The $3 billion knowledge process outsourcing (KPO) market in India might not touch the projected $12 billion figure by 2010.

The Information technology (IT)/business process outsourcing (BPO) industry has grown at a rate of 30-40 per cent over the last few years. It is believed by many that the growth in the KPO market in India will surpass this (on a lower base though).

However, projections made over the last few years indicate a compound annual growth rate (CAGR) of 80-90 per cent. Research firm TPI believes this is "not easily achievable".

Siddharth Pai, partner and managing director, TPI Advisory Services India, says: "The predicted numbers are a bit too stretched as companies are still doing selective outsourcing."

He further states, "We see that financial institutions prefer setting up captive units in India for such work."

There are a few reasons for this. One, knowledge process is a niche area for many companies and they are not comfortable outsourcing work to third parties. Two, there are barriers to entry for niche professional segments.

"Each country has a specific law and the worker, though working in India, needs a certification from the industry concerned. Until then, the process is invalid. There is a limit to what a professionally-qualified person can do in India," explains Pai.

Many of the industry players too agree. Kumar Subramanian, chief executive officer, Adventity says: "If you purely go by voice-based KPO services � and take $20 per hour being the minimum fee charged � then we can reach $8 billion by 2010 but $12 billion seems to be a stretch."

Subramanian says: "Typically in the services industry processes that are not core get outsourced. Besides, KPO is still at a nascent stage." He further notes that every new process has a lifecycle, as companies will get comfortable with the idea of outsourcing they will increase such activities.

But that will happen over a period of time. Till then, KPO players are coming out with hybrid concepts. The latest is based on build, operate and transfer (BOT). "The third party sets up the processes, operates it for some time but in the long run has the option to transfer the operations in-house," says Pai.

Adventity is already in discussion with some of the companies in the financial segment. Subramanian reasons that in such a scenario the company is in a position to turn this operation into captive if the third party company ceases to be in operation or is taken over.

But not all agree with this line of thinking. They reason KPO companies are growing phenomenally � some at a growth rate of 50-100 per cent � but how fast will they achieve the set targets is a bit difficult to judge.

A recent Evalueserve report indicates the industry is bang on target and will achieve the desired numbers. The reports says the vendor model (Buy) will surpass the captive model (Make) in KPO by 2010 because the average value proposition is better in terms of cost, time and quality.

"Additionally, our analysis reveals that much of KPOs' growth will come from small- and medium-sized enterprises (SMEs) who can now also leverage KPO, provided from India and other offshore locations," the report states.

The report predicts large companies with existing captives will increase the amount of dual-sourcing, i.e. outsourcing work to their captive and external vendors in parallel.

Vendor capacity will surpass captive headcount by 2010 and that the 'Buy' model will become the default model for 90 per cent of the new centres to be set up in 2010 and onwards.

Legal process outsourcing (LPO) player, Mindcrest, announced the launch of its 400-seater facility in Pune a couple of days ago. It focuses on hiring lawyers. A Forrester report pegs the current annual value of LPO (part of KPO) to be $80 million and projects it to touch $4 billion in India by 2015.

Regardless of the debate, companies continue outsourcing work that is not core to their operations like equity research, treasury operations, credit decision processes, accruals services. Integreon, a 2,000-seater KPO, is witnessing more enquiries, especially from captive centres.

"On an average we have been getting 2-3 enquiries every week," says Prashant Chawla, chief operating officer of Integreon.