Engineering R&D: Advantage India


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• India is the leading destination for Product Engineering Services with 22% market share and total R&D investment expected to grow at 14% CAGR to USD 42 billion by 2020
• Captive centers are growing in maturity and global significance with core research teams located in India, co-creating innovations with service providers and playing a decision-making role in global sourcing initiatives
• Engineering services in India for Healthcare and Automotive growing faster than traditional verticals such as ISV and Telecom, at 26% and 17% CAGR respectively
• Indian R&D Service providers grew at a higher pace at 16% CAGR in FY2012 than captive centers, which grew at 11% CAGR
• Ecosystem connect between Captives, Service Providers and Startups give India a unique advantage to Innovate for local as well as global markets
• Indian Service Providers will face stiff competition from Russian and Chinese service providers who are building strong domain capabilities in ISV and Telecom segments

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Engineering R&D: Advantage India

  1. 1. Engineering R&D : Advantage India ZinnovNo part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Zinnov
  2. 2. Agenda 1 Global R&D Outlook 2 India Product Engineering Landscape 3 India Captive Centers: Story of Resurgence 4 India Service Provider: Consolidating Growth 5 Product Engineering in India: The Way Forward
  3. 3. The markets across various verticals are increasingly shifting towards emergingeconomies Medical Devices Consumer Electronics One of the fastest growing vertical The market is expected to reach over segment globally owing to increased USD 1.3 trillion dominated by US and governmental spend in healthcare and China also increased instances of lifestyle diseases Industrial Automation The United States and Chinese markets are expected to be the powerhouses Computer Hardware and Storage driving 9.5 percent growth in the global US and China amongst the fastest industrial automation market growing nations in this segment. The Emerging geographies are expected to market expected to hit USD 220+ Billion grow at an average of 10-15 percent Year- by 2016 on-Year Key Market Aerospace Trends Semiconductor South east Asian countries will Europe are the leading markets currently, By 2030, regions outside dominate the semiconductor industry Europe and North America are in future as Asia accounts for more expected to own about half the than 50% of the market. Growing commercial aircraft in service technological advancements has spurred demand Telecom Automotive ISV The industry is witnessing de-regulation While the sales in North America and Post the recession in 2009, software in some of the world’s largest telecom Asia grew significantly, Europe segment is poised to witness markets like India and China fueling continued to witness a decrease in a higher growth. The markets for both further growth prospects for the automotive sales owing to European enterprise and software have witnessed industry debt crisis significant growth
  4. 4. This has created an increased focus on R&D in these high growth markets with USand Europe still dominating the R&D spend R&D Spend Across Geographies Top five R&D Spenders Top five R&D Spenders Top five R&D Spenders from North America from Europe from rest of world  Microsoft  Volkswagen Top five R&D Spenders  Samsung  Intel  Daimler from Japan  Huawei Technologies  General Motors  Nokia  Honda Motor  Hyundai Motors  IBM  Robert Bosch  Panasonic 35% 11%  ZTE  Cisco Systems  Ericsson  Nissan Motor 32% 5%  LG  Sony 13%  Canon 16% North America 3% RoW* 20% % Contribution Europe Verticals of North Japan % Contribution % America to R&D Verticals of Europe to Contribution % Verticals R&D of RoW to Contribution ISV 35% R&D Verticals of Japan to Automotive 54% R&D Consumer Semiconductor 23% Electronics 35% Telecom 20% Automotive 49% Automotive 17% Semiconductor 31% Aerospace 10% Consumer 43% Electronics Telecom 13% Telecom 28% Semiconductor 7% Semiconduct 8% or Aerospace 9% ISV 5% Others 5% Indicates Increase in R&D Spend in FY 2011 over FY Others 3% Others 4% 2010Note: * Rest of world X% Indicates % contribution of a region to overall R&DSource: Zinnov Research & Analysis, Annual reports spend
  5. 5. Automotive and Industrial Automation giants lead the global R&D investment R&D Spend Increase of Key Companies Across Verticals, FY 2012 Consumer Industrial Automotive 11% Aerospace 3% Electronics -3% 15% Automation Company % Company % Company % Company % Toyota Motor 6% Boeing -5% Panasonic -2% Siemens 8% Volkswagen 16% EADS 7% Samsung Electronics 11% Mitsubishi Electric 11% General Motors 17% Finmeccanica -3% Sony 1% ABB 27% Daimler 17% United Technologies 18% Canon 1% Danaher 32% Honda Motor 7% Rockwell Collins 24% FUJIFILM 4% Schneider Electric 20% Medical 8% Telecom 5% ISV 11% Semiconductor 12% Devices Company % Company % Company % Company % Abbott 11% Nokia 0% Microsoft 8% Intel 27% Medtronic 1% Cisco Systems -6% IBM 4% Samsung 7% Boston Scientific -5% Ericsson 4% Google 37% STMicroelectronics 0% Huawei St. Jude Medical 12% 42% Oracle 0% Toshiba 1% Technologies Stryker 17% Alcatel-Lucent -8% SAP 9% Broadcom 13%Note: % Indicates growth in R&D investments YoY.Source: Zinnov Research & Analysis, Annual reports
