strategic_guide_indian_r&d_centers
TRANSCRIPT
Strategic Guide on Indian R&DStrategic Guide on Indian R&D Centers 2008Unveiling the R&D Offshoring Scenario in India
Industry Report
May 2008
Zinnov LLC
Global R&D spend is expected to grow at a CAGR of 3.5 per cent with Europe and Japan emerging as equally competitive R&D spenders
1250
R&D* Spend by Geography (2008)Global R&D* Spend(2005 – 2010)
Europe1150
1200
1250
D B
illion
)
CAGR 3.5 %p
30%
North America
43%1050
1100
1150
D s
pend
(in
USD
Japan22%
43%
950
1000
1050
Glo
bal R
&D
900
950
2005 2006 2007 2008 2009 2010
Year
ROW5.26%
*Note: It includes R&D spend by various other industries such as engineering services with embedded systems R&D, Energy, Consumer, Healthcare, Industrial domains etc.References: Computing Research Association, EIU, European Industrial Research Management Association, OECD Zinnov Analysis
Year
R&D offshoring constitutes 14.4 per cent of the total offshoring to India with R&D centers commanding 62.7 per cent of the market share
60
Indian Offshore IT Market 2008 (in USD billion )
R&D Offshoring Market Size 2008( in USD billion )
50
60R&D
Centers62.7%
Billio
n)
30
40
enue
(in
US
D B
20
Vendors37.3%R
eve
0
10
IT R&D ITES Total
Total = USD 9.35 Billion
R&D Offshoring (2)IT Services (1) Total OffshoringITeS (1)
Total =USD 64.85 BillionSource: Nasscom, Zinnov Analysis1- Market size includes exports and domestic revenues2- R&D includes Software Product Development, Embedded Systems and specific areas of Engineering Services
The R&D offshoring industry can be sliced into three horizontals
Definition
Software Product
Software development is the translation of a user need or a product idea into an operationalcomputer based software. The product development lifecycle includes conceptualization,
i t ifi ti t l i d d i d t d l t t ti d
Horizontals
Software Product Development (SPD)
requirement specification, system analysis and design, product development, testing andmaintenance. It encompasses skill sets in Application Development, Systems Programming,Web Technology Programming, Network Programming, Database Programming , UserInterface design, Product Planning, Program Management , Manual Testing, AutomationTesting, SCM etc.
Embedded Systems
An embedded system is an electronic system designed to perform pre-designated functionsin a machine. It is used like an embedded device/chip in a end-product coupled with othermechanical software parts. Its acts as interface between hardware and software of anelectronic system by providing a means to give instructions to hardware of the system ItEmbedded Systems electronic system by providing a means to give instructions to hardware of the system. Itincludes skills in embedded programming, hardware designing, manual and automationtesting. It also includes developing firmware which is designed to be augmented into an end-user product like mobile phone, automotive system, aviation systems etc.
Engineering Services
It includes development of software catering to engineering requirements of various industrieslike mechanical, automotive, aerospace etc. Engineering services R&D includes stages ofproduct lifecycle—Product Design & Development, Design Support, Engineering Analysis &Modeling, Prototype Build, Testing, Verification, Validation, Manufacturing EngineeringSupport, Knowledge based Engineering, Technical Publishing and other product support
( f ) factivities, PLM (Product Lifecycle Management) etc. It needs a diverse set of skills acrossmechanical engineering, computer software hardware engineering and electrical engineering.
The three horizontals have been segmented across eight industry verticals
DefinitionVerticals Examples
It includes pure play semiconductor firms working on embedded systems like chips.
EDA / Semiconductors Intel nVidia AMD
It includes firms developing software to be augmented into another device serving as an end-product for a user-based functionality.
Consumer Electronics
It includes firms developing software for usage in telecom productsT l &
LG Samsung Philips
It includes firms developing software for usage in telecom products. It includes mobile applications, networking software, graphical user interface designing.
