With emerging verticals like industrial automation, healthcare, aerospace and defense projected to drive the next league of growth, R&D offshoring or outsourced product development (OPD) market in India is expected to touch $13.1 billion this year, registering a growth of 11.4% over last year, a recent study by Zinnov Management Consulting says.
Of the overall R&D offshoring market in India, telecom and software currently contribute more than 50% of the total spend, however the emerging verticals are expected to grow at about 20% in the coming years. ?The growth in emerging markets will be faster since the base is smaller and because these verticals are embracing R&D outsourcing only in the recent past. Growth could be in the range of 6-8% for mature verticals such as telecom,? says Chaitanya Ramalingegowda, director, Zinnov Management Consulting.
Earlier, the R&D outsourcing to India was more tactical, since the Indian service providers were more focused on IT services.
Industry experts feel over the past 5-8 years, as more service providers have built a focused R&D practice, along with executive management bandwidth, they have been able to make inroads into this domain.
Today service providers are more open to trying out newer business models in the wake of increased competition and the need to differentiate. With more R&D offshoring across verticals moving towards India, service providers are expected to benefit. ?Large players such as Wipro, HCL and Patni who have an end-to-end story in the R&D services space will definitely benefit in terms of growing their existing accounts. The $1 billion plus size companies would definitely want to work with these large players given their scale and ability to handle complex engineering projects,? says Ramalingegowda.
However, the mid-tier players such as Persistent, Symphony, Tata Elxsi and Aricent definitely have their own strengths in particular industries and particular domains. Some of this growth is bound to rub off on these players too, he adds. Industry watchers point out that in the past 12-18 months, the deal flow has increased as the US market has picked up pace. The pricing pressures have also eased as customers are increasing the volume of work to the service providers. ?We expect continued robust growth in the R&D outsourcing space for the next year,? notes Zinnov, adding that the US continues to lead R&D outsourcing work to India, while Europe has been slow to increase distributed R&D.
The Indian service providers are seen today as strategic partners and not as tactical outsourcers. They are equipped to work with customer?s internal R&D teams as they build expertise through centres of excellence in specific areas. Some of the examples include Mahindra Satyam?s centre of excellence for Aero Structures, Persistent System?s partnership with Indiana University for Bio-informatics, Tata Elxsi and Wipro partnership with Autosar for its automotive capabilities, Defiance alliance with University of Michigan for development of solar powered automobiles, among others.
According to the study, organisations in most verticals, continued to spend nearly the same percentage of their revenue on R&D during the downturn, demonstrating the strategic importance of R&D. The focus on conceptualisation and design has increased in mature outsourcing verticals such as software, while it has remained concentrated on development and Q&A in newer verticals, says the advisory firm. Of the total R&D work in India, two third of it is towards MNC captive centres, while one third goes to the service providers.