Knowledge Process Outsourcing NASSCOM Indian Leadership Forum 2008 Mumbai, India - 13 February 2008 ADVISORY IT ADVISORY

KPO – Industry Overview KPO, also referred to as “Knowledge Services”. It cuts into the traditional “core competencies” of many organizations. While cost reduction seems to have been the prime motivator of the ITO and BPO waves, “intellectual arbitrage” seems to be the key driver for KPO services. Knowledge Process Outsourcing (KPO) enables clients to unlock their top-line growth by outsourcing their core work to locations that have a highly skilled and relatively cheap talent pool. There is a good mix of both third-party and captive structures in the KPO industry at present. KPMG expects hybrid multi-sourcing models of KPO to emerge in the near future. They will likely consist of captive units managing relationships with third-party KPO providers. Acquiring the necessary skill sets, attracting talent, protecting intellectual property and managing conflicts-of-interest will likely be the major challenges facing the KPO industry over the next three years.

KPO, also referred to as “Knowledge Services”. It cuts into the traditional “core competencies” of many organizations.

While cost reduction seems to have been the prime motivator of the ITO and BPO waves, “intellectual arbitrage” seems to be the key driver for KPO services.

Knowledge Process Outsourcing (KPO) enables clients to unlock their top-line growth by outsourcing their core work to locations that have a highly skilled and relatively cheap talent pool.

There is a good mix of both third-party and captive structures in the KPO industry at present. KPMG expects hybrid multi-sourcing models of KPO to emerge in the near future. They will likely consist of captive units managing relationships with third-party KPO providers.

Acquiring the necessary skill sets, attracting talent, protecting intellectual property and managing conflicts-of-interest will likely be the major challenges facing the KPO industry over the next three years.

KPO – Industry Overview India is currently the leading country providing KPO services. However, other countries have the potential to capture significant KPO market share, by better leveraging the depth and maturity of existing skill sets, and in some cases, their non-English language capabilities. Various sources of market research predict the KPO industry to be worth anywhere between US$10 billion to US$17 billion by the year 2010. Examples of KPO services Equity, Financial, Insurance Research Market Research and Competitive Intelligence and General Business Research Data Analytics, Integration and Management Research and Information Services in HR Intellectual Property, Paralegal Content and Services Engineering and Design Services Animation and Simulation Services Medical Content and Services

India is currently the leading country providing KPO services. However, other countries have the potential to capture significant KPO market share, by better leveraging the depth and maturity of existing skill sets, and in some cases, their non-English language capabilities.

Various sources of market research predict the KPO industry to be worth anywhere between US$10 billion to US$17 billion by the year 2010.

Examples of KPO services

Equity, Financial, Insurance Research

Market Research and Competitive Intelligence and General Business Research

Data Analytics, Integration and Management

Research and Information Services in HR

Intellectual Property, Paralegal Content and Services

Engineering and Design Services

Animation and Simulation Services

Medical Content and Services

KPO Services… Newsletters Gap Analysis Competitive Analysis Innovation Search Market Assessment studies Value Chain Analysis Innovation Search Technical Analysis Fundamental Analysis Sector/Company Analysis Company Valuation M & A Analysis Portfolio Analysis Pitch Books New Product Testing Customer Satisfaction Brand Perception Multi-lingual surveys Multi-variate Analysis Patent Drafting IP Landscaping & Asset Management Data Mining Mathematical modeling Customer Segmentation Basket Analysis Churn Analysis KPO Business Research Investment Research Market Research Intellectual Property Data Analytics

Newsletters

Gap Analysis

Competitive Analysis

Innovation Search

Market Assessment studies

Value Chain Analysis

Innovation Search

Technical Analysis

Fundamental Analysis

Sector/Company Analysis

Company Valuation

M & A Analysis

Portfolio Analysis

Pitch Books

New Product Testing

Customer Satisfaction

Brand Perception

Multi-lingual surveys

Multi-variate Analysis

Patent Drafting

IP Landscaping & Asset Management

Data Mining

Mathematical modeling

Customer Segmentation

Basket Analysis

Churn Analysis

ITO – BPO – KPO ….The Roadmap

Challenges Faced Key challenges faced by Knowledge Services Outsourcing 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

