPO is easy,
surviving and winning is what will set apart the stronger players in the long run. We
expect a wave of consolidation in the industry between 2006 and 2008.

We will see a far greater number of small deals, driven by acquisitions in the knowledge
services space, as acquirers will find it worthwhile to do small deals to obtain specialized
knowledge, capabilities and customers.

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The mushrooming of small niche players will, in turn, create a large pool of acquisition
targets. High degrees of specialization and innumerable niches will allow even relatively
small firms to exist profitably. So even as consolidation picks up pace, the explosion of
new service providers will create further fragmentation.

Overall, fragmentation will become a stronger wave than consolidation among the KPOs,
leaving the industry with even more players by 2010. However, the abundant availability
of these small vendors as acquisition targets will lower valuations. This will be more so
for the small, multi-service outfits without the financial muscle to scale.

Challenges Faced by KPO – with specific reference to Financial services

The political, infrastructural, and legal issues that BPOs encounters are also challenges
that KPO’s faces. But the advent of KPO have brought along a few additional challenges
unique to the industry. Using the Internal and External Environment scanning Model, the
key challenges that have been selected are:

 Internal Challenge: Recruiting and Retaining the Right Talent

 Customer Challenge: Demand for Quality, Data Security and Compliance
 Competitor Challenge: Other Countries and Global KPOs Operating in India
 Industry Challenge: Information Infrastructure and Branding

Access to a large, high-quality skill pool is a precondition for successful KPO operations.
But the requisite skill pool is not easy to get. Reasons being:

1. High competition for access to a limited superior - quality pool - Few of the
graduates and MBAs India produces every year actually possess the high quality and
functional competency that is essential in a knowledge intensive project - primarily due
to ineffective government monitoring of the quality of colleges

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2. Successful players attract better people - Global MNCs like Evalueserve and GE
manage to attract better talent than Indian players in the financial KPO domain because
of better brand name and pay.

3. High attrition rates – This occurs as a result of poaching by competitors and frequent
job hopping by young employees looking for better job opportunities.

4. Lack of domain expertise - Graduates in India may not be aware of the client’s
business environment E.g. US system of accounting (US GAAP).

5. Incorrect perception of the KPO profession as low grade – Qualified professionals

mistake a KPO job to involve low level work and a 24x7 pressure environment similar to
that of a BPO and refrain from undertaking it.

Customer Challenges

1. Demand for Quality

In BPOs, there is a pre-defined way to solve a problem which the employees can be
trained to learn. Clients have an OLA (Operation Level Agreement) or SLA (Service
Level Agreement) with the Outsourcing Company where both parties decide on certain
metrics for quality adherence – for example, a customer service call pick up time should
be less than ten seconds. In contrast, KPOs require keen understanding of how a client
works and what his exact needs are for each assignment. No pre-defined process can be
created and replicated each time there is an assignment since every project is unique. As a
result of this, defining an ideal metrics to measure the quality of work can be quite a
difficult task. For example, an analyst may target twenty factors of importance for a
market research study whereas another analyst may shortlist just five. The client may be
pleased with the preciseness of the latter though the number of factors seem inadequate
compared to the former. Thus, the difficulty lies in accurately determining whether you
met client expectations or not.

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Ultimately, the client in a KPO will not look at dollar figures but will be mainly
concerned with quality of services. That is where Indian companies may fail.

2. Concern over Data Security and Client Confidentiality

In an opinion poll Conducted by NASSCOM and the Information Technology
Association of America (ITAA) in 2004, greater than 75 percent of respondents agreed
that offering sophisticated information security provisions and practices provide a
competitive advantage because security has become a critical selling point. According to
Ernst & Young's 2004 Global Information Security Survey, companies have identified
major viruses, spam and employee misconduct as the key concerns in India. The data
and information a KPO business works with is extremely sensitive. Clients such as
banks, insurance companies and corporations trust KPO providers with company
financial data, treasury and cash management functions and investment portfolio
decisions.
Thus, KPOs are privy to information not otherwise public knowledge. Thus, clients often
hesitate to offshore research and processing of sensitive financial data and
information involving strategic decisions. A big challenge is to convince clients that
their confidential data will be treated with extreme caution and will not fall into the hands
of unscrupulous or unauthorized individuals. Thus, the fundamental and near-term
challenge facing Indian companies is to provide the necessary security and data
protection while working on client data. To keep up with the increasing demand from
clients to maintain information security, KPOs will need to balance the escalating costs of
maintaining global security standards while staying competitive in a cost-driven market.

