IT Companies look at India as offshore R&D Centre

Few companies will look at India as their destination for Offshore R&D Centers in the next 18 months. In fact, there is already a sort of slowdown in the number of such units being set up in the country.

From 75 new offshore R&D centers in 2005, the number has dwindled to just 15 last year. There are about 600 MNC captives in India and R&D off shoring activity in the country is estimated at $6 billion and is seen as growing at 23%. Software product development captures over 50% of R&D market, with the balance contributed by embedded systems space.

According to a study, some key reasons for this trend were cost escalation of 8% to 15%, attrition of up to 20%, difficulty in scalability and lack of recruitment bandwidth. However, the silver lining is that many of the large and established R&D centers will lend a lot of buoyancy to R&D activity from India. In fact, large companies will grow till their head count reaches 30%-40% of their global R&D workforce, the study says. While there are several challenges, what has worked for some of the successful R&D captives in India is stable and strong leadership team that has spent a good number of years to stabilize the centre.

Talking about future possibilities, Indian R&D centers would be at the centre of conceptualization, design and development of low-cost products like cars, mobile chips and consumer software products. “Business model innovations will be experimented to tap the SMB market place”.

Small companies are expected to use third party services and temporary contractors to keep a check on costs while mid-sized firms, who followed the collaborative model, may move into own captive centers. Also, operating costs and wage inflation are expected to stabilize after 2009, the study forecasts.

Keywords: Indian IT/ITES