  6. 6. Energy efficiency and convergence are the major areas of focus for most R&Dorganizations across various verticals Key Technology Focus Areas 1 Automotive Energy Efficiency, Automotive Electronics 2 Aerospace Green Energy, Integrated Avionics, Higher Electronics Content 3 Consumer Electronics Connectivity, Device convergence, Digitization 4 Computer Peripherals Application Optimized Storage, Miniaturization, Energy Efficiency 5 Semiconductor Optoelectronics, Sensors/MEMs 6 Medical Devices Homecare Solutions, Medical robotics, Wearable Technologies 7 Telecom Mobile-Cloud Convergence, Device & Network Convergence 8 Redesign for cloud, Mobile Use, Complex Data Analytics, Context Aware, ISV Vertical Market Specialization 9 8 Industrial Automation Sustainability, Industrial Automation 2.0, SafetyNote:Source: Zinnov Research & Analysis
  7. 7. Agenda 1 Global R&D Outlook 2 India Product Engineering Landscape 3 India Captive Centers: Story of Resurgence 4 India Service Provider: Consolidating Growth 5 Product Engineering in India: The Way Forward
  8. 8. India is the leading offshore destination in delivering engineering and R&Dservices with a 22% market share Overall Product Engineering Growth Rate( In USD Billions) 42 13 14.7 FY2011 FY2012 FY2020 E Service Provider Growth Rate( In USD Billions) Captive Center Growth Rate( In USD Billions) 5.439 9.261 4.689 8.343 FY2011 FY2012 FY2011 FY2012Note:Source: Zinnov Research & Analysis
  9. 9. MNC Captive centers continue to drive the India product engineering growth story Captive Vs. Service Provider Split Across Verticals Captive Split Service Provider Split 21% 26% 31% 32% 30% 35% 50% 76% 79% 74% 69% 68% 70% 65% 50% 24% Telecom Medical Devices Automotive Aerospace ISV(OSPD) Consumer Electronics Semiconductor Computing SystemsNote:Source: Zinnov Research & Analysis
  10. 10. Talent, Business and Technology imperatives will drive future growth across mostverticals Drivers for Globalization of Product Vertical wise Revenue Distribution FY 2012 Engineering to India Product Engineering Semiconduc Globalization tor 2011 2020 E Drivers 11% Talent ISV(OSPD) 32% Telecom 19% Business Technology Automotive Talent- Availability, Quality, Scalability Others* 8% Consumer Computing 10% Business- Costs, Risk Mgmt., Market/Customer Electronics Systems Aerospace Technology-Innovation, Technology Trends Medical 6% 7% 4% Devices/Hea lthcare 3%Note:Source: Zinnov Research & Analysis
  11. 11. Agenda 1 Global R&D Outlook 2 India Product Engineering Landscape 3 India Captive Centers: Story of Resurgence 4 India Service Provider: Consolidating Growth 5 Product Engineering in India: The Way Forward
  12. 12. Over the last two years there has been a resurgence in the number of engineeringR&D captives centers setup in India Growth in the Number of Captives, FY 2011 Split of Captives in India Based on Vertical 2012 Automotive Semiconduct 6% 874 or 9% Telecom ISV(OSPD) 17% 41% 836 Others* 10% Aerospace Medical 2% Devices/Heal Consumer Computing FY2011 FY2012 thcare Electronics Systems 6% 4% 5%Note:Source: Zinnov Research & Analysis
  13. 13. ISV segment posted a smart growth owing to the entry of new players and alsoheadcount ramp up in existing captive centers Captive Revenue Growth Rates-Vertical Wise( In USD Billion) 18% 3.168 2.692 2% 10% 1.347 1.38 17% 13% 1.1 12% 0.997 0.765 0.81 0.666 0.718 26% 0.656 13% 0.595 0.397 0.315 0.165 0.146 Automotive Aerospace Consumer Computer Semiconductor Medical Devices Telecom ISV Electronics Peripherals & StorageNote:Source: Zinnov Research & Analysis
  14. 14. Large Medical device manufacturers are looking at India to establish their regionalR&D center for emerging markets No. of New Captives Added in 2011 New Captives Large Captives Others 8 Walmart, Open solutions Paypal, Fidelity, GE Energy ISV 12 Linkedin, Zynga, Facebook, ORCC Microsoft, Oracle, SAP Labs Ruckus Wireless, Fluk networks, Huawei, Nokia Siemens, Ericsson Telecom 5 Posedge Medical Devices 5 Ricoh, Medline Huawei, Nokia Siemens, Ericsson Semiconductor 2 Intel, ST Microelectronics, TI, STEC, Silicon Image AMD Industrial Automation 2 Momentive, Hysitron Schneider Electric, GE, Siemens Computer Peripherals & 0 IBM, NetApp, Symantec, EMC Storage Consumer Electronics 2 Panasonic, Hitachi Samsung, LG, Toshiba, Philips, Sony Aerospace 0 Honeywell, GE, EADS,Boeing Automotive 3 Faurecia, Peugeot, CASKA Bosch, Volkswagen, GMNote:Source: Zinnov Research & Analysis