3. Compliance and Corporate Governance

With legislations such as Sarbanes-Oxley (which requires companies’ executives to
provide personal assurances as to the completeness and accuracy of the financial figures
they publish), companies that outsource finance functions are facing increasing business
risk. A greater emphasis on governance and greater direct control of finance processes is
acting as a barrier in the way of a decision to outsource finance functions.

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The client concern is that outsourcing might lead to a loss of control, which might in
turn lead to a weakening of corporate governance and subsequent breaches of
compliance with regulatory requirements.

Competitor Challenges

1.Competition from Other Countries

Countries such as China, Philippines, Mexico, and Ireland are fast emerging as
alternative KPO Services destinations. Although, according to McKinsey analysis, India
is comfortably placed in the Location /People attractive metrics, other countries like
China are fast catching up. A positive foreign investment climate, favourable government
policies and an educated, yet low cost workforce are encouraging foreign financial firms
to offshore their KPO needs to these countries.

2. Competition from Global KPO Units Operating in India

Thus far, MNCs like GE and Evalueserve, with their huge resources and large scale have
been doing well in India. Many of the financial number crunching for firms like Fidelity,
Reuters and are also done by captive units in India. These firms take advantage of the
low cost Indian knowledge worker, simultaneously leveraging their specific domain
expertise, huge scales of operation and higher employee remuneration.

Industry Challenges

Information Infrastructure
KPOs need 24/7 Internet connection to collect data, perform secondary research and
transmit data back and forth, either nationally or internationally. According to the
Telecom Regulatory Authority of India (TRAI), internet bandwidth prices account for
almost 40 per cent of a KPO's total costs, thus being a critical differentiator between its
success and failure. Although, major reforms have been undertaken by the government to
spur the growth of IT infrastructure, there are a few significant roadblocks, such as:

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India’s high international bandwidth prices - Leased line is the most preferred mode
of internet connectivity due to its permanent “Always on” connectivity, reliability and
speed. Unfortunately, India’s international bandwidth prices are the highest in the world,
the main reason being market control by an oligopoly of few players such as VSNL,
Reliance, Bharti. In contrast, in highly competitive Western and East Asian markets (e.g.
14 in Korea and 32 in Germany and U.S.), a large number of players force prices down
and keep bandwidth charges minimal.
High entry fee for Internet Service providers (ISP) who provide Virtual Private
Network services (VPN) – which is a viable alternative to leased line connectivity. The
entry fee for the cash strapped ISPs is around Rs. 10 crore for an all-India license, apart
from an annual revenue-share license fee of 8 per cent.

Low Cost -Low Quality Image

India’s unique positioning as a low cost, low down the value chain service provider in the
form of its BPO operations has turned out to be a double edged sword – It is a cash cow
for Indian firms but when it comes to the choice of processes outsourced to India, Indians
cannot seem to shed their ‘Cost Effective Service Provider’ image. Foreign companies
also worry about the quality of work that a low wage country like India can deliver. Thus,
more and more foreign companies contemplating outsourcing to India consider
outsourcing only the trivial back office operations in order to cut costs because of their
prejudiced view on India.
Thus, organizations are finding it increasingly difficult to migrate from their cost
effective standardized service offerings (which are low in the value chain and also earn
lower margins) to a more differentiated financial service offering (-A major KPO that has
developed in India, which can command a premium by virtue of the intellectual value add
and knowledge of industry). This is also the roadblock existing BPO companies may face
as they try to scale up their operations and move higher up the value chain to offer KPO
services.

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 AN INDUSTRY EXAMPLE:

As a part of the project our team members had an industry interaction with Top
Management of Inductis, an EXL Company, a leading KPO in Gurgaon. We were
able to get our hands on the process they follow to solve the problems of their clients
using Analytical skills.

ANALYTICS CONSULTING IDENTIFIES MISSING REVENUE

Overview: In order to understand why revenues were dropping in one business line, a
large business services company turned to Analytics.

