Where does the opportunity lie for the suppliers of offshoring services? In getting focused, acquiring domain knowledge, becoming vertical experts, moving up the value chain, doing higher-end work...is the advice doing the rounds. Ho hum.

You hear these clichés at industry meets, in boardrooms, over lunch. What you don’t hear are the particulars-what specifically are some of these processes.

The good news is that these specific processes can be listed-and that’s what we’ve done in this story. As you will see, most of the processes listed are in knowledge and research areas, what the press has taken to referring as KPO (Knowledge Process Outsourcing) and RPO (Research Process Outsourcing).

What is the size of the opportunity? $ 17 billion globally by 2010, according to Evalueserve, a company in the knowledge services’ domain. This may not sound as hot as the $ 40 billion global market for BPO and $ 57 billion global market for IT offshoring, but it does have a potential CAGR of 46 per cent (from $ 1.2 billion in 2003 to $ 17 billion in 2010).

What skills does such work require? Advanced analytical skills and some decision-making, something which many BPO processes don’t require. As you can see in the accompanying visual, India, China and Russia are well positioned to tap into the KPO opportunity. Says Ashish Gupta, Country Head and COO, Evalueserve, “There are 40 million knowledge workers in the US. By 2010 there will a shortage of about 6 million people in the US if you assume a certain economic growth rate. How will those jobs be filled? Either by immigration or through offshoring. So, every industry will have such needs. Apply it to trucking, pharma, banking, energy.”

Let’s get back to the specific of the opportunity.

Data analytics
Wherever there is data, it lends itself to analytics. And analysis can be done offshore. Data analytics includes all kinds of data mining, statistical analysis, optimization modeling and operations research modeling. Ashish Gupta gives a few examples. “Call centers have very complex models about routing calls, figuring out the number of agents needed on the floor and demand and supply forecasting. The analytics of how these operations can be optimized can be offshored. Another example is optimizing shelf space and inventory management for retailers.”

Another example of data analytics is clinical trials. This has two parts to it. While the first one about testing drugs on human beings is being debated upon for ethical reasons, it is the second part-the analysis of the data generated during clinical trials-that lends itself to offshoring.

The opportunity in analytics is big simply because every company, irrespective of the industry, has data, be it a banking, energy, trucking, retailing, or pharma company. Says Gupta, “All industries have a data analytics requirement, so your clients can span across industries. And that is why this is such a huge opportunity.”

Financial analytics
This is a relatively untouched area, including work such as risk management, fixed income research, financial modeling and ratio analysis, which requires the skills of mathematicians, statisticians and chartered accountants. Though companies, such as GE Analytics, Evalueserve and OfficeTiger, are doing such work, there is not much traction yet.

Akhilesh Tuteja, Director, Risk Advisory Services, KPMG, gives an example of such work. “You can deploy CAs offshore for the process of financial statement generation and reporting. After the accounting and before the balance sheet gets prepared, a lot of analysis needs to be done-number generation, ratio analysis, etc. Such analysis is happening in India, though not too many companies are doing it. There is an opportunity here.”

Sid Pai, Partner, TPI Inc, and Country MD, TPI India, though, differs, saying that “Work such as analytics and high-value advisory services will stay in the US. If you have a large hedge fund, for example, you would expect to meet your equity analyst face to face. You have to move the advisor to the work, and not the work to the advisor.”

Tuteja’s solution to such a problem-an onshore-offshore model, wherein the team is based offshore but goes onshore when required. Tuteja explains, “Providers need to find work, pockets of which can be done offshore and the rest onshore. For example, if it is financial-assessment work, the team will go onshore to do the assessment, and will come back offshore to complete the evaluation and reporting of the assessment.”

Research
Examples here include the type of work spanning from nanotechnolgy and advanced propulsion to e-governance frameworks being done in centers such as the Jack Welch Research Center in Bangalore and the IBM Research Labs at IIT, New Delhi. Research is a fairly core process for a lot of industries, so it is usually outsourced to a captive. Another example is the McKinsey Knowledge Center, McKinsey’s own research unit, which services the research needs of McKinsey consultants worldwide.

Gupta, however, is optimistic about the third-party model as well. Says he, “Large corporations are reducing their internal spend on R&D and are increasingly tapping external sources. There are more than 100 R&D labs in Bangalore providing offshore services to clients based in the high-wage countries.” In fact, Evalueserve estimates that by 2010 R&D will account for 12 percent revenue of the $17 billion opportunity in the knowledge process outsourcing sector.

IT ops
Neither in the KPO nor in the RPO area, IT ops offshoring nonetheless deserves a mention. While the offshoring of application development and maintenance has become fairly mature, IT operations-network management, outage monitoring, alarms monitoring, remote monitoring of data centers-has not. There is scope to send such work overseas, but because it typically requires real-time support, the suppliers would need to service their customers from the same time zones. Says Pai, “IBM and EDS have done work like this. Because countries like Argentina and Brazil are in the same timezone, it is easier to nearshore such kind of work.”

Engineering design
Civil engineering design and architectural design work can be offshored easily-for example, the design of refineries, highways, homes and offices. Companies such as Fluor Daniel and Bechtel are already doing a lot of design work from their captive centers in Gurgaon.

Medicare and bio
There is an opportunity in areas such as healthcare administration and radiology, but it is somewhat difficult to crack because of medico-legal issues and doctors needing to be licensed to do the work. Says Pai, “The risk in offshoring work such as MRIs diagnosis is greater. If the diagnosis is incorrect, then what will the follow up be?”

Bioinformatics and biotechnology are also yet untapped oceans. Says, Rizwan Koita, Joint President, Strategy and Corporate Development, Transworks, “The work happening in such areas in the US itself is the tip of the iceberg, so what’s happening in India is far less.”

Legal support services
This includes work in the field of intellectual property-for example, assessing technologies for licensing, writing draft patent applications and valuing patents. What is the opportunity here and who can do such work? Answers Gupta, “The intellectual property area is a multi billion dollar market globally. But, until you get the model right, I will not recommend that people get into. It’s very difficult to do and some people have already burnt their fingers in doing so.”

Editorial and DTP work
Any company that deals in content can potentially send its editorial and design work overseas. Writing work such as writing B2B proposals can also be done overseas. The margins in such work, however, are small.

Why now?
Such work hasn’t taken to offshoring so far because a lot of it is core and strategic to the company. Explains Gupta, “The sales cycle involved in such work is much longer. You ask clients to re-engineer their processes such that they can be offshored.” This is unlike the BPO scenario where companies have already been outsourcing, and it is extended to offshoring.

Another reason is issues related to licensing, regulations certifications, IPR, data protection, and other legal constraints. Tuteja gives an example, “There has been an instance, though not in India, in medical transcription where because of the delay in payment the outsourcer said that he would make all that data public. In application development and maintenance, there have been cases where people have stolen the source code. These cases create a perception-would I be really safe if I send my work out.”