The maturing knowledge process outsourcing (KPO) market represents a significant growth opportunity for vendors, according a new Datamonitor report.

“KPO represents the next stage in the evolution of the outsourcing market,” says Ed Thomas, analyst for business process outsourcing (BPO) at Datamonitor and author of the report. “Unlike BPO, which refers to the transfer of mainly transactional, non-core processes to specialist providers, KPO involves the outsourcing of core business processes, for example planning and auditing, which require a high level of domain expertise.”

Within the report Thomas points out that, throughout the evolution of the KPO market, one feature that has remained constant is the leveraging of offshore delivery models. “India has been the focal point for the KPO industry since its inception. Increasingly, however, KPO vendors are adopting a multi-shoring approach to service delivery.”

Datamonitor has identified eight key locations that have emerged in recent years as viable options for KPO service delivery, including China, the Philippines, Sri Lanka, Hungary, the Czech Republic, Canada, Mexico and Brazil. The report assesses the strengths and weaknesses of these geographies and looks at how they can form part of a vendor’s multi-shore delivery model.

Thomas also notes that KPO enables clients to tap into large pools of talent and leverage skills in niche areas, which otherwise would not be open to them. “By improving efficiencies and freeing up resources within the client’s own organisation, KPO can help to improve customers’ time-to-market, a business benefit which goes beyond simply delivering ‘your mess for less’ services in the style of transactional outsourcing.”

The report also finds that despite recent trends towards consolidation, the KPO market remains extremely fragmented. When the hype around the industry was at its height during 2004/2005, new vendors claiming to provide KPO services would appear on an extremely regular basis. While many of them have not survived, a significant number did, and are still operating.

Thomas adds that, despite recent consolidation, scale is of lesser importance in KPO than BPO. “Whereas BPO vendors typically harness economies of scale to deliver significant cost savings, the main selling point of KPO is its ability to deliver targeted, domain-specific knowledge, with scale playing less of a part in a vendor’s go-to-market proposition.” Niche providers are therefore capable of competing with, and even outperforming, the giants of the outsourcing industry.