Climbing the Offshoring Value Chain

The R&D offshoring market in India is in for massive growth as per the Zinnov reports. It is expected that the Indian companies will be able to address product offshoring business in a mature and confident manner

Saturday, April 05, 2008

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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.

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.

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