During the late 1990s, the success of information technology and business process outsourcing (BPO) to low-wage countries and the resulting cost savings prompted several multinational companies to experiment with outsourcing higher-end, knowledge-based work.

For example, in 1997, General Electric’s captive unit in Bangalore, India, started providing services related to risk analytics to GE Capital (worldwide). During 1998-99, American Express’ wholly-owned subsidiary in Delhi-Gurgaon, India, started performing risk and credit analytics for several of its credit card divisions worldwide. And McKinsey and Company started its own captive centre (McKinsey Knowledge Center) in 1998 in Delhi-Gurgaon, India, which started providing market research, business research and data analytics services to more than 6000 of its consultants worldwide.


New services

Although a few companies began providing higher-end, knowledge-based services as early as 1997, this trend did not gain much momentum until 2003, and it was Evalueserve’s chief operating officer Ashish Gupta who coined the term knowledge process outsourcing (KPO) in frustration, in an effort to differentiate between his firm’s services and those of the established BPO firms.

KPO has since come to refer to outsourcing activities that require significant domain expertise (eg. market research, business research, investment research, and data mining) and the acronym has become part of the lexicon of the outsourcing industry worldwide. At least seven firms providing such services use KPO as part of their name; there are at least five annual conferences worldwide that are solely about KPO; about 120 captive units of large multinational companies are providing KPO services to their offices in North America and Europe; the majority of the mid-sized and large IT and BPO companies in India have a KPO division; and there are at least 262 niche companies in India providing third-party KPO services.

Growing revenue

According to Evalueserve’s research, the revenue earned by the knowledge process offshoring industry worldwide was about $1.2bn in 2003-04 and $4.4bn in 2006-07; this implies an annual growth rate of 54%. The industry employed about 34,000 professionals in 2003-04 and 106,000 in 2006-07. Evalueserve also forecasts that it will grow to $16.7bn in revenue in 2010-11 (which would imply an annual growth rate of 39% during the next four years) and to employ about 350,000 professionals globally.

In contrast, the revenue of the rest of the business process offshoring industry worldwide grew from $7.7bn in 2003-04 to $15.8bn in 2006-07, an annual growth rate of 27%. During the next four years, the BPO industry is expected to grow annually at 26%, thereby earning $39.8bn in revenue during 2010-11.

Figure 1 shows the growth of the KPO industry in India from 2000-01 to 2006-07. According to Evalueserve’s research, although the industry had only 9000 billable professionals in India who generated total revenue of $260m during 2000-01, this number had already grown to 75,400 by 2006-07 and the billable professionals generated $3.05bn. This implies a cumulative annual growth rate of 51% in US dollar terms and 43% with respect to the increase in the number of billable professionals during those six years.

The forecasts

Figure 2 shows Evalueserve’s forecasts of the revenue earned by the sector during the next four years, as well as the number of billable professionals it employs. These forecasts imply a cumulative annual growth rate of 38% in revenue and 36% in the number of billable professionals (during the next four years). Clearly, the future is very hard – if not impossible – to predict, and any forecast comes with some associated assumptions. Some of the assumptions associated with the forecasts given in figure 2 include:

  • The growth of the KPO sector in India could be stymied further if the resource crunch on the availability of highly educated professionals (MBAs, chartered accountants, medical doctors and architects) becomes worse.


  • On the other hand, the unique capability of the KPO industry to provide benefits to small and medium-sized enterprises (SMEs) may drive its growth even faster. In fact, Evalueserve estimates that out of about 10 million SMEs in the US and Europe, about 10% (one million) could benefit even in the short run from KPO services, due to reduced complexity, ability to compete effectively with their small or large competitors, shorter time-to-market, higher flexibility, overall lower costs, and potentially higher quality for the same costs.


  • Although Evalueserve has assumed a constant conversion rate of $1 to Rs45 (Indian rupees), during the past four months, the US dollar has depreciated by 9% against the rupee and on May 4, 2007, $1 equalled about Rs41. Because the back-end costs are all in rupees, on the one hand this deprecation of the dollar may imply a higher annual revenue for the KPO industry in India (if the captives and third parties are able to charge in dollars), but on the other, it is also possible that India will become less cost-competitive and hence lose some of its revenue to other low-wage countries, like China, the Philippines, Poland or Russia.


