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India R&D: Vision 2019

June, 2009

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The global economic downturn impacted the top R&D spenders across industry verticals
Change in Stock Prices of Leading R&D Spenders (Since June08)
45 40 35 30 25 20 15 10 5 0 Jun '08

Sep '08 Automotive Computer Hardware

Dec '08 Aviation Telecom

Jan '09 Computer Software Semicondutor

Apri'09

Source: Google Finance; Zinnov Analysis

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R&D organizations are being challenged to balance their need to retain key talent while responding to economic pressures
Impact of Economic Reset on R&D Organizations
50%

Revision of Compensation Budgets

Per cent of Participating Companies

40%

38%

Focus on Variable Pay based incentives

30%

30%

Organizational Restructuring

20%

19% 16% 13%

Challenges Faced
Consolidating Employee Base

10%

Managing communication across the matrix

0% Hiring freeze Layoffs Salary Freeze Delayed Increments Reduced Salaries

Recalibrating growth plans

Source: Data collected from 25 software R&D centers in India; Zinnov Analysis

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We also noticed a de-growth at some of the R&D centres in India

Reduction in Headcount

Close Down

Acquisition

About 145 of the 670 MNCs in India having their R&D operations witnessed a reduction in total headcount

Companies such as Symphony Services, HCL Technologies, Mind Logic, Persistent Systems and L&T Infotech etcf. have acquired about 15 R&D centres in India over the last 2 years

In-reality, Intransa, CT Space, Cambridge Tech Partners, Mantas India, Validio Software, Kewill Software Solutions, Praedea Solutions, Adaptec India, Metrikus, GDA Technologies were some of the companies acquired in the last 2 years

Companies such as Playtech etc. have closed their R&D centres in India very recently

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Some of the key challenges R&D centres were struggling have been replaced by new sets of challenges
Challenges/ Priorities, 2007-08
1

Challenges/ Priorities, 2009-10

1

Controlling Cost Escalations

Showcasing value growth and India centre relevance

Enabling Faster Ramp up

Upgrading Technical Leadership

3

Controlling Higher Attrition Rates

4

Shifting Paradigm

Increasing Innovation Capabilities

4

Focus on productivity

Increased Focus on Productivity

5

Upgrading Technical leadership

Address Job Relocation Concerns Among US Peers

Source: Zinnov Analysis

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The economic meltdown has put a check on the rapidly increasing cost of operations for most of the MNC R&D centres in India
India R&D Center Operating Cost/ FTE/ Year, INR (Lacs)
20 15.5% 15 16.9 10 13.4 5 -0.7% 0 2005 2006 2007 2008 15.7 8.2% 17.0 16.8% 20% 15% 10% 5% 0% -5%

Total Cost/FTE/annum

YoY Growth

India R&D Center Operating Cost/ FTE/ Year, USD

50,000 40,000 30,000 38,836 20,000 30,476 10,000 0 2005 2006 2007 2008 41,167 34,675 -6.0%
5% 0% -5% -10%

19.0% 14.0%

19.0%

20% 15% 10%

Total Cost/FTE/annum

YoY Growth
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Source: Oanda.com; Zinnov analysis based on information provided by the participating companies

and the R&D ecosystem has only gotten stronger due to the downturn
The global economic meltdown has enabled greater talent access from global locations hence enabling increased domain expertise

Domain Expertise

Talent Pool

Talent pool has reached a critical mass over the last few years. About 180,000 professionals work for MNC R&D centres in India. Senior talent availability is a lot better

Startup Ecosystem

Start-up ecosystem has gotten stronger. Increase in focus among entrepreneurs to start IP led companies compared to traditional IT services companies

Partnerships

Partners are willing to take on more risks and willing to work in risk-reward models

Domestic Market

India is one of the few countries with a positive GDP growth. Consumption continues to be high and provides opportunities for companies to sell their products and services in the India market
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Source: Zinnov Analysis

We believe that the R&D ecosystem in India will become one of the strongest in the globe in the next 10 years
i

MNC R&D Centers

ii

Most of the MNC R&D centers will operate in Strategic independence or as global strategic partner

Service Providers
iii

Most R&D Service providers will make significant R&D investments and will have capability starting from conceptualization to manufacturing

