India R&D Captives

Engineering R&D : Advantage India

Zinnov

No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Zinnov

Agenda

Global R&D Outlook

India Product Engineering Landscape

India Captive Centers: Story of Resurgence

India Service Provider: Consolidating Growth

1

2

3

4

Product Engineering in India: The Way Forward 5

The markets across various verticals are increasingly shifting towards emerging economies

Automotive While the sales in North America and Asia grew significantly, Europe continued to witness a decrease in automotive sales owing to European debt crisis

Aerospace Europe are the leading markets currently, By 2030, regions outside Europe and North America are expected to own about half the commercial aircraft in service

Computer Hardware and Storage US and China amongst the fastest growing nations in this segment. The market expected to hit USD 220+ Billion by 2016

Medical Devices One of the fastest growing vertical segment globally owing to increased governmental spend in healthcare and also increased instances of lifestyle diseases

Consumer Electronics The market is expected to reach over USD 1.3 trillion dominated by US and China

Industrial Automation The United States and Chinese markets are expected to be the powerhouses driving 9.5 percent growth in the global industrial automation market Emerging geographies are expected to grow at an average of 10-15 percent Year-on-Year

Semiconductor South east Asian countries will dominate the semiconductor industry in future as Asia accounts for more than 50% of the market. Growing technological advancements has spurred demand

ISV Post the recession in 2009, software segment is poised to witness a higher growth. The markets for both enterprise and software have witnessed significant growth

Telecom The industry is witnessing de-regulation in some of the worlds largest telecom markets like India and China fueling further growth prospects for the industry

Key Market Trends

This has created an increased focus on R&D in these high growth markets with US and Europe still dominating the R&D spend

North America

Japan Europe

20%

32% 35%

RoW*

13%

Verticals % Contribution

of North America to R&D

ISV 35%

Semiconductor 23%

Automotive 17%

Telecom 13%

Aerospace 9%

Others 3%

Verticals % Contribution

of Europe to R&D

Automotive 54%

Telecom 20%

Aerospace 10%

Semiconductor 7%

ISV 5%

Others 4%

Verticals

% Contribution of Japan to

R&D

Automotive 49%

Consumer Electronics

43%

Semiconductor

8%

R&D Spend Across Geographies

Top five R&D Spenders from North America Microsoft Intel General Motors IBM Cisco Systems

Verticals

% Contribution

of RoW to R&D


35%

Semiconductor 31%

Telecom 28%

Others 5%

Note: * Rest of world Source: Zinnov Research & Analysis, Annual reports

Top five R&D Spenders from Europe Volkswagen Daimler Nokia Robert Bosch Ericsson

Top five R&D Spenders from Japan Honda Motor Panasonic Nissan Motor Sony Canon

Top five R&D Spenders from rest of world Samsung Huawei Technologies Hyundai Motors ZTE LG

11%

16% 3%

Indicates Increase in R&D Spend in FY 2011 over FY 2010

X% Indicates % contribution of a region to overall R&D spend

5%

Automotive and Industrial Automation giants lead the global R&D investment

Automotive Aerospace Consumer Electronics

Semiconductor Medical Devices

Telecom ISV

Company %

Toyota Motor 6%

Volkswagen 16%

General Motors 17%

Daimler 17%

Honda Motor 7%

Company %

Boeing -5%

EADS 7%

Finmeccanica -3%

United Technologies 18%

Rockwell Collins 24%

Company %

Panasonic -2%

Samsung Electronics 11%

Sony 1%

Canon 1%

FUJIFILM 4%

Company %

Abbott 11%

Medtronic 1%

Boston Scientific -5%

St. Jude Medical 12%

Stryker 17%

Company %

Nokia 0%

Cisco Systems -6%

Ericsson 4%

Huawei Technologies

42%

Alcatel-Lucent -8%

Company %

Microsoft 8%

IBM 4%

Google 37%

Oracle 0%

SAP 9%

Company %

Intel 27%

Samsung 7%

STMicroelectronics 0%

Toshiba 1%

Broadcom 13%

R&D Spend Increase of Key Companies Across Verticals, FY 2012

Note: % Indicates growth in R&D investments YoY. Source: Zinnov Research & Analysis, Annual reports