  15. 15. While ISV is the most mature vertical in the India captive landscape, medicaldevices space is rapidly gaining traction Vertical Maturity Levels- Captives ISVCaptive Presence Computer Peripherals and Storage Telecom Automotive Semiconductor Consumer Electronics Medical Device Industrial Automation Aerospace Nascent Vertical Emerging Vertical Rapidly Growing Mature Size of Bubble Indicates Headcount CompetencyNote:Source: Zinnov Research & Analysis
  16. 16. Many companies have started their core research teams operating from India Snapshot of core research by MNC R&D centers in India GE EADS Focus Areas: Focus Areas: • Composite material design • High performance computing • Electromagnetic analytics • Avionics • Nondestructive evaluation technology • Structures Focus Areas: Honeywell Focus Areas: Siemens • Next generation magnetic sensors • Decentralized energy systems • Image analysis and computer vision • Embedded systems • Intelligent vehicle technologies • S.M.A.R.T.* technologies General Motors Focus Areas: 3M Focus Areas: • Smart system modeling • Abrasives / adhesives • Vehicle structure and safety • Coatings • Chemical reaction modeling • NVH materials Focus Areas: Philips Focus Areas: ABB • Healthcare systems and technologies • Manufacturing technologies • Energy and lighting • Communication technologies • Consumer lifestyle technologies • RoboticsNote:Source: Zinnov Research & Analysis
  17. 17. Key Captive Trends Increased ownership of global products Transitioning to play the role of multi function centers Co-creating innovations with service providers Creating COEs to build products for local and global markets Increased decision making in global sourcing initiatives Shift in talent model from designation based to role basedNote:Source: Zinnov Research & Analysis
  18. 18. Agenda 1 Global R&D Outlook 2 India Product Engineering Landscape 3 India Captive Centers: Story of Resurgence India Service Provider: Consolidating 4 Growth 5 Product Engineering in India: The Way Forward
  19. 19. Product Engineering in telecom and ISV segment continues to be the mainstay forIndian service providers Service Provider Growth Rates-Vertical Wise FY 2011 FY 2012 7% 18% 1.399 1.312 1.328 1.128 13% 17% 0.512 37% 0.454 21% 24% 0.347 0.32 26% 0.297 0.286 0.293 0.234 0.23 0.243 0.211 0.167 Automotive Aerospace Consumer Computer Semiconductor Medical Devices Telecom ISV Electronics Peripherals & StorageNote:Source: Zinnov Research & Analysis
  20. 20. India service providers have deep competencies in software product developmentand embedded development which have variety of applications across verticals Vertical Maturity Levels-Service ProvidersService Provider Presence Telecom Consumer Peripherals ISV and Storage Medical Devices Aerospace Automotive Semiconductor Industrial Automation Transport Nascent Vertical Emerging Vertical Rapidly Growing Mature Size of Bubble Indicates Headcount CompetencyNote:Source: Zinnov Research & Analysis
  21. 21. Service providers have moved beyond certifications and are focused on buildingcompetencies which will differentiate them in the market place University GDFs* MNC Partners Certifications Automotive Aerospace Consumer Electronics Computer Peripherals and Storage Industrial Automation Semiconductor Medical Devices Telecom ISVNote: GDF( Global Development Forums)Source: Zinnov Research & Analysis
  22. 22. Key Service Provider Trends Shifting focus from traditional PES to Products and Platforms Working closely with startups as innovation partners Increasingly engaging with MNC Captive Centers in India Building strong ecosystem partnerships with universities, global development forums and MNCs Working not just as product development partners but also as Go-To – Market partners with MNCs Increasing investment in domain/vertical specific infrastructure and COEsNote:Source: Zinnov Research & Analysis
  23. 23. Key Service Provider Trends 1 Global R&D Outlook 2 India Product Engineering Landscape 3 India Captive Centers: Story of Resurgence 4 India Service Provider: Consolidating Growth Product Engineering in India: The Way 5 ForwardNote:Source: Zinnov Research & Analysis
  24. 24. The Road Ahead • Product Engineering Services expected to outpace the IT growth rate • Service providers will grow faster in volume and capability as compared to captive centers • As relationships mature, service providers and their customers will enter into pricing models that are based on market outcomes • As the thin line of difference between CIO and CTO is beginning to fade, service providers are increasingly pitching fully loaded service offerings to the end clientsNote:Source: Zinnov Research & Analysis
  25. 25. Thank You 69 "Prathiba Complex", 4th A Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore – 560095 Phone: +91-80-41127925/6 11, Paras Downtown Centre, Golf Course Road, Sector 53 Gurgaon – 122002 Phone: +91-124- 4378211/13 575 N. Pastoria Ave Suite J CA – Phone: +1-408-716-8432 21, Waterway Ave, Suite 300 The Woodlands @zinnov TX – 77380 Phone: +1-281-362-2773