EVS White Paper:
“The Next Big Opportunity – Moving up the Value Chain From BPO to KPO”
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Key Low-wage Offshore Locations: A Comparative Study
This section attempts to analyze key offshore destinations that are likely to emerge
as the hubs of the BPO and KPO sectors. A comparative assessment of key lowwage
Low-Wage-BPO-KPO-Locations destinations, with respect to some critical parameters,
is provided in Table 3.
The above-mentioned destinations offer both IT and non-IT BPO services. Among them,
India offers the widest range of IT and non-IT BPO services; the Philippines currently
offers mainly BPO services; and Israel and Russia offer niche services especially
in the IT offshoring domain. The maximum benefits of offshoring are currently being
realized in the Philippines and India. Moreover, China and India are geographically
best located to provide 24x7 support although the Philippines is a close contender
in this aspect. From the perspective of cultural compatibility and with respect
to proficiency in written and spoken English, Canada, Ireland and the Philippines
seem to score over other countries.
Investment and labor policies have been made ‘offshoring friendly’ by most governments
in these countries. Countries such as India, Russia, and Israel have the requisite
talent pool to move up the value chain and provide KPO services.
The major impediments faced by offshore destinations taken up in this study are
their small talent pools (e.g., the Philippines, Ireland and Israel) and non-English
speaking population (e.g., China and Russia).
Future Outlook
Globalization of services is in its nascent stage. In fact, even in the IT services
sector, only 1.9 percent of the total jobs are being carried out in low-wage countries.
By FY 2010, we expect the following scenario:
• Commoditization of low-end services is likely to occur because the potential
barriers to entry are minimal.
• New business models will be created and older ones will cease to exist.
The next level of productivity improvements may emanate from this ‘creative destruction’
of the current ‘supply chain of services’.
• Many new business models will rely on re-arranging the supply chain of
a given ‘process’ and on using IT to enhance productivity. One such interesting
new model of conducting research has been provided in the Appendix.
• By FY 2010, India and other such destinations might become too costly to
provide low-end services at competitive costs. Therefore, low-end work may move
to relatively cheaper countries such as Ukraine, Belarus, the Czech Republic, and
Malaysia.
Offshoring is Likely to Restructure the Global Workforce
With the proliferation of global offshoring and distributed delivery models, the
emergence of a strictly onshore services workforce (as part of Tertiary-A) and a
global information and services workforce (as part of Tertiary-B) is expected, as
depicted in Figure 3.
Appendix
Emerging KPO Sourcing Models – InnoCentive: A Case Study on Research and Development
Global sourcing is constantly evolving, as industries are exploring new avenues
to increase the scope of their operations and become globally competitive. With
increasing R&D costs, US firms are finding it difficult to train their employees
to carry out research. Therefore, these firms are increasingly on the lookout to
tap the available talent pool. This has led to the emergence of a new R&D model
that is being called ‘open innovation’.
Large corporations are reducing their internal spending on R&D and are increasingly
tapping external resources to solve their problems. A case in point is InnoCentive,
an independent venture launched by Eli Lilly and Co., which enables firms to tap
into the global scientific community. Figure 4 illustrates the sourcing model used
by InnoCentive to leverage the globally distributed scientific talent pool.
InnoCentive is an interface between corporations beset by unsolved R&D problems
and the global scientific community. The scientific community assists corporations
to solve their problems by submitting solutions via the Internet. InnoCentive already
has over 30,000 scientists from more than 125 countries around the world. Table
4 provides the geographic split of the scientific talent pool that is registered
with Innocentive:
Large chemical companies such as Proctor and Gamble (P&G), Dow Chemical Co. and
BASF regularly post their problems by using the services offered by InnoCentive,
and are realizing quick and cost-effective solutions to their problems. These companies
usually pay between USD 5,000 and USD 100,000 per problem, in return for the Intellectual
Property provided by the external scientists in solving their problems.
According to a study conducted by the Technology Review magazine of the Massachusetts
Institute of Technology, most leading companies in struggling industries, including
aerospace, computers, semiconductors, and telecommunications have trimmed their
R&D budgets over the last few years. However, the pace of innovation has not
really slowed down because many of these companies are now offshoring their R&D
work to captive centers or third parties located in low-wage countries.
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Evalueserve disclaims all warranties as to the accuracy, completeness or adequacy
of such information. Evalueserve shall have no liability for errors, omissions or
inadequacies in the information contained herein or for interpretations thereof.
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