Strategic_Guide_Indian_R&D_Centers

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


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


Computing Systems

TotalConsumerElectronics

Semiconductor /EDASoftware Platforms/

SystemsSoftware Networking SystemsElectronics/EDA

Total 594 R&D Centers


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


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


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)


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


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


Embedded Systems


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%


15

40%

n U

SD B

illion

Telecom & Networking Semiconductor / EDA

5

1019%

Rev

enue

in

ManufacturingOthers

0

5


5%13%

E b dd dSoftware Product E i i

Others

Total = USD 1.54 BillionSoftware Product

DevelopmentEmbeddedSystems

Engineeringservices

Total


Embedded Systems


TotalEngineeringServices


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


0

5


7%6%

E b dd dSoftware Product E i i

Software Platforms / Systems

Computing Systems

Software ProductDevelopment

EmbeddedSystems

Engineeringservices

Total


Embedded Systems


TotalEngineeringServices Total = USD 1.27 Billion


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%


Embedded Systems

58%42%

Vendors R&D Centers

25%


58%42%

Total = 1,46,760Total Talent Pool = 2,53,060


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)


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%


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

ZINNOV DISCLAIMER

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Strategic_Guide_Indian_R&D_Centers

Documents

services rd

embedded systems rd

global rd

rd offshoring industry

rd offshoring scenario

indian rd centers

rd offshoring market

rd ites total total