By Ajay Khanna

India is no longer just a hub for cost-effective, English-speaking ‘bodies’. It is emerging as a goldmine for high-level skills, too. Companies from across the globe are outsourcing their high-end, knowledge-based jobs to India. An offshoot of business process outsourcing, or BPOs, knowledge process outsourcing (KPO) is thriving. KPOs are mushrooming in financial services, software development, research & development, telecom, pharma and biotech, chemicals, energy and consumer products.

These KPO outfits are helping global firms source high-skilled work out of India in a cost-effective and efficient manner. At the recent India Economic Summit, Shakeel Ahmad, Union minister of state for communications & information technology said that the skilled human resources available here have made India a global hub for IT. It is only time before India will have mathematics teachers providing tuition to American children over the Internet.

According to estimates provided by Evalueserve, a leading business intelligence and market research firm, KPOs in India will grow to $12 billion by 2010 from $0.72 billion in 2003. There will be over 2.5 lakh KPO professionals by 2010 compared to the current figure of 25,000.

As India slowly builds its brand in the global marketplace, companies have started offering more high-end jobs to India. A key driver on the demand side is the changing demographics of the West. By 2020, there will be a shortage of 50 million in the working-age population of the developed world, while India will have a surplus of 47 million. Rajendra S Pawar, chairman, NIIT Group said, “The post-industrial period is a ‘century of the mind’, and if the population is provided with education and skills, India will gain from the demographic dividend.”

The outsourcing of high-end jobs is a win-win situation for both the end-client and the KPO vendor. Evalueserve analysis shows a positive change in the cost structure of the clients (cost-cutting of as much as 40-70 %) due to outsourcing.

The $12 billion size estimated for this industry is not difficult to achieve. Minimal entry barriers and low infrastructure costs will encourage the smallest of KPO set-ups. High degrees of specialisation will allow even small firms to exist profitably. Concepts such as home-shoring and freelance work are also gaining popularity.

According to Nasscom, there are six reasons why the KPO industry will see a stupendous increase in the coming years. These are: a growing and highly-educated English-speaking population; huge cost advantages; competent management of data security risks; adoption and maintenance of international quality standards; world-class telecom infrastructure; and government support.

On the cost front, the gains are phenomenal. The drafting and filing of patent applications, for example, costs around $10,000-15,000 in the US. Cost savings from offshoring even a portion of the patent drafting process can easily save up to 50% of this cost. Similarly, data-mining services companies can save up to 60-70 % on analytics and inventory management costs by offshoring to India.

Offshoring R&D in pharma and biotech too has enormous potential for KPOs. India offers cost advantages (40-60%) in contract research and clinical trials. Similarly, in chip design and embedded systems too, KPOs are mushrooming. The compensation for a chip design engineer with a master’s degree and five years’ experience is around $7,000 a month in the US. An engineer with the same qualification and experience here gets $1,200 a month.The reason why all major integrated design manufacturers—Motorola, Intel, Analog Devices, National Semiconductor, IBM, Cisco, Cypress Semiconductor, Nokia and Philips—have offshore design centres in India.

On the competitive front, India would have to tackle the likes of Russia, China, the Czech Republic, Ireland and Israel. China is likely to get a bigger share of the Japanese and Korean markets due to similarity in language and culture. European jobs would be taken over by the European neighbours. Hence, the real challenge for India now lies in building productivity and generating more talent and skills.

-The author is CEO, India Brand Equity Foundation and deputy director-general, CII. These are his personal views