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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.
The Big Irony – Protectionist Lobby is in Reality Boosting the Offshoring Trend
Ironically, the protectionist lobby and their anti-BPO drive in the US and the UK
are indirectly helping the proliferation of global offshoring by providing free
publicity.
In this regard, Evalueserve recently examined the free publicity that the antioffshoring
drive in the US has given India Inc., especially for its IT and non-IT export services
sectors. Evalueserve estimates show that India Inc. received more than USD 89 million
worth of free publicity due to the anti-offshoring drive in the US and the UK during
June 1, 2002 and May 31, 2004.
Most of this free publicity stemmed from about 1,980 distinct articles, columns,
and discussion documents written in newspapers and magazines in the period between
June 1, 2002 and May 31, 2004. This publicity was related to:
• Offshoring and outsourcing to low-wage countries
• Anti-BPO
• Anti-IT outsourcing
• Various legislations in individual US states
• Congressional and parliamentary hearings held at the state and the federal
levels in the US and the UK
• Discussions by various legislative authorities including John Kerry (presidential
candidate for the November 2004 elections in the US), US President George Bush,
and their spokes-persons
In addition to the 1,980 or more articles, a simple Google search shows that the
Internet web-logs and websites contain over 210,000 distinct references and ‘threads’
discussing these issues. Furthermore, CNN and one of its flagship programs, ‘Money
line’ has been spending almost three minutes a day, five days a week, on this topic
for the last six months, and it has been continuously updating the list of 350-400
companies that are offshoring to India and China.
Hence, the anti-offshoring drive has definitely increased India's brand image because
American and the British companies now feel that Indian companies are capable of
almost anything, even rocket science! This is indeed an interesting contrast from
the situation four years ago, when the same companies were under the impression
that Indian companies can only ‘provide software coolies’ and ‘export cheap IT coders
to solve the Y2K problem’. Because of this awareness, it has become easier for Indian
companies to move from BPO to KPO, especially in the US and the UK.
Because of the anti-offshoring drive in the US and the UK (and to a small extent
in other countries like Canada and Australia), not only India and China but also
other low-wage countries including the Philippines, Russia, and Mexico, have gained
in publicity. Hence, with the passage of time, this anti-offshoring movement is
likely to help even these low-cost countries in improving their brand image and
thereby moving up the value chain.
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