Telecom & Networking
It includes firms working on software related to operating systems, systems level programming, networking including protocols, security, remote connectivity etc.
Software Platform & Systems
Cisco Avaya Siemens
Novell Linux Sun Microsystems
It includes firms working on enterprise applications like ERP, CRM.Enterprise Software Products
It includes firms working on development of online software applications for B2C software products like internet search desktop
Consumer Software
SAP Intuit Oracle
Google Yahoo Amazonapplications for B2C software products like internet search, desktop search, online space.
Software Products
It includes firms developing automated systems like notebooks, mobile computing accessories, PDA, servers, desktops, scanners, Tablet PCs etc.
Computing Systems
Google Yahoo Amazon
HP FujitsuIBM
It includes firms manufacturing products like automotives, aerospace which have computer software and hardware as an integral part of the end- product functionality.
Manufacturing Ford Daimler Chrysler Boeing
R&D offshoring in India started way back in the 1980s; it gained momentum only after 2002 and is now poised for the next phase of growth
Growth Factor Value FactorEvolution of R&D Offshoring
Exploration Identification Growth Harvest
Access to Local market
Skilled R&D talent
Need for innovationAvailability of skilled talent
Potential for cost-savings
Need for innovation
Potential for cost-savings Spree of Product
Development firms
Entry of Texas Instruments
Dot-com Bust
Entry of Microsoft
Entry of Motorola Few Product
development firms exit India
1980 1990 1995 1998 2000 2002 2004 2006 2008 2010
YearsInflection PointGrowth triggers
Between 2003 and 2005 a large number of MNCs came to India for setting up R&D centers
181180
200MNCs Setting up R&D Centers in India
140
160
Cen
ters
8293 87
80
100
120
ber o
f R&
D C
36 3853
2440
60
80
Num
b
0
20
On orB f
2001 2002 2003 2004 2005 2006 2007Before2000
Source: Zinnov Research
Year of Establishment Total 594 R&D Centers
Currently there are 594 R&D centers in India operating in SPD, Embedded Services and Engineering Services
Embedded Systems
Illustrative
D l hi LSI C M l
Distribution of R&D Centers – 2008
y120
Engineering Services 84te
rs in
ts
Delphi LSI Corp. Motorola
Altair Engineering Arvin Mentor BMW
B h Caterpillar Ford
Of R
&D
Cen
tog
y Se
gmen
t
GoogleMicrosoftYahoo
Bosch Caterpillar Ford
Software Product Development
390erce
ntag
e O
Tech
nolo
HP
IBM
Oracle
Philips
Adobe
Sunguard390P IBMPhilipsSunguard
KeteraSynygyYodlee
Source: Zinnov Research
Total 594 R&D Centers
These R&D centers are spread across various verticals: enterprise software products and telecom & networking are the key verticals
55
51 594
Vertical Distribution of R&D Centers – 2008
115
48
55
82
75
153
Consumer softw are Softw are platforms/Systems
Telecom/Netw orking Computing systems Total
15
EnterpriseSoftware
Software Platforms/
ManufacturingConsumerSoftware
Telecom & Networking
Computing Systems
TotalConsumerElectronics
Semiconductor /EDASoftware Platforms/
SystemsSoftware Networking SystemsElectronics/EDA
Total 594 R&D Centers
Source: Zinnov Research
About 49 per cent of the total R&D centers in India have revenues less than USD 100 million
22200+
Revenue vs. Headcount Analysis for R&D Centers283 Total = 594
40100 - 200
50 - 100184
86
90adco
unt
184
Hea
76135
1310
309 28
45
14
3210 - 50 51
15 61910
1 - 100 100 - 200 200 - 500 500+Global Revenue in USD Millions
Source: Zinnov Research
70 per cent of the smaller R&D centers focus on software product development
Revenue vs Horizontal Segment Analysis for R&D Centers
33Engineering
Services
