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Climbing the Offshoring Value Chain

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PCQ Bureau
New Update

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.

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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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USP: State of R&D offshored to India and
the challenges



Primary Link: Offshoring R&D 2008
conference



Google Keywords:
Indian offshoring industry

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.

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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.

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