Analytics is the discipline of accessing and analyzing significant (but typically difficult-
to-handle) data from multiple sources in order to understand historical performance or
behavior, or to predict a particular outcome. In so doing, the data is converted into
knowledge that enhances an organization's ability to make effective business decisions.
Situation
A global $1 billion business services company was facing consistently declining income
in a line of business that accounted for more than 60 percent of U.S. revenue. There was
no obvious reason for the drop-off that had begun with the new fiscal year. Among the
company's senior executives, there was a range of opinions as to the reason for the
decline. While the economy was an obvious scapegoat, the sales force blamed the
product group for introducing new lower priced products that were cannibalizing the
revenue from high-priced older products; the product group blamed the sales force for not
acquiring enough new contracts; and both blamed the technology group for failing to
develop appealing product features already adopted by the competition.

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The company had the information needed to find the answer for solving the problem. But
getting to the right data was not a straightforward matter. As in most large organizations,
a significant amount of valuable information resided in separate systems.
Transaction level details were stored in several discrete legacy databases, one for
telesales, others for web-based sales, third-party sales, and the like, as well as the
accounting general ledger. Information accumulated at the rate of 4.5GB of raw data
every month. Staff tried to aggregate this transaction-level information in order to
explain the revenue drop-off. However, given the complexity, traditional data collection
tools proved inadequate. The presence of irrelevant data and exceptions further
complicated the effort. No clear viewpoint emerged; in fact, the limited evidence was
contradictory.

Applying Analytics
Three months into the fiscal year, with continuing disappointing results and an earnings
release looming, the company asked Inductis to examine the problem. In initial
interviews with management, it became apparent that the insights of individual team
members in the company were colored by their individual biases and that there was no
way to reach a plan of action that everyone would buy into given the existing level of
understanding.
Inductis set out to collate and analyze transaction-level data from various legacy
databases, including the general ledger, and discrete databases for each sales channel.
Next, the team formulated the "usual suspect explanations" as hypotheses to be
statistically tested.

Discovery
After working through the hypotheses, Inductis concluded that the revenue decline was
largely a mirage. More than 55% was due to a change in the way revenue had been
allocated among business lines. The classification change actually had been implemented
by an outsourced technology contractor. This had occurred during a fast-turnaround IT
project towards the end of the prior fiscal year. Moreover, the contractor had not fully

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documented the change, which was therefore overlooked by accounting and business line
management.

The next largest component was revenue that had not been realized because a handful of
large customers in certain segments had been subject to severe economic difficulties and,
in some cases, bankruptcies. Finally, a recently introduced, lower-priced web-based
product-line, aggressively promoted by the field sales force, was cannibalizing its higher-
priced equivalent.

Bottom Line Results

As a result of the analysis and collation of detailed customer segment/product segment
information, everyone was able to reach the same conclusion about the relative
contribution of each factor. (Of course, it required a couple of iterations to assure
everyone that the analysis had taken into account all the relevant data sources.) Once
there was agreement on the causes of decline, the recommendations for action were
straightforward. Over the next 6 months as the recommendations were implemented,
business line revenue rose by nearly 8%, reversing a business-as-usual declining trend of
4%.
Ultimately, Inductis' strategies gave the CFO a positive story for Wall Street: a steady
recovery in revenue despite the economic downturn. And, the finger-pointing among
product groups, technology and sales came to an amicable end.

SWOT ANALYSIS - - KPO’s

Everyday your business is faced with new challenges, strengths, weaknesses,

opportunities and threats. The good thing is, what happens to be a threat for your
competitor could turn into a golden opportunity for you. All you need to do is keep your
eyes open and take the right action!

SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) is also known as

TOWS analysis. SWOT Analysis is a powerful technique to throw light on your business

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possibilities. SWOT Analysis helps you chisel out your strategies in a more streamlined
manner and create a niche in the market.

Strengths

• What do people in your market see as your strengths?

• What advantages does your company have?
• What do you do better than your competitors?
• What unique or lowest-cost resources do you have access to?

Look at your strengths in the context of the competition. If you are comparing your
product with a competitor who has a large share of the market, your own large share of
the market is not a strength but a necessity.

Weaknesses

• What should you avoid?

• What could you improve?
• What are people in your market likely to see as weaknesses?

You might need to get into your customers' or competitors' shoes to check if there are
weaknesses that they perceive but you overlooked. It is more an internal versus an
external view. How could you turn your weaknesses into strengths?

Opportunities

• Where are the good opportunities your company could leverage?

• What are the interesting and promising trends you are aware of?

