Engineering R&D : Advantage India

Zinnov
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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%
Semiconduct
or
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
Consumer
Electronics
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
Consumer Electronics
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
India Product Engineering Landscape
India Captive Centers: Story of Resurgence
India Service Provider: Consolidating Growth
2
3
4
Product Engineering in India: The Way Forward 5
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
Note:
Source: Zinnov Research & Analysis
MNC Captive centers continue to drive the India product engineering growth story
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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
Note:
Source: Zinnov Research & Analysis
Talent, Business and Technology imperatives will drive future growth across most
verticals
Semiconduc
tor
11%
Telecom
19%
Automotive
8%
Aerospace
4%
Computing
Systems
7%
Consumer
Electronics
6%
Others*
10%
Medical
Devices/Hea
lthcare
3%
ISV(OSPD)
32%
Vertical wise Revenue Distribution FY 2012
Product Engineering
Note:
Source: Zinnov Research & Analysis
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
Global R&D Outlook 1
India Product Engineering Landscape
India Captive Centers: Story of Resurgence
India Service Provider: Consolidating Growth
2
3
4
Product Engineering in India: The Way Forward 5
Over the last two years there has been a resurgence in the number of engineering
R&D captives centers setup in India
Semiconduct
or
9%
Telecom
17%
Automotive
6%
Aerospace
2%
Computing
Systems
5%
Consumer
Electronics
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
Note:
Source: Zinnov Research & Analysis
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 Consumer
Electronics
Computer
Peripherals &
Storage
Semiconductor Medical Devices Telecom ISV
Captive Revenue Growth Rates-Vertical Wise( In USD Billion)
17%
13%
12%
13%
10%
26%
2%
18%
Note:
Source: Zinnov Research & Analysis
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
Consumer Electronics
Computer Peripherals &
Storage
Industrial Automation
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
Note:
Source: Zinnov Research & Analysis
Medical Device
While ISV is the most mature vertical in the India captive landscape, medical
devices space is rapidly gaining traction
Mature
ISV
Telecom
Industrial Automation
Rapidly Growing Emerging Vertical Nascent Vertical
Competency
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Semiconductor
Vertical Maturity Levels- Captives
Size of Bubble Indicates
Headcount
Automotive
Consumer Electronics
Computer Peripherals
and Storage
Aerospace
Note:
Source: Zinnov Research & Analysis
Many companies have started their core research teams operating from India
Note:
Source: Zinnov Research & Analysis
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
Note:
Source: Zinnov Research & Analysis
Agenda
Global R&D Outlook 1
India Product Engineering Landscape
India Captive Centers: Story of Resurgence
India Service Provider: Consolidating
Growth
2
3
4
Product Engineering in India: The Way Forward 5
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 Consumer
Electronics
Computer
Peripherals &
Storage
Semiconductor Medical Devices Telecom ISV
FY 2011 FY 2012
Service Provider Growth Rates-Vertical Wise
17%
13%
37%
24%
21%
7%
18%
26%
Note:
Source: Zinnov Research & Analysis
India service providers have deep competencies in software product development
and embedded development which have variety of applications across verticals
Mature
Telecom
Transport
Aerospace
Industrial Automation
Rapidly Growing Emerging Vertical Nascent Vertical
Competency
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Automotive
Vertical Maturity Levels-Service Providers
Size of Bubble Indicates
Headcount
ISV
Consumer Peripherals
and Storage
Semiconductor
Medical Devices
Note:
Source: Zinnov Research & Analysis
Service providers have moved beyond certifications and are focused on building
competencies which will differentiate them in the market place
Automotive
Aerospace
Consumer
Electronics
Computer Peripherals
and Storage
Industrial Automation
Semiconductor
Medical Devices
Telecom
ISV
University GDFs* MNC Partners Certifications
Note: GDF( Global Development Forums)
Source: Zinnov Research & Analysis
Key Service Provider Trends
Note:
Source: Zinnov Research & Analysis
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
Note:
Source: Zinnov Research & Analysis
Global R&D Outlook 1
India Product Engineering Landscape
India Captive Centers: Story of Resurgence
India Service Provider: Consolidating Growth
2
3
4
Product Engineering in India: The Way
Forward
5
The Road Ahead
Note:
Source: Zinnov Research & Analysis
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


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