Revenue vs. Horizontal Segment Analysis for R&D Centers
283Total = 594
45Embedded Systems
184
56
S ft
184
20628
23
Software Product
Development
51
76
37 48
986
5851
1 - 100 100 - 200 200 - 500 500 plus
Source: Zinnov Estimate
Global Revenue in USD Millions
About 53 per cent of the engineering services R&D centers have a workforce of more than 200 engineers
25
Headcount vs. Horizontal Segment Analysis for R&D Centers
Engineering Services
175
158
Total = 594
30
14
11
64
Services
Embedded Systems
139
122
15
25
20
120 116
87
25Software Product
Development
67
200+100 - 20050 - 10010 - 50
Headcount Range
Source: Zinnov Estimate
Bangalore, NCR and Pune together comprise the majority of R&D setups with about 494 centers operating from these 3 cities
f & C
Bangalore 312
Location Distribution of R&D Centers
Pune
Software ProductDevelopment
95
NCR
Development
EmbeddedSystems
87
Hyderabad
Chennai
EngineeringServices
57
32
OthersTotal = 594
11
0 50 100 150 200 250 300 350
Source: Zinnov Research, Zinnov Analysis
Number of R&D CentersNote: “Others” include cities like Chandigarh, Ahmedabad, Coimbatore, Nashik, Mumbai, Kolkata
Currently the R&D offshoring industry in India is worth USD 5.83 Billion —software product development being the dominant segment with 53 per cent of this marketof this market
Market Size of R&D Centers – 2008(As per technology segments)
Engineering Services
21%
Software Product D l t
Services
53%
26%
Embedded Systems
Development
Total Market Size is USD 5.83 Billion
Source: Zinnov Analysis
Most phases of the software product development value chain are currently being offshored to India
Software R&D Value-ChainSPD Embedd ES
Product Concept Design Development Testing Support
Software R&D Value ChainSPD Embedded
ES
ObjectiveTo conceptualize a new product idea catering to customer needs.
Design a scalable, high performance modular product
Ensure that a high quality, defect free product is ready
Provide technical support to customers
Developing a product based on user-requirements.
►Product Development ►Unit/ Interface Testing►Component/ Feature ►Technical Support
Commonly Offshored
►Feature Definition
►Project Planning
►Product Maintenance
►Re-engineering and Migration
pTesting
►Regression Testing►Testing Automation►Product Validation / Acceptance
(Level 1 & 2)
►Performance Benchmarking
High Potential
►Prototype Design / Architecture
►Technology Evaluation
►Prototype Development
►Requirements Gathering, Analysis
►Software Architecture
►RequirementManagement
►Program Management
►Technical Support (Level 3 & 4)
►Shared Services (F&A, HR, IMS,Professional Development
►Prototype Validation
Architecture►Project
ManagementServices, Documentation services)
Not Being Offshored
►Concept Definition
►Concept Evaluation
► High-Level Design of Product Concept
SPD is estimated to be a USD 3.15 billion market in India with enterprise products segment owning the largest market share of about USD 0.97 billion
SPD Embedd ES
Market Size of R&D Centers – 2008 Software Product Development Industry Verticals – 2008
25
SPD Embedd-ed
ES
20
25
22%n
Telecom & Networking
15
19%31%
e in
USD
Billi
on
Enterprise Software Products Software Platforms
& Systems
5
10
3% 18%
Rev
enue
Semiconductor / EDA
Others
0
5
Software Product Embedded Engineering Total
3%7%
18%
E b dd dSoftware Product Engineering
Others
Computing Systems
Total = USD 3.15 BillionSoftware Product
DevelopmentEmbeddedSystems
Engineeringservices
Total
Total = USD 5.83 Billion
Embedded Systems
Software Product Development
Total EngineeringServices
Source: Zinnov Estimates
In the case of embedded systems, India is gradually expanding its capabilities—high-end R&D in embedded domain is yet to be offshored