Opportunities could come your way through:

o Changes in the technology you use

o Changes in the market
o Changes in government policies that are relevant to your business

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 o Changes in your target audience such as lifestyle
o Events in your industry

You can discover new opportunities by analyzing your strengths. You could also look at
your weaknesses and think about the potential opportunities opening up if you eliminate
your weaknesses.

Threats:

• What obstacles do you face?

• What is your competition doing?
• Is changing technology threatening your position?
• Do you have bad debt or cash-flow problems?
• Could any of your weaknesses seriously threaten your business?
• Are the required specifications for your job, products or services changing?

Such analysis will often throw light on the future course of action, both in terms of
putting problems into perspective and pointing out what needs to be done.

Strengths and Weaknesses are internal and Opportunities and Threats relate to external
factors.

THE WAY AHEAD

India may start to lose its low-cost advantage in future. Low-end services may move to
even cheaper destinations. For India to stay ahead in the global outsourcing market it will
have to develop its indigenous KPO industry and maintain its leading edge. Few ways of
overcoming the several challenges ahead of the financial service KPO industry would be:
Steps at the Operational Level
1. Skill Upgrade - More focus on training, constructive feedback; appropriate coaching,
mentoring and building domain expertise.

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2. Staff Retention - Identifying right career paths for their professionals - the central
theme being nurturing professionals, not poaching.
3. Better Security - Need to invest heavily to adopt and enforce best practices in
information and data security - Measures may include biometric security, and employee
background checks.

4. Better Control Mechanisms - Organize methodical status reporting for outsourced

processes, ensure continuous evolution of the control structure, and review of the defined
contract specifications, in order to maintain quality of KPO deliverables.

5. Improve SLAs (Service level Agreements) to Improve Quality - Need to utilize

comprehensive, continuously updated service level agreements to quantify and
effectively measure the quality of services provided. Outsourced processes should be
better defined and documented – leading to greater clarity.

Steps at the Strategic Level –

1. Attract Better Quality Professionals By Involving Government to Enlarge the Pool -
Keeping in view the tremendous need for academically qualified personnel in the KPO
sector, the Indian education system needs to be given a major face-lift. The government
needs to invest more in education, allow more private sector participation and monitor the
quality of colleges more diligently.

2.Creating More Awareness About the Nature of Work KPO Involves – There is a need
to create awareness that KPO is different from BPO and involves high end knowledge
intensive work.

3.Bring in More Capital By entering into Partnerships with Big Financial Service
Organizations – This step can help in two ways - provide much needed cash to Indian
financial services KPO’s and also impart the requisite domain expertise.

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4.Getting more Venture Capital – Another viable option to gather funds for cash
strapped Indian KPO units.

5. Form an Effective Industry Association to Lobby with the Government to bring on

- Better regulations in the form of more stringent IT acts
- Better enforcement of laws by creating regional regulatory bodies to help in diligent
monitoring
- Improving the information infrastructure by taking adequate steps to reduce prevailing
bandwidth prices.

6.Build Brand India – There is a need to lobby for and increase the value of ‘Brand
India’ as a potential high end financial services outsourcing destination. Selling KPO
services abroad and helping it scale up to a global size would require significant branding
efforts in the medium-term.

7. Collaborate with Institutes like Carnegie Melon or Other Financial Services

Accreditation Organizations – In order to develop process or quality standards for the
KPO industry, similar to the creation of CMM standards for the software industry. This
would not only help KPOs gain credibility with their clients but also fight multinationals
entering this domain.

Conclusion

The ingredients of a successful KPO business in the future would be recruiting and
training the right professionals, developing domain expertise, creating value for clients by
offering highly differentiated services, providing dependable quality over time and
building credibility alongside competing countries. To achieve these, many steps need to
be taken at the strategic and operational level by both the government and the individual
KPO. Also, it is suggested that a dedicated body promote India’s expertise in the KPO
domain and help create a formidable brand in the international market.

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 BIBLIOGRAPHY

Reports
NASSCOM's Handbook - ITES-BPO Industry - 2005 Background and Reference
Resource

Evalueserve-NASSCOM report: ‘The Impact of Global Sourcing on the US Economy:

2003-2010’

Websites
(1) http://www.nasscom.org
(2) www.business-standard.com
(3) http://economictimes.com
(4) www.google.com

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