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Knowledge process outsourcing (KPO) is the next wave of outsourcing activity and a logical extension to business process outsourcing (BPO). In BPO, the client provides the business process requirements, such as a call center with well-defined scripts. In KPO, the outsourcer must bring specialized knowledge and deliver an end result that requires higher trained resources and more industry know-how than executing a pre-defined business process. The types of knowledge workers that are available through KPO providers include doctors, lawyers, architects, investment analysts and certified public accountants.
Examples of some specific services include:
* Companies in India are offering trained lawyers using legal databases to law firms in the U.S. with low-cost research, analysis and briefs.
* An India-based healthcare services company provides a diagnosis within 30 minutes of receiving an e-mailed brain scan or x-ray. Almost 40 American hospitals have chosen this service over the expense of employing a nighttime radiologist.
* One of India's largest non-bank financial institution, provides BPO and KPO. KPO services include investment research and analytics, merger and acquisition consulting, and high-end CPA services.
Economics make this a lucrative and potentially explosive growth area. First, the arbitrage opportunity is greater since the cost difference between KPO resources in the U.S. vs. India is larger than the cost difference of BPO resources in the U.S. vs. India. There is also a higher margin for providers as the gap between the rate charged for knowledge workers and their pay is higher than for process workers. So clients have high-savings potential and providers have high-margin potential. For example, a good lawyer in India might make 40,000 to 50,000 rupees per month, the equivalent of $5 per hour. A KPO provider may make this resource available for $100 per hour, a significant savings for a U.S. company used to paying $350 to $500 per hour for an equivalent U.S. lawyer.
There are challenges to be overcome as this market grows. This is high-end consulting work and cost savings alone will not hold clients if the quality is not there. Boutique firms and niche players may struggle with quality. Some big companies are coming to the party armed with the full alphabet of quality certifications and industry certifications. End consumers should care very little if work such as mutual fund analyses or other impersonal knowledge products come from their U.S. provider or via an outsourced provider as long as the quality is good.
The story may be different for professional services in which reputation, trust and, in some cases, a personal relationship have been part of the product. Will your high-end U.S. law firm disclose to you that the brief they charged you $350 per hour to write was actually written by a lawyer in India for $100 per hour and only reviewed by the junior partner with whom you interface? Will your local emergency room let you videoconference with the Indian doctor interpreting your X-ray at 2 a.m.? It will be interesting to see the fallout for U.S. service providers that disclose this information. It will be even more interesting to see the fallout surrounding U.S. service providers that are found to have been outsourcing such services without disclosure to their clients.
Infosys CEO Nandan Nilekani is credited with the statement "Everything you can send down a wire is up for grabs". Entrepreneurs in India continue to find new and profitable services to send down the wire. Just as the Internet has forever changed the way U.S. teenagers do their homework - or attempt to do their homework with six chat windows overlaying their Word document - so has the Internet forever changed the boundaries of the value chain for the services used by businesses and consumers.
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