Pitfalls ahead for the booming KPO sector

Supply side issues may yet trip up the growth story at the high end of the offshoring business.

The conventional wisdom so far has been that knowledge process outsourcing (KPO) is going to be India’s (and indeed, the globe’s) fastest growing sector over the next decade, growing at more than 40 per cent a year.

Upbeat estimates envision the global KPO business soaring from the current $2 billion to $16-17 billion by 2010, with India’s share of this newest, hottest sunrise sector at more than two-thirds, or $12 billion, and employing 250,000 people.

However, while a new White Paper by employment services firm Kelly Services is gung-ho on KPO, a study by RocSearch, a UK-based research services firm, warns that the size of the Indian KPO market in 2010 will be just a little more than $5 billion, and that it will provide employment to only 100,000 people.

Yet another employment services firm— Manpower Services— however offers a way out of current and potential problems through private-public partnerships.

The White Paper by Kelly Services, titled Knowledge Process Outsourcing (KPO)— An Emerging Opportunity, cites the usual reasons why India is considered “by far the most attractive KPO destination”: its competitive salaries (less than 40% of US salaries); proficiency in English (with more than 70 million people speaking it); and its large and competent pool of professionals (nearly 3 million new graduates every year).

A large number of Indian and foreign players have made a successful entry into the KPO domain in India. They include Evalue Serve, Genpact, JP Morgan, Morgan Stanley, SmartAnalayst, McKinsey, Value Notes, Netscribes, Smart Cube, WNS Global, Quest, HSBC, Office Tiger, Citigroup, Reuters, Fidelity, Tech Books, ITC Client Logic and Copal Partners.

“It is estimated that most of them will grow the India KPO business manifold in the coming years, while simultaneously a host of new players will enter the KPO segment in India,” says the Kelly study.

However, RocSearch warns that a severe talent crunch may limit India’s achievements in the KPO domain, forcing a scaling down of market-size expectations from $12 billion to $5 billion, and employment in the sector from 250,000 to 100,000. It adds that analysts may have overestimated the supply of skilled workers in the country.

There is currently an annual addition of more than three million graduates and professional degree and diploma holders to the existing of 100 million. India has the world’s second largest reservoir of engineers and scientists, and the second largest pool of IT manpower. More than six times as many Indians as Chinese go to universities. However, there is the issue of poor employability and competing demands from other sections of domestic industry.

RocSearch observes that, partly as a result of outdated curricula at many professional colleges, only a fraction of the qualified labour force can be considered suitable for employment in reputed companies. Of the three million educated workers added to the labour pool in 2005, it points out, only 500,000 “could be considered employable in a world-class company.”

RocSearch says this would bring down the number of India’s KPO employees in 2010 from the currently projected 250,000 to 100,000. At an average revenue per person of $55,000 in 2010, it projects that the sector will be worth a little over $5 billion by then.

Manpower Services points to the way forward in a White Paper of its own, titled Confronting the Coming Talent Crunch: What’s Next? The paper observes that as the talent crunch intensifies across countries, governments that are finding it difficult to recruit the right talent have started looking to employment services providers for ways to recruit and train individuals for positions that are hard to fill.

Indeed, Manpower has worked with government agencies in Australia, the Netherlands, China, the UK, the US and Canada to address supply-side issues on the labour front.

On the BPO front, private-public partnerships featuring NASSCOM, Dell, Microsoft, the Indian Institutes of Information Technology, and the governments of Andhra Pradesh and Chandigarh, have already taken off.

The NASSCOM initiative is called IT Workforce Development, in which some 20 companies are involved. This covers faculty development, mentoring and internship programmes, with professors work closely with companies.

Source: Business Standard