India’s R&D Globalization and Services Market to Double By 2020

Zinnov Management Consulting, a globalization and market expansion advisory firm, has launched its rating of global R&D service providers across geographies. The study titled “Global R&D Service Providers (GSPR) Rating 2014”,  is an annual study to assist business leaders spearheading global engineering initiatives make right decisions in partner selection across geographies.

The study estimates the overall addressable R&D globalization and services opportunity at $170 billion (about Rs 10 lakh crore) in 2014. At the moment, only $55 billion (about Rs 3 lakh crore) of this opportunity has been addressed globally. India’s share of the addressed market is 33 percent with in-house R&D centers contributing $11.3 billion (about Rs 66,000 crore) worth of services to their parent companies.

The study finds that the engineering services landscape is undergoing rapid shifts from the perspective of range and nature of services. The global outsourced engineering services market currently stands at $26 billion (about Rs 1,56,000 crore) with players from US, Europe, and India having an almost equal share.

Indian service providers lead the pack amongst the global service providers. As of 2014, the Indian service providers deliver 27 percent of the addressed outsourced services market. The study estimates that by 2020, the Indian outsourced ER&D services market will grow at a CAGR of 13 percent. This growth will be primarily driven by addressing the increasing demand for embedded systems and software needs across all verticals.

Zinnov’s annual Global Service Provider Rating is an exhaustive exercise that covers over 50 companies in the ER&D space. The participants were analyzed across key parameters like Human capital, product development capabilities, financials, ecosystem linkages, infrastructure, and innovation as well as IP creation, their non-linear strategy, lab infrastructure, and customer relationships. The analysis process involved data collection from participating companies, interviews with end customers, and inputs from domain experts.

The study indicates a significant increase in the maturity of solutions that service providers are building especially in the IoT space. The attrition rate has come down to 12 percent making it a stable operating environment from a people perspective.

Large and strategic deals are now mainstream in engineering services space. A typical large deal is structured around supporting the customers with their global market expansion. Over the last year, there has been an increased activity around M&A both by the Private Equity companies and niche service providers. This is most likely to translate into deals in Q3 and Q4 of FY 2015.

Transforming from being a proverbial service provider to a true engineering partner is the key challenge facing the engineering service providers. To overcome this challenge, service providers are putting together structured engagement models to collaborate with start-ups and expanding their eco-system partnerships with OEMs and technology partners.

“Increase in adoption of outcome based business models, growing non-linear revenues and solution led approach have become a common fare. The key trend to watch out for in my view is how service providers are gearing up for the connected world,” said Sundararaman Viswanathan, manager-Consulting, Zinnov. With significant R&D spend getting channelized to making products better, faster and importantly “smarter”, it is the perfect time for service providers to expand the traditional engineering services offerings to include IoT and Engineering Analytics,” he added.