Knowledge process outsourcing is the next move for Indian IT majors like Infosys and TCS but that may not be good news for the smaller KPO firms, reports CNBC-TV18.

Faced with a rising rupee and dwindling profit margins, IT firms like Infosys and TCS are looking to increase the percentage  of knowledge process outsourcing work in their BPO businesses. Besides commanding higher rates, the KPO business offers some respectability to what has become a  commoditised business model.  Take for instance TCS, whose pharma outsourcing practice, has bagged deals, which include clinical data management and compound isolation work. People who can do such work are paid much higher than the average call centre employee. But companies say, returns in this business are still higher than in pure BPO work.

N Chandrasekaran, COO, TCS said, "The price and the rates, we are able to command are higher and its a high margin business. We employ MBA's and post graduates in the relevant domain, so cost structure is higher but the price and the margins are higher than the BPO business."

These margins, industry experts say, are at the very least 15 to 20 percent higher than pure vanilla BPO work like data entry, mortgage processing and customer support besides others.But won't the entry of the big guerillas of IT and BPO into the KPO business make life tougher for stand alone niche KPO firms?  Analytics firm eClerx doesn't think so.

Said Anjan Malik, Director, eClerx, "We were in with a customer where one of these large companies is also there providing say F&A accounting or IT but our customers don't think of our services being fungible. So they wouldn't consider that company for derivative transaction risk management and us for F&A."

Besides increased competition, niche KPO firms will also have to deal with high attrition of their employees to blue chip companies like Infosys and TCS. But KPO firms argue that their employees will prefer being the big fish in the small pond rather than be one of a million employees of these big IT and BPO giants.