The Indian brand in outsourced offshore services has become a scooping up 70%
of the global business, and now it may be time to move beyond brawn to brain
clambering up the value chain by offering not just business process services but
knowledge-based research and development. The Offshoring R&D 2008 conference
held recently in Bangalore and hosted by Zinnov Consulting provided a useful
reality check on the India-based global R&D services.
A study released by Zinnov on the occasion suggested that Indian engineering
product offshoring could look forward to a sustained 23% growth by 2012. Five
major IT cities (Bangalore, Pune, NCR, Hyderabad and Chennai) are home to nearly
600 captive R&D centers, that is units owned and operated by leading IT players
for their inhouse needs. Of these more than half (312) are based in Bangalore,
Pune and NCR alone, and are divided amongst three streams: software product
development, engineering services, and embedded systems which address a market
of $5.83 billion. In certain verticals like semiconductor design, India is today
home to perhaps the largest concentration of product design engineers. This had
led to interesting situations where competing chip designers like Intel,
Infineon, Texas Instruments and NXP, all announced single chip
(System-on-a-chip) solutions on the mobile phone platform in the 2006-07 time
span. In each case core developments were based on work done by their India
based captives.
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In recent months compelling product designs have come from India-based
product engineering service players like Ness Technologies, Sonata Software,
Symphony Services, Celstream and HCL. Established names in the BPO business like
Infosys, Wipro and TCS also have significant presence in the product R&D space
and international companies like ARM whose cores are to be found on 8 out of 10
mobile phones, have long standing relations with such players. At the recent
expansion of ARM's development centre in Bangalore, company executives revealed
that while their own R&D presence in the country was around 300, the number of
engineers working on ARM designs countrywide was close to 7000; many of them
working with 8 Indian R&D partners: HCL, KPIT, IBM, Mindtree, Sasken, TCS, Wipro
and Tata Elxsi.
The third category of product creators in India is the host of SMBs working
mostly in the embedded space, and running fabless product design centers. These
include market leaders like Ittiam and Mistral, who specialize in creating IP
for multiple OEM companies. Ittiam in fact has been judged the world's most
preferred supplier of DSP-IP for three successive years by market watcher
Forward Technologies.
Some key challenges still remain. Employee productivity in India is 30-40%
lower than some of the more mature R&D markets and costs escalate by anything
between 8 to 15% every year. Also the fact that India, unlike the BPO boom
period is no longer looked at as a 'low cost' option narrows down the scope of
small companies looking eastward to outsource R&D. However, a clear game plan
using the educational system can be predicted as one way to ensure that Indian
R&D players had a dependable source of qualified personnel. Texas Instruments
and NXP, all have lively collaborative programs with IITs and NITs.
The need to encourage and nurture
Indian innovation fuelled Nasscom to hold an annual Product Conclave followed by
awards saluting Indian innovation. A study conducted for Nasscom by the Boston
Consulting Group suggested that product R&D would become a $50 billion
opportunity by 2012. At its annual leadership summit in Mumbai in February,
Nasscom honored eight Indian companies for product innovations during 2007.
These include Comat Technologies for rural business centres, Financial
Technologies India for a commodities trading engine, Also honored were Texas
instruments for their single-chip phone handset solution, Mindtree Consulting
for a knowledge management ecosystems and Merit Trac for online assessment
solutions.
It is expected that with familiarity and experience in services offshoring will
help Indian companies to address the product offshoring business in a mature and
confident manner. However, the real volumes are believed to come in from
emerging industry
verticals like hi-tech telecom, manufacturing, and consumer electronics.