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Knowledge Process Outsourcing in India

India has being the leader in offshored low end IT and BPO work, especially customer service outsourcing, however, the country is also gearing up to take on complex tasks that are higher up the value chain. India is now receiving low end as well as high end work in both IT and BPO. The BPO services offshored to India can be categorized according to the following three categories:

  • Low: Call center, back office operations, transcription, processing, accounting
  • Medium: Insurance claims, engineering
  • High: Research and development, underwriting, intellectual property, market research, equity research

Table 4 provides a list of functions that are being outsourced to India in various verticals. Clearly, in all these verticals, high end tasks are being outsourced to India.

Table 4: High End Tasks Outsourced to India

Industry Transaction Processing Design and Analysis R&D
Pharmaceutical / Biotechnology Y Y Y
Chemicals - Y Y
Education Y Y -
Engineering - Y Y
Financial Services Y Y -

Source: The Boston Consulting Group

According to research firm Evalueserve, the Knowledge Process Outsourcing (KPO) market is growing faster than the low end services market. KPO market in India is estimated to reach USD 17 billion by 2010 from USD 1.2 billion in 2003, at a cumulative annual growth rate (CAGR) of 46 percent. On the other hand, the low end outsourcing services market is expected to grow at a CAGR of 26 percent over these seven years and reach USD 39.8 billion in 2010 from USD 7.7 billion in 2003.

Recently India has also emerged as a global hub for carrying out R&D. London-based Economist Intelligence Unit conducted a survey in 2004 to find suitable R&D destinations globally. According to the survey, India is the third most favorable country for R&D investments, China and the US being the top two destinations. R&D investments in India reached USD 6.8 billion in 2004 from USD 3.2 billion in 2002, at a CAGR of over 45 percent. This growth rate is expected to be over 40 percent in the next few years, thus further boosting India’s R&D capabilities. Over 150 MNCs including GE, General Motors, Microsoft, Texas Instruments, AstraZeneca, Intel, Analog Devices and IBM have already initiated R&D activities in the country. Some have set up their own captive centers while others are forming R&D partnerships with other companies and research laboratories or contracting R&D work to existing research laboratories.

India produces 300,000 engineers each year as compared to 65,000 in the US. As a result, companies have ready access to a large pool of researchers who charge much less than their counterparts in the US and Europe. India also has presence of world known educational institutions such as the Indian Institutes of Technology (IITs), National Institutes of Technology (NITs) and Indian Institute of Science (IISc), and a vast network of 2,900 research laboratories and 400 state run laboratories. MNCs outsourcing their R&D to India can leverage this infrastructure to their benefit. The Indian government has supported R&D activities in the country by offering various incentives to companies that conduct research in India. These factors enable India to have a prominent position in the global R&D scenario.

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