Industrial Automation

Company %

Siemens 8%

Mitsubishi Electric 11%

ABB 27%

Danaher 32%

Schneider Electric 20%

11% 3% -3%

8% 12% 5% 11%

15%

Energy efficiency and convergence are the major areas of focus for most R&D organizations across various verticals

Automotive

Aerospace


Computer Peripherals

Semiconductor

Medical Devices

Telecom

ISV

1

2

3

4

5

6

7

8

Industrial Automation 8 9

Key Technology Focus Areas

Energy Efficiency, Automotive Electronics

Green Energy, Integrated Avionics, Higher Electronics Content

Connectivity, Device convergence, Digitization

Application Optimized Storage, Miniaturization, Energy Efficiency

Optoelectronics, Sensors/MEMs

Homecare Solutions, Medical robotics, Wearable Technologies

Redesign for cloud, Mobile Use, Complex Data Analytics, Context Aware, Vertical Market Specialization

Sustainability, Industrial Automation 2.0, Safety

Note: Source: Zinnov Research & Analysis

Mobile-Cloud Convergence, Device & Network Convergence

Agenda

Global R&D Outlook 1




2

3

4


India is the leading offshore destination in delivering engineering and R&D services with a 22% market share

13 14.7

42

FY2011 FY2012 FY2020 E

Overall Product Engineering Growth Rate( In USD Billions)

Service Provider Growth Rate( In USD Billions) Captive Center Growth Rate( In USD Billions)

4.689

5.439

FY2011 FY2012

8.343

9.261

FY2011 FY2012


MNC Captive centers continue to drive the India product engineering growth story

Sem

ico

nd

uct

or

Tele

com

Au

tom

oti

ve

Aer

osp

ace

Co

mp

uti

ng

Syst

ems

Co

nsu

mer

Ele

ctro

nic

s

Med

ical

Dev

ices

ISV

(OSP

D)

79%

50%

69%

24%

74% 68% 65%

70%

21%

50%

31%

76%

26% 32% 35%

30%

Captive Split Service Provider Split

Captive Vs. Service Provider Split Across Verticals


Talent, Business and Technology imperatives will drive future growth across most verticals

Semiconductor

11%

Telecom 19%

Automotive 8%

Aerospace 4%

Computing Systems

7%


6%

Others* 10%

Medical Devices/Hea

lthcare 3%

ISV(OSPD) 32%

Vertical wise Revenue Distribution FY 2012 Product Engineering


Globalization Drivers

2011 2020 E

Talent

Business

Technology

Drivers for Globalization of Product Engineering to India

Talent- Availability, Quality, Scalability Business- Costs, Risk Mgmt., Market/Customer Technology-Innovation, Technology Trends

Agenda





2

3

4


Over the last two years there has been a resurgence in the number of engineering R&D captives centers setup in India

Semiconductor 9%

Telecom 17%

Automotive 6%

Aerospace 2%

Computing Systems

5%


4%

Others* 10%

Medical Devices/Heal

thcare 6%

ISV(OSPD) 41%

836

874

FY2011 FY2012

Growth in the Number of Captives, FY 2011 Split of Captives in India Based on Vertical 2012


ISV segment posted a smart growth owing to the entry of new players and also headcount ramp up in existing captive centers

0.656

0.146

0.595 0.718

0.997

0.315

1.347

2.692

0.765

0.165

0.666 0.81

1.1

0.397

1.38

3.168

Automotive Aerospace ConsumerElectronics

ComputerPeripherals &

Storage

Semiconductor Medical Devices Telecom ISV

Captive Revenue Growth Rates-Vertical Wise( In USD Billion)

17%

13%

12% 13%

10%

26%

2%

18%


Large Medical device manufacturers are looking at India to establish their regional R&D center for emerging markets

