Bangalore, Karnataka, India:
Key Findings of the Study
- R&D spend continues to be on the rise with focus on building better, faster and smarter products
- The overall R&D spend stands at $577 Billion from just amongst the top 500 R&D spenders in the world
- Increased demand for embedded and software content is driving the R&D spend in Hi-Tech verticals. Hi-Tech and ISV segments constitute 35% of top 500 spenders
- $170 Billion is the overall addressable R&D globalization and services opportunity
- Of the $170 Billion, at present about $55 Billion is the addressed market (including in-house R&D centers and third party service providers)
- Indian service providers deliver about $6.9 Billion worth of services which is 27% of the addressed outsourced services market
- R&D Globalization through in-house R&D centers as a phenomenon is here to stay with locations in emerging economies being the hotspot
- Overall R&D globalization through in-house R&D centers in emerging economies (majorly India and China) stands at $29 Billion
- Engineering and R&D centers in India deliver $11.3 Billion worth of services to their parent companies
Zinnov Management Consulting, a leading Globalization and Market Expansion Advisory firm, today launched its much awaited rating of Global R&D Service Providers’ across geographies. The study titled “Global R&D Service Providers (GSPR) Rating 2014”, is an annual study to assist business leaders spearheading global engineering initiatives make right decisions in partner selection across geographies.
The study estimates the overall addressable R&D globalization and services opportunity at $170 Billion as of 2014. Currently only $55 Billion of this opportunity is addressed globally. India’s share of the addressed market is 33% with in-house R&D centers contributing $11.3 Billion worth of services to their parent companies.
The study finds that the Engineering services landscape is undergoing rapid shifts from the perspective of range and nature of services. The global outsourced Engineering services market currently stands at $26 Billion with players from US, Europe and India having an almost equal share. Indian service providers lead the pack amongst the global service providers. As of 2014 the Indian service providers deliver $6.9 Billion worth of services which is 27% of the addressed outsourced services market. The study estimates that by 2020 the Indian outsourced ER&D services market will reach $15 Billion growing at a CAGR of 13%. This growth will be primarily driven by addressing the increasing demand for embedded systems and software needs across all verticals.
Zinnov’s annual Global Service Provider Rating is an exhaustive exercise that covers over 50 companies in the ER&D space. The participants were analyzed across key parameters like Human capital, product development capabilities, financials, ecosystem linkages, infrastructure & innovation / IP creation, their non-linear strategy, lab infrastructure and customer relationships. The analysis process involved data collection from participating companies, interviews with end customers, and inputs from domain experts.
Amongst global leaders in Engineering and R&D services, Wipro, TCS and HCL continue to retain their dominant position in the Engineering services segment. Wipro has a rich Engineering Services heritage and innovation in its DNA, industry leading lab infrastructure and eco-system connects and is a clear leader in Hi-Tech vertical. TCS has a highly diversified and mature R&D practice which is demonstrated through its positioning in leadership zone across all verticals in which it operates. HCL with its positioning in the leadership zone across most of the verticals and its notable capability addition in Medical Devices and Construction and Heavy Engineering continues to be a formidable Engineering services player. However, the leaders like Infosys, Tech Mahindra, L&T TS, Cyient, Symphony Teleca, Aricent, IGATE and Mindtree are fast closing the gap by diversifying into newer verticals by leveraging their embedded and software capabilities and exploring newer customer segments like first time outsourcers and growth stage start-ups. Deep solution capability and better IoT readiness differentiates these companies from the rest.
Niche engineering service provider category is where the Indian service providers face stiff competition from the Chinese and Central and Eastern European players. Pactera is undoubtedly the leading Chinese service provider in the Engineering services space while EPAM is the leader in Central and Eastern Europe. Ness and Globallogic also have a significant presence Eastern Europe and have leadership capabilities the software product segment.
Persistent, KPIT, Tata Technologies and QueST Global, are leaders in Software products, Automotive and Aerospace respectively and continue to further strengthen and deepen their capabilities. Though the niche players have historically focussed on specific verticals, they are now looking to expand into newer verticals by leveraging their horizontal capabilities in embedded systems and software. CMC, Tata Elxsi, Sasken and e-infochips have made good strides in verticals like Automotive, Industrial Automation, Medical Devices, Consumer Electronics and Software.
Happiest Minds and NeST are the emerging players in the engineering services space. Happiest Minds is building capabilities in disruptive technologies and NeST has established capabilities in Industrial Automation and Medical Devices verticals.
The study indicates a significant increase in the maturity of solutions that service providers are building especially in the IoT space. Solutions are not only go-to-market arrow heads but are significant contributors to non-linear revenues and are becoming the key differentiators. This has shifted the investments from lab infrastructure to solution development initiatives. Also, the attrition rate has come down by 2 percentage points to 12% making it a stable operating environment from a people perspective.
Large and strategic deals are now mainstream in engineering services space. A typical large deal is structured around supporting the customers with their global market expansion. Over the last year, there has been an increased activity around M&A both by the Private Equity companies and niche service providers. This is most likely to translate into deals in Q3 and Q4 of FY 2015.
Transforming from being a proverbial service provider to a true engineering partner is the key challenge facing the engineering service providers. To overcome this challenge, service providers are putting together structured engagement models to collaborate with start-ups and expanding their eco-system partnerships with OEMs and technology partners.
Commenting on the study, Sundararaman Viswanathan, Manager-Consulting, Zinnov, said, “Increase in adoption of outcome based business models, growing non-linear revenues and solution led approach have become a common fare. The key trend to watch out for in my view is how service providers are gearing up for the connected world. With significant R&D spend getting channelized to making products better, faster and importantly “smarter”, it is the perfect time for service providers to expand the traditional engineering services offerings to include IoT and Engineering Analytics.
