KPO has developed two years back to encircle several specialist areas that were initially forbidden for offshoring. Take for instance, it has develop a legal outsourcing firm which employ lawyers; a pharma R&D outsourcing company which recruits doctors, PhDs in life sciences and an auto engineering outsourcing firm which requires engineers with CAD/CAM expertise.

According to a Confederation of Indian Industry (CII) study, KPO will grow at a compounded annual growth rate of 46% to be worth $17 billion by 2010, of which $12 billion will be outsourced to India. NASSCOM projects that the KPO sector in India may reach $15.5 billion by 2010, up from $1.2 billion currently.

India, however, remains the proven and favored destination, way ahead of other competitors in most areas, especially financial research, legal and healthcare/pharma research.

The reasons that usually influence buyers' decisions regarding choice of destination are:

If you are curious to gather these benefits of outsourcing but not possessing gusty willingness to take the calculated risk, go for the option of captive route as it will enable you to protect yourself against possible IPR threats and feared loss of patented material.

Because of the significant hype, industry will now need to take significant initiatives to cope up with the shortage of quality supply of professionals and have to ensure strong training methodologies for their recruits too.

Issues of upgrading data security and patent infringement are need to be addressed more proactively, when you are doing more complex jobs as billing rates also get higher simultaneously. The onus lies on the industry to yield weighs even more heavily as there is positive buildup and expectations from India in the KPO space.

Entrance in KPO is not a deal, but to survive and emerge as a winner will set apart the stronger players in the long run. For every single large KPO player, there are estimated 10 small players offering similar services generally at lower billing rates. We are looking forward for the wave of consolidation in the industry between 2006 and 2008.

High degrees of specialization and innumerable niches will let even relatively small firms to persist profitably and create a large pool of acquisition targets. So, even as consolidation picks up the pace, the explosion of new service providers will create further fragmentation.

Bottomline: More than consolidation, fragmentation will become a stronger wave among the KPOs, leaving the industry with even more players by 2010. Hence, the adequate availability of these small vendors as acquisition targets will lower the valuations.