3

0

2

0

2

2

5

5

12

8

Automotive

Aerospace


Computer Peripherals &Storage


Semiconductor

Medical Devices

Telecom

ISV

Others

No. of New Captives Added in 2011 New Captives Large Captives

Walmart, Open solutions Paypal, Fidelity, GE Energy

Faurecia, Peugeot, CASKA

STEC, Silicon Image

Panasonic, Hitachi

Ricoh, Medline

Ruckus Wireless, Fluk networks, Posedge

Linkedin, Zynga, Facebook, ORCC

Momentive, Hysitron

Bosch, Volkswagen, GM

Honeywell, GE, EADS,Boeing

Samsung, LG, Toshiba, Philips, Sony

IBM, NetApp, Symantec, EMC

Schneider Electric, GE, Siemens

Intel, ST Microelectronics, TI, AMD

Microsoft, Oracle, SAP Labs

Huawei, Nokia Siemens, Ericsson

Huawei, Nokia Siemens, Ericsson


Medical Device

While ISV is the most mature vertical in the India captive landscape, medical devices space is rapidly gaining traction

Mature

ISV

Telecom


Rapidly Growing Emerging Vertical Nascent Vertical

Competency

Cap

tive

Pre

sen

ce

Semiconductor

Vertical Maturity Levels- Captives

Size of Bubble Indicates Headcount

Automotive


Computer Peripherals and Storage

Aerospace


Many companies have started their core research teams operating from India


Focus Areas: Composite material design Electromagnetic analytics Nondestructive evaluation technology

Focus Areas: Abrasives / adhesives Coatings NVH materials

Focus Areas: High performance computing Avionics Structures

Focus Areas: Smart system modeling Vehicle structure and safety Chemical reaction modeling

Focus Areas: Next generation magnetic sensors Image analysis and computer vision Intelligent vehicle technologies

Focus Areas: Manufacturing technologies Communication technologies Robotics

Focus Areas: Decentralized energy systems Embedded systems S.M.A.R.T.* technologies

Focus Areas: Healthcare systems and technologies Energy and lighting Consumer lifestyle technologies

Snapshot of core research by MNC R&D centers in India

GE

Honeywell

General Motors

Philips

EADS

Siemens

3M

ABB

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 based


Agenda





2

3

4


Product Engineering in telecom and ISV segment continues to be the mainstay for Indian service providers

0.297

0.454

0.234 0.23 0.243 0.167

1.312

1.128

0.347

0.512

0.32 0.286 0.293

0.211

1.399 1.328

Automotive Aerospace ConsumerElectronics

ComputerPeripherals &

Storage

Semiconductor Medical Devices Telecom ISV

FY 2011 FY 2012

Service Provider Growth Rates-Vertical Wise

17%

13%

37%

24% 21%

7%

18%

26%


India service providers have deep competencies in software product development and embedded development which have variety of applications across verticals

Mature

Telecom

Transport

Aerospace


Rapidly Growing Emerging Vertical Nascent Vertical

Competency

Serv

ice

Pro

vid

er

Pre

sen

ce

Automotive

Vertical Maturity Levels-Service Providers

Size of Bubble Indicates Headcount

ISV Consumer Peripherals

and Storage

Semiconductor

Medical Devices


Service providers have moved beyond certifications and are focused on building competencies which will differentiate them in the market place

Automotive

Aerospace


Computer Peripherals and Storage


Semiconductor

Medical Devices

Telecom

ISV

University GDFs* MNC Partners Certifications

Note: GDF( Global Development Forums) Source: Zinnov Research & Analysis

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 COEs

Key Service Provider Trends






2

3

4

Product Engineering in India: The Way Forward

5

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 clients

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 Sunnyvale CA 94085 Phone: +1-408-716-8432 21, Waterway Ave, Suite 300 The Woodlands TX 77380 Phone: +1-281-362-2773

[email protected]

www.zinnov.com

@zinnov

Documents

India R&D Captives