ChinaSourcing: In China, KPO stands for high-end outsourcing offering technological services, such as pharmaceutical and biotechnology R & D and testing, product technology R & D and industrial design. Can you please tell us whether there is any difference between China’s and India’s definition of KPO?
Ashish Gupta: First of all, thank you for the interview!
KPO is KPO - it doesn’t matter whether it is: in China, India, Latin America or elsewhere. So what is KPO really? KPO stands for Knowledge Process Outsourcing.
Every company on this planet has a knowledge process: there is knowledge management, sales and marketing, finance, or back office processes, there is decision making done by management. All of that is done based on some research, on some analysis, and on some decision support systems. The process of helping a client with their knowledge processes is called KPO. It can apply to either industry verticals, for example healthcare, or functions, such as intellectual property, market research or analytics. KPO is a global industry, it is not regional
ChinaSourcing: We know from some news reports that Evalueserve is a pioneer in the field of KPO. Can you tell us how your company got the title?
Ashish Gupta: Overall, the evolution of KPO started in India. The first outsourcing happened in the IT industry in the 1970s and 80s. Then in the early 90s, we started seeing the beginning of what is called BPO, Business Process Outsourcing. American Express and GE were the first two companies to start doing back office processes such as finance, accounting, HR and transaction processing and so on. Towards the end of the 90s McKinsey, where I used to work earlier, had written a report for NASSCOM. In that report Mc Kinsey said, the whole outsourcing opportunity is very big, and over time there would not only be ITO and BPO, but also more complex processes would be outsourced.
The way KPO started was through Evalueserve, which was started by the two founders Marc and Alok. Both were running captive KPO operations for their employers. Alok was running a research center for IBM, and Marc was running a business research operation for Mc Kinsey. They both met in Delhi through their kids, who went to the same school. Given their experience at IBM and Mc Kinsey, Marc and Alok thought it would be good to create a private company which could do high value-added knowledge based services from India.
And a final point: everybody in the beginning thought of us as yet another BPO company. We felt that since we are not really a BPO company, we need to talk about our business by using a different term, and that’s what gave birth to KPO. Not only were we pioneers of the business model - we actually got an award from the Prime Minister of India for business model innovation - we were also the founders of the term KPO. Of course on a lighter note, we thought we could probably protect it, but it is such a generic term that it cannot be protected.
When clients think of KPO now, they think of Evalueserve.
ChinaSourcing: You have been working in the KPO industry for quite a long time. Can you make an introduction to the layout and development trends of the global KPO market?
Ashish Gupta: It is very difficult to really estimate the size of the industry. It is most likely right now in the 10 – 12 billion dollar range. It is likely to grow at 30 – 40 percent annually from now on.
And the major drivers of growth are going to be the following:
A lot of brand building has happened for the industry over the last 10 years. So it is no longer a new or emerging industry. There is already a good base. Many customers have had a very good experience. People no longer say that this cannot be done. They have a lot of trust and faith in the industry.
The second driver of growth is going to be the population demographics of Western countries, whether it is in Europe or the US. And then regionally in Japan, where there is increasingly a shortage of talent because the population is becoming older.
As the world is becoming more and more knowledge intensive, and the global economy is becoming more knowledge driven, somebody has to do this work. All these knowledge processes have to be done. Countries such as Japan, the US and regions like Europe don’t have enough skilled, educated, and talented knowledge workers. Their only option is to outsource this work to countries like India or China.
The third driver of growth is really going to be the enormous cost pressure, which exists in all companies and industries, especially these days in such a crisis. Services can be offered at a much lower cost from China or India.
It is also the technology which is driving the growth of outsourcing, and KPO specifically. The internet is becoming more and more important, telecommunication costs continue to come down, video conferencing technology is becoming better. So does it really matter where somebody is located when work has to be done, when a knowledge service has to be provided? Because of these very low technology and telecommunication costs, and improved technology, geography is history.
And finally, if you look at what is happening to the supply of skilled, educated and talented people, you know these people are now in countries like India and China. And the education systems of both countries are becoming world class. There are many people in both countries, with millions of graduates every year. And these are lower cost resources. On the one hand, you have the knowledge industry growing by 6 percent a year. Overall, you have a shortage of talented and skilled people, and on the other side, you have this huge supply of talented people, who are connected by telecommunications. So the industry is bound to grow.
My experience is that the KPO industry will continue to grow very well and definitely India will be on the forefront, it will be the leader in this industry. But I think in China, the industry also will continue to grow.
ChinaSourcing: We know that besides China Evalueserve has also set up operation centers in countries like Chile, Romania, India, etc. Based on which considerations did your company decide to do so?
