INDIAN KPO INDUSTRY
Industry Highlights
Industry Outlook
The global KPO (Knowledge Process Outscourcing) industry is expected to grow to $17 billion in 2-3 years. India has around 70 % market share that is around $2 billion, of the $2.9 billion global KPO industry. Indian KPO industry is estimated to grow to $ 10 billion with 205,000 professionals by the year 2018. North America provides 65 % of the sectors revenues, Britain 20 % and continental Europe around 10 %. A Nasscom-Crisil study says that the Indian KPO market is expected to grow at a CAGR of 22.2% and touch $5.6 billion in 2015. Global data analytics outsourcing market in 2012 stood at $500-550 million, of which Indian service providers accounted for $375 million. By 2015, the data analytics market in India is expected to reach $1.15 billion to become 21% of the overall Indian KPO market opportunities of $5.6 billion. KPO segments include animation engineering ,content development, financial services, healthcare ,R&D, pharma etc.
Industry Outlook
$5.6 billion (2015)= Total market opportunities
Industry Segments
Business/Market Research
17%
39% 21%
Legal Processes
Data Analytics
23%
Others (Social media research, marketing & sales support etc)
Key Growth Drivers
The huge size of data today can't be handled by traditional computing India holds a leadership position in the sector and is a preferred destination of companies worldwide Talent supply gap in the US which is the biggest market for data analytics outsourcinga shortage of 140,000 190,000 professionals with analytical capabilities by 2018
By 2025, 25% of the worlds workers will be Indians
Companies are using marketing analytics insights to gain competitive advantage in their respective sectors Retailers and marketers need to take informed data-driven decisions to reach out to prospective customers Less congested when compared to the BPO industry, leading to higher profit margins Scope for a good amount of M&A activity with BPO companies planning to venture into the KPO domain
Key Growth Drivers
With more than 1500 technical colleges, and over 500,000 graduates each year , makes Indian an education powerhouse
Highly rated knowledge pool with domain expertise and low costs
Ability to deliver services from multiple locations offers clients greater flexibility and can tap into fresh labour pools
Growing cost of R&D is leading to pharma-companies turning to outsourcing as well as
off-shoring as measures to cut costs There has been an increase in demand coming from the US as a result of the recent reforms in healthcare regulations Abundant supply of trainable, cost-effective analytics talent More than $2 billion worth of investments has been done by leading PEs and VCs into big data analytics firms in 2011, and an estimated 25% has gone to firms that are Indian which is more than any other region worldwide
Types Of KPOs
Captive Centres
MNC establishes its own operations in countries offering high talent availability and low cost of operations Cater only to the requirements of the parent company Capital investment involved is large and the payback period is also high, hence these setups are generally established only by large MNCs Prominent captive centres in India have been set up by Goldman Sachs, Morgan Stanley, McKinsey & Co, JP Morgan, UBS, Deutsche Bank etc.
Types Of KPOs
Third Party Players
Virtual Captives
Offer a viable option to companies when volume of the work is not large enough for a captive centre. Operations can be ramped up as and when required. Greater flexibility and customisation to clients. Companies operating on this service model include Evalueserve, Irevna, Aranca, Amba Research .
Have both the functionality of captives and third party service providers. No upfront investment undertaken by the parent company in establishing the centre as in a captive centre. Overseas resource centre for a client in the third-party service provider setup. Clients are usually willing to pay a premium for virtual captive services. Companies include Metascale, ACE Infoway
Business Risks
High attrition rates Demand for higher wages No guarantee with regards to the quality of personnel and work.
Changes in the outsourcing policy of the Western economies due to negative public opinion and to increase employment in their own countries. Data security and confidentiality
Lack of high end infrastructure and computing equipment. Near-shoring
Competitions from nations like China, Philippines and Brazil
Domestic demand for the services KPO firms offer is very low which makes them susceptible to a weak global economy.
Financial Highlights
Most of the companies in the industry do not have any debt. EBIDTA ranges from 15-30% Profitability Indicators: ROCE of 7-25% PAT margin ranges from 7-15% Major players have revenues of around Rs.200300 crores Operating costs as a % of revenue is around 50% Revenue per employee of an average mid/large size firm was Rs.11,17,000 in 2011
Deals/M&A Activity
Year May 2010 June 2007 August 2012 July 2011 Target Company Axtria Inc Amba Research AbsolutData Fino Paytech Investor/Acquirer Sequoia Capital Helion Ventures Fidelity Growth Partners Blackstone Advisors (IFC has also invested in the company) Deal Value $2.5 million $10 million $20 million $34 million
November 2010
Pangea3 Legal Database Systems
Thomas Reuters $40 million from Sequoia Capital ($7 million invested and Glenrock Group ($4 million invested)
Exit Opportunites
Strategic sale to BPO companies planning to venture into the KPO domain. Eg: EXL Services acquired Inductis, WNS acquired Marketics and Evalueserve acquired Nitron.
IPO- Companies like CARE (Credit Analysis and Research), CNI Research, CRISIL are listed companies.
Major Players
Mu Sigma Amba Research EvalueServe AbsolutData Fino Paytech Fractal Analytics LatentView Analytics Axtria Inc. Aranca Copal Partners Pangea3 Legal Database Systems
