The nascent Knowledge Process Outsourcing industry in India, which is expected to be worth $17 billion by 2010, is likely to face stiff competition from other low-cost destinations like Philippines and Russia, besides facing challenges of data protection and confidentiality.
The latest report by HR consultant Ma Foi shows that the KPO industry needs to tighten its service level agreements to provide better quality services and needs to attract more capital by entering into partnerships with big financial service organisations.
"The industry deals with confidential data, including financial data, treasury and cash management functions and investment portfolio decisions and needs to address the issue of data security raised by international clients," said Manoj Sharma, consultant, MaFoi Consultants.
Clients often hesitate to offshore research and processing of sensitive financial data and information involving strategic decisions, added Sharma.
While the report does not estimate the amount of losses that the firms face, it says this is one of the most critical issues for them. At the same time, an adequate information security framework in the industry will increase the costs of the industry, making it less competitive.
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The report says that the quality of services in a KPO cannot be monitored easily and a tightening of the SLAs is required as there are no pre-determined processes.
"No pre-defined process can be created and replicated each time there is an assignment since every project is unique. The client in a KPO will not look at dollar figures but will be mainly concerned with quality of services. That is where Indian companies may fail," the report said.
"There is a great opportunity for Indian KPO companies, but we need to push up our quality levels and bring down costs to move up the value chain," said Uma Parameswaram, chief executive officer, SciTech Patent Art Services Ltd.
The report shows that compliance and corporate governance are also likely to play a critical role in outsourcing of critical functions.
"A greater emphasis on governance and legislation like Sarbanes-Oxley and a greater direct control of finance processes is acting as a barrier in the way of a decision to outsource finance functions," the report said.
