Data analytics lies at the heart of many businesses. A retail bank needs to understand its customers’ spending and borrowing habits in order to determine their propensity for taking out loans. A consumer-goods firm needs to perform market research to determine whether a new brand of detergent or cough syrup is likely to take off or end up sitting on grocers’ shelves. An investment firm needs to analyze a company’s financial data in order to issue buy/sell recommendations to its clients.

Before the data can be analyzed, however, it must undergo preparation. Normalization, standardization and cleansing of data are the most time-consuming and expensive processes in data analysis, and must be performed perfectly. If not, the data that’s used for analysis, and the conclusions drawn thereon will be flawed.

Solving the complicated statistical and number-crunching problems are the province of specialized firms — service bureaus — which perform the dirty work of analysis, and deliver to their clients pure, clean data, which they can depend upon for accurate forecasting. Many of them have been around for years, toiling away quietly in the background while churning out reams of data and reports, utilizing statistical-analysis packages such as SPSS and others to deliver their results. But with the unshackling of geographical barriers brought about by technological advances, some of these tasks can and are being farmed out to a new breed of service providers — more often than not located offshore, where low costs and cheap labor are in abundance.

Offshore Concentration

In many ways, data analytics epitomizes Knowledge Process Outsourcing (KPO) — which adds to Business Process Outsourcing (BPO) skills garnered through exposure to a particular industry, such as mortgage processing in banking, financial analysis in investment banking and statistics in market research.

As has become apparent in recent years, if work can be outsourced or sent offshore, it will be. The economics are too compelling to resist, and the same economics that have driven work in business processes, software and product development and technology and infrastructure management offshore are also at work in KPO, and nowhere more so than in analytics.

These new offshore service providers tend to be concentrated in India. The service providers specialize in analytics, and have spawned a range of subspecialties around research and development, data mining, engineering design work and more.

The explosion in offshoring that’s fueling the gold rush in the Indian cities of Bangalore, Chennai and Mumbai has fueled a miniexplosion in data analytics. The numbers are as staggering as they would have been unbelievable five years ago, when BPO and offshore development work was still largely unknown to the general public.

“The worldwide market for data analytics is today $2 billion, and is expected to climb to $17 billion by 2010, of which $12 billion will go to India,” says Ashish Gupta, Country Head and COO, Evalueserve, a service provider. By 2010, the breakdown of the knowledge-processing sector will be as follows: Data search, integration and management (29%), biotech and pharmaceuticals (18%), engineering and design (12%), R&D (12%), remote education and publishing (12%), animation and simulation services (8%) and others (9%). As can be seen, several of these segments are heavily based on analytics (See Chart 1).