  • Because of attrition and rising costs, companies with existing captives are also beginning to work with third-party vendors that can provide complementary skills and handle ‘spikes’ in workload. During the next four to five years, this trend is likely to accelerate, which implies that these companies may move from a fixed cost model to a variable cost model – and hence start working with several vendors in several low-cost countries – and transfer their business from their own captive units to third-party vendors.




Figure 3 provides estimates for the number of billable professionals likely to be employed in various sub-sectors of the KPO industry in India during 2010-11 and the revenue generated in these sectors. The delineation between some of the sectors is somewhat arbitrary, and both the revenue and the number of billable professionals among them are fungible. Of all the sub-segments of India’s KPO sector alluded to in figure 3, there are three that seem to be poised for substantial growth (banking, securities and industry research services; contract research organisations and bio-pharmaceutical services; data management, mining, searching and analytics) and one that still seems to be at a nascent stage of development (legal, paralegal and intellectual property support services).

Although most KPO services are being provided from India, countries such as the Philippines, Russia, Ukraine, Poland, Hungary, China and South Africa are beginning to provide more and more KPO services. In the near future, knowledge process outsourcing and offshoring are likely to be driven by factors such as breadth and depth of coverage, domain expertise, location advantage (near-shoring and language capabilities), sales and marketing capabilities, data compliance with respect to regulatory standards (especially those defined by the US, Canada and the EU) and the management of business risks. Hence, it is likely that companies – both those with their own captives and those that use third-party vendors – may use a hub-and-spoke model, in which a provider in India constitutes the centre and other units around the world provide appropriate spokes.

Dr Alok Aggarwal is co-founder and chairman of Evalueserve, which provides custom research and analytics services for companies worldwide.



A business process that is repeatable, scalable and that does not require the physical presence of a worker near the client can theoretically be outsourced and offshored; this forms the basis of business process outsourcing (BPO). A BPO or offshoring firm’s function can be defined as follows: it acquires a process from the end-client and runs it at its site until the process has reached its logical conclusion, after which it sends the results, if any, to the client. In contrast, a knowledge process outsourcing (KPO) firm functions at a higher level and can be differentiated from BPO firms in the following ways:

  • A KPO firm requires substantially more domain expertise (unlike a BPO firm, where the skills can usually be taught in a matter of days or weeks). Consequently, a good KPO firm is likely to care more about the depth of knowledge and experience and the judgment skills of its professionals than just its size.


  • Experienced professionals can leverage their expertise to generate more revenues for the KPO firm. The more experience its professionals have, the more the firm can earn.


  • Since domain expertise is the key factor, not only companies but also countries can easily differentiate themselves from each other. The countries that will emerge as strong contenders in the KPO business are those that have large numbers of engineers, medical doctors, graduates in sciences and technology (including biotechnology and pharmaceuticals), MBAs, certified financial analysts, accountants, statisticians, lawyers, etc. Low-wage countries that seem to have these professionals in large numbers include India, China, Russia, Poland, the Philippines, Hungary and many republics from the former Soviet Union.


  • Most KPO projects are smaller by a factor of five to 10 than the corresponding BPO projects. Furthermore, the salespeople selling KPO services need to be well versed in these services and to have the required domain expertise to be credible. In this regard, a typical KPO firm lies somewhere between a BPO firm and a consulting firm.

    * The fifth facet of a KPO is the scalability factor of the process, wherein the methodology is similar but there is a premium placed on domain expertise. Research and development departments of global high-technology companies and consulting companies cannot be considered KPO firms and, not surprisingly, such organisations take substantial time to reach scale.


  • In a KPO firm, the client is involved during the entire execution process. Furthermore, the offshoring company providing KPO services may only contribute 75%-95% of the work-product, with the client contributing the remaining 5%-25% by providing the appropriate direction to the KPO firm or by otherwise adding value to the work-product. In other words, the relationship between a KPO firm and its client is more of a partnership and less of an arms-length, client-vendor relationship.