London, 21 July 2010 – A new study has found that the global market for Engineering Research & Development (ER&D) services sourcing has defied the economic downturn. Overall spending on ER&D increased 12% from $980 billion in 2008 to $1.1 trillion in 2009 and is expected to expand to $1.4 trillion by 2020. Demand from sectors including computing systems, medical devices, energy, and infrastructure is fuelling the ER&D market.
Providers in emerging economies, led by India, are poised to gain share as multinational corporations seek to invest in innovation and drive future growth. As a pioneer and leader in the global sourcing industry, India remains a dominant player in the global ER&D services market, with revenue growth of more than 40% over the past three years to $8.3 billion in 2009 and expectations of reaching $40 billion to $45 billion by 2020.
The study, Global ER&D: Accelerating Innovation with Indian Engineering was conducted by management consulting firm Booz & Company with the National Association of Software and Services Companies (NASSCOM) in India. The report sheds light on multinational corporations’ perspectives on ER&D services sourcing, growth trends in the Indian service provider landscape, and competitive positioning of emerging markets as sourcing destinations.
While automotive, consumer electronics, and telecom – all traditionally high spenders on ER&D – continue to lead ER&D spend, emerging sectors include computing systems, medical devices, energy, and infrastructure.
Also, growth in global ER&D spend is being driven by four emerging trends:
- Continued R&D investment considered imperative by multinational conglomerates when it comes to pursuing innovation and penetrating new, emerging markets
- Increasing use of electronics, the search for alternate fuel sources and greater fuel efficiency, and the convergence of technologies that enable a single device to perform multiple functions
- Growing sophistication and maturity of the ER&D services industry
- Changing view of India as a strategic partner focused on innovation rather than simply sustenance and maintenance of existing products.
“Many corporations are seeing the recent economic downturn as not a threat but an opportunity to earmark ER&D budgets for innovation to drive growth in times of economic recovery,” said Vikas Sehgal, Partner, Booz & Company. “Companies are no longer offshoring simply for cost benefits, but are seeking flexible resource capacity, reduced time to market and localised products for emerging markets. Our study aims to help multinationals understand these trends as ER&D becomes a major driver of innovation and expansion.”
India Leads Global ER&D Industry; Poised to Become Engineering Powerhouse
India has established itself as the premier location for offshore ER&D services and has played a strategic role in globalising the ER&D value chain. It is now emerging as an innovation partner to mature markets, especially the U.S. India’s supply base is currently involved in supporting leading innovations across multiple industries including automotive (hybrid technology), aerospace (avionics and structures), telecom (next generation routers), and medical devices (low cost medical devices). Further, its supply base is partnering with U.S. companies to lessen the impact of economic downturns through innovative business models.
Going forward, India’s ER&D providers have the potential to capture a 40% share of global offshore revenues by 2020, due to several unique advantages: a strong and diverse service provider pool with a current and growing employee base of 150,000 out of about one million trained engineers country-wide; capabilities across verticals; communication capabilities; structural cost advantages; and a range of business models to suit the diverse requirements of global corporations. “India is the only country in the world to offer a large third-party engineering vendor base,” according to Sunil Sachan, Principal, Booz & Company.
Other locations that are building up their ER&D capabilities include China – which has a large presence of captives driven by its manufacturing capabilities – followed by Central and Eastern Europe, ASEAN, Brazil, South Africa, and North Africa, among others.
Som Mittal, President NASSCOM, added, “Due to the growing sophistication of the ER&D services industry, customers have begun to view service providers as strategic partners. India is now an epicentre for global ER&D services with a compelling value proposition based on its growing depth and breadth of services, flexible business models, large engineering base and global footprint with greater proximity to customers. Increasing investment in ER&D has the potential to transform India into an engineering powerhouse over the next decade with the potential to create more than five million jobs.”
The full report is available for purchase on the NASSCOM website (www.nasscom.in).
NASSCOM® is the premier trade body and the chamber of commerce of the IT-BPO industries in India. It is a global trade body with more than 1200 members, which include both Indian and multinational companies that have a presence in India. NASSCOM's member and associate member companies are broadly in the business of software development, software services, software products, consulting services, BPO services, e-commerce & web services, engineering services off-shoring and animation and gaming. NASSCOM’s membership base constitutes over 95% of the industry revenues in India and employs over 2.24 million professionals.