R&D offshoring in India to touch $21.4-bn by 2012

Pune: Research and Development offshoring to India by international IT players, a $9.35 billion industry, is estimated to touch $21.4 billion by 2012.

Mr Pari Natarajan, Chief Executive Officer, Zinnov Management Consulting, said that currently there are 594 R&D centres in India operating in SPD (software product development), embedded services and engineering services.

Bangalore, Pune and NCR together account for the majority of the R&D set-ups, with about 494 centres operating in these three cities.

He said that R&D offshoring in India currently employed about 1.4 crore professionals across domains. Bangalore housed about 80 lakh of R&D talent while Pune had the next highest talent base of 23 lakh professionals.

He noted that most of these R&D centres today were not isolated from the ongoing global financial crisis and hence would need to address a number of challenges.

These included slow product transitioning to India, reduction in the expected salary hike, reduction in travel budgets leading to reduced ability to influence global stakeholders.

He also pointed that nearshore locations such as Mexico were getting popular among companies to set up R&D centres.

“As Eastern Europe and China gain popularity, there might not be an increase in the number of projects transitioned to India as in the 2002-2005 period,” he said.

Mr Pari noted that as controlling costs was the prime concern for the companies, the companies would be reluctant to encourage innovation.

And as product groups are shut down in the US, centres there might be forced to lay off the groups, which could be converted into opportunities for the Indian companies to move up the value chain.

He said that the opportunities included strategic projects coming to India due to cost advantage, global sourcing initiative management which could be transferred to India centres, shift in focus to the Indian market and opportunity to attract expats having domain expertise and product management skills.

Mr Pari said most of the centres spend $35,000-$55,000 per full time employee as operating costs each year.

The salary costs constituted 70 per cent of the total people’s cost and the other major components included bonus, recruitment cost and other employee benefits.

He noted that SPD constituted about $3.15 billion of the R&D market in India and enterprise software, telecom and networking were the dominant verticals in R&D in the country.

He pointed out that cost was no longer a key driver for offshoring R&D operations to India as companies sought talent pool and emerging opportunities.

Spurred by local R&D initiative, India could be a key R&D player by 2020, contributing 20 per cent of the global R&D spend and 25 per cent of the total patents filed. He said Zinnov has launched strategy fomulation tools, maturity model and operations cost analysis tool for R&D companies in India.

The new services under the R&D innovation council would help the R&D subsidiaries of MNCs to gauge, by assessment, the maturity of the operations of a centre at the product, centre of excellence and subsidiary levels.

This, with the operations cost analysis tool, would help Indian R&Ds to understand how best to create value in their current stage of maturity and grow further, he added.