Why are KPO Firms Emerging at a Rapid Pace Now?

Published by Fair Trade Outsourcing on

Knowledge Process Outsourcing, or KPO for short, continues to rise in prominence in the global economy with companies outsourcing knowledge-based work to countries like the Philippines, India, and Bangladesh. As an offshoot niche in the IT-BPO industry, KPO involves work that is much more complex and versatile compared to BPO. It’s true some of the work can be done by machines to cut down the time it takes to finish a process. But, the human element can never be eliminated because KPO work relies on the analytical and creative talents of highly skilled workers. The reasons why it’s now emerging at a rapid pace can be traced to the following factors.

#1 The ubiquity of digital information accessible through the internet has led to the globalization of the knowledge economy.

In international trade, companies in more developed nations are not only pushing their goods to developing countries but also their services, which include internet and mobile technology. Service providers found new markets that are hungry for knowledge. This changed the way these countries educated their citizenry.

The younger generations consumed information beyond what their educational institutions can provide. As sophisticated internet users, they’re more knowledgeable in the kind of virtual work that overseas companies wanted to be done.

The ones who grew up learning to use the computer also learned to work in the tech industry. They became developers, designers, writers, managers, and innovators. As the industry grew, companies sought to fill their workforce with qualified professionals who are as passionate and determined as their leaders notwithstanding the geographical and cultural barriers that exist between them and their prospects.

#2 Developed nations cannot fulfill the increasing demand for technically skilled and highly qualified individuals.

A common thread in BPO and KPO comparisons is the complexity of work involved in the latter. Skilled professionals with more experience and skills, and, if possible, higher degrees are required for knowledge-based work. This created a huge demand for highly skilled individuals in developed nations, which they could not meet.

That’s why organizations outsource the work to countries that collectively produce millions, if not hundreds of thousands, of well-educated workers who are also fluent in English and deeply familiar with western cultures. These emerging and developing nations also produce more STEM graduates than countries with advanced economies.

However, not all college graduates are hired by companies. It seems more than half of them have a deficiency in soft skills, such as writing and public speaking, which managers consider important skills to have in the workplace.

Critical thinking, problem solving, attention to detail, and writing proficiency top the list of skills managers find missing from job seekers’ personal tool kits… Overall, hiring managers found soft skills such as communication, leadership, ownership, and teamwork were missing in this new crop of workers.

#3 In a weak labor market, companies tend to seek qualified employees who are willing to work for lesser wages.

In a commentary republished by the Economic Policy Institute, the author presented a thorough analysis of demographics and employment data from 2012 to 2013 and compared it to the same type of data collected in 2007. According to the author, companies don’t hire as many people in a weak labor market, which is the complete opposite of what’s happening in a strong labor market.

There is a wide range of “recruitment intensity” with which a company can deal with a job opening. For example, if a company is trying hard to fill an opening, it may increase the compensation package and/or scale back the required qualifications. Conversely, if it is not trying very hard, it may hike up the required qualifications and/or offer a meager compensation package. Perhaps unsurprisingly, research shows that recruitment intensity is cyclical: it tends to be stronger when the labor market is strong, and weaker when the labor market is weak (Davis, et al, 2012). This means that when a job opening goes unfilled when the labor market is weak, as it is today, companies may very well be holding out for an [overqualified] candidate at a very cheap price.

Businesses know that few employees in the United States would agree to work for lower-than-average wages in a struggling economy. ManpowerGroup’s seventh annual talent-shortage survey showed that more than 50% of Americans won’t take jobs where they’re paid lower than they expected. In contrast, only 13% of global respondents were concerned with the low pay.

#4 As the U.S. Government is taking steps to reduce outsourcing, BPO will get hit the most, unlike skill-based KPOs.

What if the Trump administration, by some stupid twist of fate, was able to totally block companies from outsourcing and implement punitive measures to discourage companies from finding workarounds to this policy change? What do you think would happen?

A most likely consequence of this, according to experts, is widespread automation. China has been manufacturing industrial robots that perform well but cost less to install and maintain. It will be easy for American businesses to invest on automation (at least, those that can afford it). Many of these firms will completely move their operations offshore to countries that have more workers who meet their requirements.

In any case, KPO companies will continue to flourish. Countries with a workforce that currently have insufficient technical skills will continue to see businesses going offshore. Small businesses will continue to outsource because it’s the only way they can survive in a highly competitive global economy.