Embedd-
Conceptualization Design & Development
Prototyping Verification & Validation
Embedded R&D Value-ChainSPD Embedd-ed ES
• Static & dynamic AnalysisP l t d
• Firmware & diagnostics• Application software• Embedded soft are
• Prototype study
Software
• Understanding the local need • Pre-layout and
Post-Layout Verification
• Regression testing• Functional testing
• Embedded software• Digital/Analog IP• RTOS• Device drivers• Board support package
• Prototype tapeout
• Prototype building
P i
• Requirement Documentation
• Product conceptualizationFunctional testing
• Reliability testing• ATPG test vector
Generation • Package QA
• Stacks • Prototype testing
• Prototype analysisHardware
• Core design & architecture• Model building• Algorithm evaluation and
layout• Cost analysis and future
• PCB design• Substrate design
• Manufacturing Test• Qualification /
Application test• Field test
• Cost analysis and future compatibility
• Design specifications
Substrate design• Verilog coding• Platform porting• Board/ System design• VLSI Design
FPGA • Substrate testing
Present & Near-Term R&D Offshoring Future & Long-Term R&D Offshoring
• FPGA• ASIC/SoC/SiP
The R&D of embedded systems is currently estimated to be a USD 1.54 billion segment in India with telecom & networking as its largest vertical
SPD Embedd- ES
25
Market Size of R&D Centers – 2008 Industry Verticals of Embedded Systems – 2008
SPD ed ES
20
25
23%
Consumer Electronics
15
40%
n U
SD B
illion
Telecom & Networking Semiconductor / EDA
5
1019%
Rev
enue
in
ManufacturingOthers
0
5
Software Product Embedded Engineering Total
5%13%
E b dd dSoftware Product E i i
Others
Total = USD 1.54 BillionSoftware Product
DevelopmentEmbeddedSystems
Engineeringservices
Total
Total = USD 5.83 Billion
Embedded Systems
Software Product Development
TotalEngineeringServices
Source: Zinnov Research
Engineering services in India is catching up towards high-end offeringsEngineering Services Value-ChainSPD Embedd
edES
Product Conceptuali-
zation
• Conceptualizing product functionality • Benchmarking of process, product and costs• Designing the aesthetics and usability of product• Market Research, Cycle Simulation• Preliminary Design Analysis
Level of OffshoringComplexity
Product Design and Modeling
• Complete product design including assembly • Component design on CAD, Pro E, Design
Automation, Drafting and 3-D modeling, Conversions between different platforms
Design &
• Conducting virtual simulations of designs to study a part, sub-system or system for its behavior in operating environment
• Optimizing product performance under real-life Engineering A l i
gDevelopment
Product Realization
influencing factors such as temperature, vibration, fluid flow, fatigue
• CNC / CMM Programming• Casting, Forging and Fabrication Engineering• Manufacturing of
Analysis
Realization(Manufacturing
Engineering Services)
• Technical Support, Design Support • GIS- Document Conversion, Legacy Conversion
• Manufacturing of – Assembly Jigs and fixtures– Ground Support Equipments
Product Support
GIS Document Conversion, Legacy Conversion• Re-Engineering / Reverse Engineering• Acceptance and Test Procedure• Component Maintenance Manual• Illustrated part catalogue, Service bulletins
Low Medium High Low Medium High
At present, it is estimated as a USD 1.27 billion market with the manufacturing domain constituting USD 0.52 billion of the total market
25
Market Size of R&D Centers – 2008 The Industry Verticals of Engineering Service – 2008
SPD Embedded
ES
20
25
20%
Semiconductor / EDA
15
42%16%n
USD
Billi
on)
Manufacturing Telecom & Networking
5
10
9%Rev
enue
(in