Key challenges faced by Knowledge Services Outsourcing 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

What Does The Customer Want A KPO that provides : Necessary expertise and skills Depth of knowledge and understanding Experience in focused areas Customized solutions for the client Flexibility

A KPO that provides :

Necessary expertise and skills

Depth of knowledge and understanding

Experience in focused areas

Customized solutions for the client

Flexibility

KPO Vs. BPO

Rise of KPO… Key drivers behind the rise of KPO: KPO significantly enhances the client service organization’s ability to generate top-line revenue. Vendors have demonstrated their capabilities A seemingly unstoppable push towards global sourcing strategies at most major banking and insurance organizations Relatively standardized nature of analytics - A growing awareness of the increasing quality of education systems in favored offshore locations Technology and telecommunication developments

Key drivers behind the rise of KPO:

KPO significantly enhances the client service organization’s ability to generate top-line revenue.

Vendors have demonstrated their capabilities

A seemingly unstoppable push towards global sourcing strategies at most major banking and insurance organizations

Relatively standardized nature of analytics - A growing awareness of the increasing quality of education systems in favored offshore locations

Technology and telecommunication developments

Skill set Requirement

Geographical Footprint of the Financial Services KPO Industry

Location Attractiveness For A KPO Current Availability of Talent Pipeline Availability of Talent

Location Attractiveness For A KPO Salary Comparison For Inexperienced Resources

KPO Drivers

KPO Structure Comparison

Future Directions A significant shift in the boundaries between “outsourceable” and “non- outsourceable” activities Offshoring strategies are expected to embrace new locations Large number of global banks and insurers are likely to adopt KPO strategies “ Boutique” providers are likely to leverage KPO to create new services and offerings More rigorous regulatory and compliance control will likely be demanded, as KPO providers deliver more complex services

A significant shift in the boundaries between “outsourceable” and “non- outsourceable” activities

Offshoring strategies are expected to embrace new locations

Large number of global banks and insurers are likely to adopt KPO strategies

“ Boutique” providers are likely to leverage KPO to create new services and offerings

More rigorous regulatory and compliance control will likely be demanded, as KPO providers deliver more complex services

The future of KPO… New areas of focus Healthcare / Clinical Research Animation Remote Education SOX Compliance related work Growth Areas Shift towards Value added work Multi-lingual work Mew markets ( Japan, China ) - for IP work SME’s - a large potential-yet to be tapped Challenges Building credibility around expertise / knowledge Delivering highest quality consistently Heavy investment in training people, developing high talent and hence retaining them Complying with standards and regulations Sales and marketing effort-to keep the client interested

New areas of focus

Healthcare / Clinical Research

Animation

Remote Education

SOX Compliance related work

Growth Areas

Shift towards Value added work

Multi-lingual work

Mew markets ( Japan, China ) - for IP work

SME’s - a large potential-yet to be tapped

Challenges

Building credibility around expertise / knowledge

Delivering highest quality consistently

Heavy investment in training people, developing high talent and hence retaining them

Complying with standards and regulations

Sales and marketing effort-to keep the client interested

KPO – in 2010… India to Account for a major chunk of Global KPO Revenues The global KPO market is expected to grow in excess of 30 percent per annum, from USD 1.29 billion in FY 2003 to USD 17 billion Increase in the number of jobs, from 25,000 in 2003 to approximately 250,000 Revenues in the Indian service sector are expected to rise by 12 percent per annum KPO in India will contribute around 1.8 percent to the Indian service sector 350,000 2010 - 2011 106,000 2006 - 2007 34,000 2003 - 2004 No. Of KPO Professionals worldwide Year

India to Account for a major chunk of Global KPO Revenues

The global KPO market is expected to grow in excess of 30 percent per annum, from USD 1.29 billion in FY 2003 to USD 17 billion

Increase in the number of jobs, from 25,000 in 2003 to approximately 250,000

Revenues in the Indian service sector are expected to rise by 12 percent per annum

KPO in India will contribute around 1.8 percent to the Indian service sector

Thank You kpmg