Ashish Gupta: We came to China because it is of great interest (as all of us know) to our clients. There is no way we could have done research and analysis and provided KPO services for China from India. We had to set up an office here to be able to do work for not only the Chinese market, but also to support clients in Japan and Korea and Taiwan and so on.
Then we went to Chile because our customers in the US wanted daytime support and we also wanted to penetrate the Latin American market. When it is daytime in the US, it is night in India and definitely night time in China. We could not have people working at night, which is again a difference with the BPO industry. In the BPO industry night work is ok, but in our industry, it is not ok.
And then we went to Romania because we wanted to tap into the Eastern European market and also be within the EU. And just like in China, where we have Chinese, Japanese, Korean, Vietnamese and other languages, in Romania, we are trying to build German, French, Italian and especially Russian capabilities.
We have a CRIC strategy and not a BRIC strategy. BRIC is the famous term which is Brazil, Russia, and India and China. In our case it is China, Romania, India and Chile.
ChinaSourcing: How do you see the future of the four centers?
Ashish Gupta: It is very very good. We are looking to continue to grow rapidly in all four centers. The outlook is very positive.
ChinaSourcing: Will you establish operation centers in other countries or regions in future?
Ashish Gupta: Not at this stage, but definitely our industry will also go through similar trends as what has been seen in the IT and BPO industries. Where, in addition to these offshore locations, companies have started setting up onshore operations as well. It is possible that we might look at setting up a centre onshore. And then there is the model which will happen just like in the case of Hong Kong: We have some people who work from the clients’ office. We would see that maybe happening in Tokyo, Hong Kong, Europe or in the US over time.
ChinaSourcing: We all know that the financial crisis has caused some impact on the global outsourcing industry, for example, the number of mega outsourcing has suffered a decline. Do you think the KPO industry was also affected by the crisis?
Ashish Gupta: A little bit. It was only there till about 2-3 months ago. But now things have started to improve. One interesting thing is that whenever there is a global slowdown, once that slowdown starts getting over, then that is a big incentive to the outsourcing industry. All companies will have more work, and they would rather not hire people back, but outsource. That’s why we do expect growth in 2010 to be reasonably good.
I would say this is the right time for companies in China, in Hong Kong, overall in greater China, and then in Japan to start thinking about what their KPO strategy should be. Unless they have a KPO strategy, their competitors might go ahead of them.
ChinaSourcing: You just mentioned the financial crisis did impose some impact on the KPO industry. Was the impact global?
Ashish Gupta: Yes. All over. It was everywhere.
ChinaSourcing: The Shanghai-based center has been operating for around 4 years. Do you think it has reached your company’s expectations?
Ashish Gupta: Overall, we have been very satisfied and quite happy with what we have been able to achieve in China. We are looking at continuing to grow the office, and will continue to strongly invest in our China strategy, and over the time, we expect this office to continue to grow quite well.
ChinaSourcing: Can you say something about the competition your company has encountered in China?
Ashish Gupta: Fortunately for us, we have seen that there is some competition, but there is not as much as one would have expected. The reason for that is that KPO is a very very difficult segment to get into and to scale. Unlike IT or BPO. Because of our domain expertise, and our experience of having done this in India for so many years, we were able to do reasonably well here. But having said this, it is a very attractive industry to be in, and we do expect competition to increase over time.
ChinaSourcing: Currently you have 150 employees in the Shanghai office. How will be the future development of the office in terms of scale?
Ashish Gupta: Oh well, it is very difficult to forecast what it might be. I can say that we will be at least trying to double in the next 3 years or so. And given the way we are seeing the increase in demand, I think it should be possible for us to do.
ChinaSourcing: What is the revenue constitution of your Shanghai office by client base?
Ashish Gupta: It is very difficult to say that. Our clients are based everywhere. We also have clients in Europe, in the UK, and in the US, who we service out of the China office. I would say about 80 percent of the revenue comes from the region: China, Japan, Hong Kong, a little bit from Korea, Singapore. And 20 percent would come from the rest.
In the region it is very difficult to segment it, and it could be the same company which has operations in all regions, and we are doing work from them everywhere.
Introduction of Ashish Gupta: Ashish Gupta is the Global COO and Country Head (India) of Evalueserve. He has been with Evalueserve since its inception in December 2000. Ashish has worked at McKinsey & Co. in Delhi as an Engagement Manager. He spent five years at McKinsey working with clients in India, the US, Europe and China, and was also a core member of the firm‘s e-commerce practice. Prior to joining Evalueserve, Ashish was the founder and CEO of Ties2Family, a community building portal that provided various services to Indians in India and overseas, growing the company to 25 employees and 100,000 customers.
(Special thanks go to Sandra Winkler who gave much help to this interview.)
(Reproduced from "ChinaSourcing" magazine)