Consumer Electronics
0
5
Software Product Embedded Engineering Total
7%6%
E b dd dSoftware Product E i i
Software Platforms / Systems
Computing Systems
Software ProductDevelopment
EmbeddedSystems
Engineeringservices
Total
Total = USD 5.83 Billion
Embedded Systems
Software Product Development
TotalEngineeringServices Total = USD 1.27 Billion
Source: Zinnov Research
R&D offshoring market is expected to grow at a CAGR of 23 per cent till 2012 with the growth of vendors catching up faster than that of R&D centers
25
Growth in Indian R&D Market, 2008-2012
25
R&D centers vs. Vendors : Market Share
17.4
21.4
20 20
n
21.40
n
11.5
14.2159.5
15
et in
USD
Billi
on
44%
et in
USD
Billi
on
9.410
11.93.5
5
10
Mar
ke56%
9.4
Mar
ke
37%
0
55.8
0
2008 2012
63%
2008 2009 2010 2011 2012Years R&D Centers Vendors
Source: Zinnov Estimates
146,760 professionals—out of an installed base of 2,53,060 R&D talent in India—are engaged with R&D centers
Installed R&D Talent Pool in R&D Centers – 2008 (As per technology segments)
Installed Talent Pool R&D – 2008
23%
Embedded
52%
Software Product Development
Embedded Systems
58%42%
Vendors R&D Centers
25%
Engineering Services
58%42%
Total = 1,46,760Total Talent Pool = 2,53,060
Source: Zinnov Research
Bangalore houses about 80.8 thousand of R&D talent; Pune has the next highest talent base of 22.3 thousand professionals
Bangalore
Installed R&D Talent Pool Across Locations – 2008
80,885
Pune 22,382
NCR 20,319
Hyderabad 13,126
ChennaiTotal = 146,760
10,048
1000 16000 31000 46000 61000 76000
Installed Talent Pool
Availability of highly skilled workforce and need for more innovation are the major drivers for offshoring R&D to India
Conceptual
Key Drivers Description
Ability to foster innovation by leveraging the potential
Importance of the driver
Global Product1
Conceptual
y y g g pof the talent pool available across different nations and their proximity to growing markets.
Differences in compensation levels and operating costs ti i d t di t f i
Global Product Development
Cost Competitiveness2
across nations varying due to diverse set of economic conditions.
Availability of domestic market opportunities in a particular geography which can be tapped to grow business of a
Cost Competitiveness
Local Market 3geography which can be tapped to grow business of a company.
Availability of well qualified, English speaking, skilled and MNC-suitable workforce
Opportunities
Skilled Manpower, Fresh Talent
4
Availability of service provider firms operating in similar businesses and bolstering the IT ecosystem of the
and MNC suitable workforce Fresh Talent
Vendor Supply Base5
country
Note: ‘Importance of driver ‘ indicates how global firms prioritize their motivations for establishing an India center for R&D. It is purely a qualitative rating based on Zinnov’s observation across key product development firms globally.
Source: Zinnov Analysis
India has emerged as a prime contributor to the global R&D capabilities of MNCs—it is now seen as a high-value hub for innovations
1
Companies with R&D centers in India INNOVATIONS – INDIA
Yahoo Hotjobs, Yahoo! Kids, Yahoo! Avatar, Mixd, Yahoo! Podcast Service, Farechase and SMS back-up
Adobe Page Maker 7.0, Frame Maker, RoboHelp, PostScript, Acrobat Reader on handheld devices, Acrobat Reader on Linux, Photoshop Album Starter Edition, and Premiere Elements.
Oracle Fusion Middleware (Identity management and application sever team), Oracle Database, JD Edwards, Oracle Integration Products & Discoverer and Retek
Intel Woodcrest, Tulsa, Clovertown, Tera Research Chip (50 per cent developed from India), Centrino mobile platform, Teraflop processor, Xeon and Santa Rosa.
