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Knowledge Process Outsourcing Takes A Backseat

|Includes:CVD, Everest Re Group Ltd. (RE)

By Audrey B.

It seems like everyone’s talking about Information Technology (NYSE:IT) and the cloud.  Even in outsourcing, these topics pop up frequently in the news.  This is in comparison to other services in the outsourcing industry such as knowledge process outsourcing. But while knowledge process outsourcing (KPO) has somewhat faded from the limelight, there are still numerous opportunities in the space such as those in data analytics, investment research and market research outsourcing services.

On the 22nd of September the Indian affiliate of Standard & Poor, Crisil (NSE:CRISIL), announced that they are acquiring knowledge process outsourcing provider Pipal Research from fellow outsourcing company, Firstsource Solutions.  Crisil advised that they are planning on expanding their research services, such as internet market research, into up and coming outsourcing destination, China.  According to Crisil’s Roopa Kudva, “KPO is now a significant part of our research, which now accounts for 44% of our revenues.”

Crisil had previously acquired Indian offshoring company, Irevna back in 2004, in order to position itself in the KPO space particularly in financial, corporate and analytical services.

The acquisition, valued at $12.75 million, seems like a solid move for the company, considering that almost half of the company’s revenues can be attributed to KPO.  The deal, similar to the Crisil-Irevna acquisition, would allow Crisil to position itself into verticals that it did not have access to before, such as market research services, and telecommunications.

Considering how successful Irevna has grown following its acquisition by Crisil, then this new acquisition of Pipal Research, bodes well for the company.  It doesn’t hurt that forecasts for the knowledge process outsourcing industry is in the ranges of 20-30% growth rate in the next three years.

Meanwhile, the company’s intent to branch out into China also seems like a strong move for the company.  As one of the top outsourcing destinations after the Philippines and India, China is also proving its mettle in the outsourcing space.

What’s interesting though is that while Asian countries such as China, are considered some of the most preferred countries to outsource to, these same countries are also some of the most open in embracing outsourcing, and an opening in China will likely lead to openings in other Asian countries such as Japan and Korea, as seen by Everest’s (NYSE:RE) classification of China in the “Mature” category in its report on Q2 2010 outsourcing trends.

Other movements in the knowledge process outsourcing space these past few weeks include the 10-year research and development deal signed by French pharmaceutical company, Sanofi-Aventis (NYSE:RE) with outsourcer, Covance Inc (NYSE:CVD).  The deal, announced on the 30th of September, is estimated to be worth about $2.2 billion, and would allow Covance to expand its reach in the European markets.

Once at the forefront in outsourcing, knowledge process outsourcing services such as internet market research or market research outsourcing, has become less visible, unlike the ever controversial IT outsourcing space and even contact center services, case in point, NBC’s “Outsourced”.  The market however, is still proving strong, taking into account Crisil’s well-strategized acquisition of Pipal and Covance’s billion dollar deal with Sanofi-Aventis as examples.  Knowledge process outsourcing may have taken a backseat but it has yet to leave the building.

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Stocks: RE, CVD