Texas Instruments India Engineering Center has contributed to key products - Application Server 7.1, installer and packaging for Java Enterprise System 1, portal server, Web server, Identity Server and Meta Directory
IBMHursley DDC, WBI Adapters DDC, Rational Products, Linux Technology Center, OS/2 DDC. IBM India center also provides support for diverse products i.e. Web Application Servers, WBI, Middleware Technologies, Office IBM p pp p pp , , g ,Automation Products, Distributed File Systems and Operating Systems
Symantec India center works on complete ownership model for products like Security 2.0, Information 2.0, File System Analyser, AIDA (Automated Inference of Data center Anomalies) and Malware variance
CiscoIndia center key contributed to development team of 7500 router platform, WAN technologies, BPX switches. Small Network Management Solution (SNMS) and Cisco Emergency Responder (CER) was completely conceived and developed entirely in India.
The cost of product development in India is about one-third of that in the U.S. However, value-based benefits are now gaining ground over cost competitiveness
6
competitivenessAnnual Cost per FTE - Headquarters in the U.S. vs. R&D Center
in India $180,000 $180,000
USD
)FT
E/ Y
ear (
U
Cost differential of
about 1:4
$120,000
Cost differential of
about 1:3
$120,000
Cos
t/ F
$60,000 $60,000
$0
Captive US (West Coast)
$0
Captive US (East Coast)
Source: Zinnov Research
Scalability, productivity and cost escalation are some of the key challenges faced by R&D centers (1/2)
Cost Escalation• Headquarters are concerned about the increase in cost at R&D centers• Companies ha e seen a cost increase of 8 per cent to 15 per cent ear o er ear
1
Key Challenges
Cost Escalation • Companies have seen a cost increase of 8 per cent to 15 per cent year-over-year• Cost increase is the higher at smaller R&D centers due to difficulties in resource
optimization
Th tt iti l l t R&D t f 15 t t 20 t A
Attrition
• The attrition levels at R&D centers range from 15 per cent to 20 per cent. As companies don’t have a concept of bench strength or buffer resources, the impact of attrition is higher compared to IT services firms
• Attrition related best practices such as structured knowledge transfer, resource shadowing are not common at R&D centers.
2
• R&D center heads seem to easily get bored once they have completed the hiring process for the India center
• R&D centers who are growing at a smaller pace and R&D centers whose global revenue is stagnant encounter higher attrition at the senior levels.
Management Stability
3
Process Adoption
• R&D centers have minimal processes. The Headquarters are not able to accurately track the progress of the projects
• As R&D centers are a part of the organization, it is very difficult to enforce process
4
revenue is stagnant encounter higher attrition at the senior levels.
Adoption p g , y pdiscipline only at the India R&D center.
Scalability, productivity and cost escalation are some of the key challenges faced by R&D centers (2/2)
Scalability• R&D centers are not able to hire at a rapid pace. They need resources with a varying
level of skill set and capability. They don’t have the recruitment bandwidth to screen a 5
Key Challenges
Scalability p y ylarge number of engineers
• Lack of career options makes it difficult for them to attract good talent from IT services firms.
Productivity
• Productivity at the India centers tends to be 30 per cent to 40 per cent lower than that among the U.S. resources
• Lack of product roadmap clarity or delays in decision making in the U.S. results in significant idle time for the engineers
• Quality of the talent, lack of domain expertise and lower experience levels are
6
Quality of the talent, lack of domain expertise and lower experience levels are considered as the major reasons for lower productivity at the India centers.
• R&D centers are liable to pay taxes as per the transfer pricing regulations in India. The Indian subsidiary is liable for the tax on the profits generated from the activities undertaken at the India location7
Taxundertaken at the India location.
• Transfer Pricing Technique is used to determine the profit attributable to the subsidiary unit. The price of services rendered by the PE to the head office or by the head office to the PE is calculated on an arm’s length basis, i.e., a price which is applied in a transaction between persons other than associated enterprises On an average it
7
transaction between persons other than associated enterprises. On an average, it amounts to about 15 per cent over and above the total operational costs of the India center.
2007 witnessed a 10 per cent to 15 per cent increase in the operating costs of the R&D centers due to salary escalation and rupee appreciation
1
Cost Escalation in India Operations (YoY)
People costs accounts for about 62 per cent of the operating costs of R&D centers
16.2%
Year
(US
D)
30,47034,665
41,117
e C
ost/
FTE
/
2005 2006 2007
Aver
age
Source: Zinnov AnalysisNote: Onsite Location is assumed to be US
The cost per FTE in embedded systems R&D is higher than that of software product development and engineering services R&D
Parameter SPD Embedded SystemsEngineering
Services
TotalTotal (Cost per FTE per
annum in USD)41,117 45,228 36,121
P l C t 50% 78% 52% 78% 55% 72%People Cost 50% - 78% 52% - 78% 55% - 72%
Infrastructure and Facilities 9% - 25% 12% - 25% 10% - 22%
Communication Travel 3% - 20% 5% - 20% 8% - 15%
Government/Regulatory 1% 5% 1% 5% 1% 5%Go e e t/ egu ato yCost 1% - 5% 1% - 5% 1% - 5%
Professional Services Cost 3% - 13% 3% - 13% 3% - 13%
Source: Zinnov Research
Most of the R&D centers in India incur an operating cost of USD 35,000 to USD 55,000 per FTE/ year
6%100%
Total Operating Cost/FTE/Year
24%
75%
Cen
ters
100%40%50%
age
of R
&D
18%25%Pe
rcen
ta
12%0%
<USD 30,000 USD 30,000 toUSD 35,000
USD 35,000 toUSD 45,000
USD 45,000 toUSD 55,000
>USD 55,000 Total, , ,
Cost/ FTE/ year
Note: Based on the sample of companies of different sizes across domains, studied by ZinnovSource: IDC forum; Zinnov Analysis
Best Practices: Companies have tackled cost escalation by addressing various aspects of their operations
1
Productivity Improvement
1
25
Best PracticesPeople Cost OptimizationTax/Professional Services
34
Infrastructure OptimizationTravel and Communication
Bangalore has the highest number—312 R&D centers followed by Pune and NCR with 95 and 87 centers respectively
T t l N b f
25 7
73
Total Number of R&D centers
87
231722
City Name
10
NCR
132033
95
57312
2913
Pune 16169
16
H d b d84
62
77
612
32Hyderabad
Bangalore
0 - 50
50 - 100 200+
100 - 200
Headcount Range
89
84
Chennai95Bangalore50 00
Note: NCR includes Chandigarh , Pune includes Mumbai, Other locations account for about 11 R&D centersSource: Zinnov Research
Total R&D Centers = 594
High availability of desired talent pool makes Bangalore the top choice; Pune has recently emerged as a high-growth R&D location
L ti A t* f R&D CitiLocation Assessment* of R&D Cities
Low ‘Medium Potential’‘Follower’
Chandigarh
Tale
nt P
ool Coimbatore
bilit
y of
R&
D T
PuneNCRHyderabad
Chennai
Bangalore
Avai
lab
High
Cost Perspective** HighLow
‘High Potential’ ‘Frontrunner’
Note: * Position of bubbles indicates the attractiveness of a location as an R&D destination.**Cost Perspective: takes into consideration set up costs and operating costs
Cost Perspective HighLow
Bangalore and Pune are the best locations for setting up R&D centers, Chandigarh and Coimbatore are emerging as feasible low cost options
Parameter Human Resources Cost Infrastructure Support
EcosystemCity
Perception Overall Rating
Overall Location Assessment
Bangalore
Pune
Delhi/ NCR
HyderabadHyderabad
Chennai
Coimbatore
Chandigarh
Source: Zinnov Analysis Note: Location suitability ratings are given as per the mutual comparison of the 7 cities under consideration
FavorableNot Favorable
NCR stands as the most expensive location, while Hyderabad has the cheapest facilities cost among Tier I cities
Facilities Cost* Differential across Cities, 2008
158
102 10092
85
10 8
HyderabadBangalore ChennaiNCRPune Chandigarh Coimbatoreyg
Source: Cushman & Wakefield: Indian Office Market overview (2007), Zinnov Analysis•Facilities cost includes lease deposit and monthly rental costs for central business areas in these cities•Score of each city indicates a percentage difference between the rental rates of these cities, all cities are benchmarked against Pune which is at 100.
g
The talent pool in Pune and Hyderabad is not easily open to relocation unless provided with extremely unique incentives
Talent pool migration preferences across locations
Bangalore Pune Hyderabad NCR ChennaiDestination
CitySource City
Bangalore
P
City
Pune
Hyderabad
NCR
Chennai
Note:• Willingness to migrate shows the perception, willingness and preferences of the talent pool for relocating from one city to another. Reasons for
Low Moderate High Very HighWillingness to Migrate
Source: Zinnov Interviews and Analysis
willingness to move could be compensation level, brand name, job profile, cost of living, ecosystem and friendliness of the city, domestic and international connectivity, and the cultural background and origin.
• Only the top 5 product development cities are considered for this analysis. • The above analysis is drawn specifically for product development talent pool installed across these 5 cities. It excludes expatriate talent
preferences.
Installed talent pool in Indian R&D centers is currently 146,000 of which software product development engages about 52 per cent of the professionalsprofessionals
Horizontal
Talent pool in R&D centers, 2008
Horizontal Segments Bangalore Pune Delhi/NCR Hyderabad Chennai Grand Total
SPD 48,773 8,851 6,562 8,636 3,889 76,711
Embedded Systems 17,201 3,990 8,557 2,890 1,320 33,958
Engineering Services 14,911 9,541 5,200 1,600 4,839 36,091
Grand Total 80,885 22,382 20,319 13,126 10,048 146,760
Note: This includes talent pool only for the R&D centers in these locations Talent pool analysis has been done only for 5 major R&D suited locations. Source: Zinnov Research, Zinnov Analysis
Fresh engineer base is currently 668 thousand—more than 60 per cent of this talent is based in the South
Total Fresh Engineering Fresh Talent Pool
Delhi, NCR
Total Fresh Engineering Graduates (2008)
668,000
73.5 K Name of State
Comp Electronics IS
Total EngineersFresh Talent Pool
73.5 K 30K 30K 10.5K
APMaharashtra
147 K93.5 K
147 K
31.7K 58.2K 17.1K
93.5 K
19.8K 26.9K 12.6K
AP
193.7 KKarnataka
100.2 K
Note:
193.7 K
38 7K 71 6K 25 1K
100.2 K
19.3K 29.8K 10.5K
Tamil NaduNote: • Only AICTE approved engineering colleges are included for
the study.• The size of the bubble indicates the amount of fresh talent
pool passing out of engineering colleges• Fresh talent from other states: 60.1 KSource: Zinnov Research, NAAC, AICTE
38.7K 71.6K 25.1K
Trends like growing leadership talent and increase in product ownership are positioning India at the forefront of R&D offshoring capabilities
Strong LeadershipStrong Leadership1
• Stable for atleast 5-6 years• Capability to influence decision
makers at HQ• Report to the executive
Strong LeadershipStrong Leadership
• Report to the executive management team in the U.S.
Disciplined ProcessesDisciplined ProcessesCatalyst for Emerging Catalyst for Emerging MarketsMarkets
4 2
• Decide on the optimal engagement and project models
• Define metrics to measure productivity and innovation
• Reinvest part of the savings to build prototypes for emerging markets
• Help your CEO understand the
MarketsMarkets
Key Success F t productivity and innovation
• Structured training program for engineers
• Improve recruitment efficiency
market in India• Build strong product
management function
Factors
33Product OwnershipProduct Ownership
• Strive to gain ownership on product development
• Ability to analyze portfolio to y y pgauge the benefits of product transition to India
• Increase touch point with customers
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All the information contained in this report is obtained through discussions with industry experts,public and confidential information sources believed to be reliable. Zinnov makes no representationsor warranties regarding the errors, omissions or completeness of any information contained herein
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