Start up Ecosystem
iv

India will have a vibrant start up ecosystem and will create a large number of successful companies will IP led revenue and a number of billion dollar companies Indian universities will take a lead in industry partnerships and will enable enhanced entrepreneurship / innovation culture among the students

Universities
v

Infrastructure
vi

India will boast a number of cities that are the most preferred location for technology talent from across the world

Domestic Market
Source: Zinnov Analysis

India will be one of the largest consumer economy in the world and will have the largest base of SMBs across the globe
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MNC R&D Centers

Most of the MNC R&D centers will operate in strategic independence or as global strategic partner
Current State 2019 Predictions

21

Years since inception

18

15

12

Operational Support
Source: Zinnov Analysis

Operational Independence

Strategic Independence

Global Strategic Partnership

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MNC R&D Centers

India will be the head quarter for Services, Support, Emerging market business and a number of corporate functions
Transformational Model
Services ecosystem in India is fast evolving and new transformational services models are expected to come from India

Business Ownership for Global Products

India will have sufficient number of technical architects, product management and engineering leaders to be able to run product business units from India

Global Corporate Functions From India

India will have the largest number of resources in corporate functions such as HR, Finance etc.

Transforming India

Airtel - IBM

McAfee

Ford

Cisco

Cisco

Intel

TCS ITaaS

Yahoo

IBM

Source: Company Websites; Zinnov Analysis

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MNC R&D Centers

India R&D centers will gain competency and business ownership through acquisition of start ups in India
Israel

Business Unit

Start up acquisitions is been the growth story for MNCs in Israel Acquisitions allowed these centres to take leadership role in the domain of the starts ups and in some cases even the business line ownership E.g. Intel, Microsoft, Cisco, IBM et.

Company A

Business Unit

Acquired Company in Israel

Indian Startups Can Potentially Replicate the Israel Model

SchneiderConzerv Web2 CorpByIndia.com

Oracle-iFlex

SAP-Yasu

EMC-Valyd

Cisco-India Games

Yahoo-Tyroo

Lulu-Ugenie

WebMethodsInfravio

Source: Company Websites; Zinnov Analysis

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ii

Service Providers

Service providers in India will become true R&D partners and share the risk with their customers
Investments into the entire product value chain

Concept/ Ideation

Design & Development

Compliance

Verification & Validation

Manufacturing

Default engagement models

Revenue Share IP Led Solutions

Go-To-Market Partners

Source: Interviews with Key Service Provides in India; Zinnov Analysis; NASSCOM

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iii Start up Ecosystem

We will see at least a few IP led Indian companies reach a billion dollars in revenue
i ii iii

Increased VC Funding in the Next 10 Years

v

Open Platforms to Solve GTM Challenges

iv

Collaboration With MNCs for Innovation

Increased Entrepreneurship Culture

University Labs/ Incubation Centers

Google USD 86 Mn (2001); USD 21 Bn (2008)

Salesforce.com USD 5 Mn (2001); USD 1 Bn (2009)

eBay USD 400 Mn (2000); USD 8.5 Bn (2008)

Story of a Telecom Major

Established as a company providing PBX switches Initiates R&D and launches rural digital switching solution Sales Revenue of USD 200 Mn majorly from local markets Sales of USD 100 Mn from internationa l sales International sales reach USD 550 Mn Partnerships will all top EU operators. Revenue of USD 16 Bn Sales of USD 23.3 Bn, an increase of 46% as compared to 2007

1988

1992

1995

2000

2002

2007

2008

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iv Universities

Indian universities will take a lead in industry partnerships and will enable enhanced entrepreneurship / innovation culture among the students
More entrepreneurs and technology innovators will come out of Indian universities Universities with world class infrastructure that will enable global companies to set up their technology labs at the universities Many of the tier2/3 colleges will start incubating lot many technology start ups

Intellectual property generated at the universities will be widely leveraged by industry

India will graduate one of the highest number of PhDs/year Key initiatives
Incentives to Professors to engage with industry UGCs current focus in increasing PhD candidate quality
Source: University Grants Commission (UGC); Zinnov Analysis

Potential deregulation of Education Sector Increased University-Industry Partnership Attractive Salaries and Job Commitments from MNCs
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Most of the vision is possible and is largely in the hands of the leadership teams of R&D centers in India

Act as a Globalization Agent

Play a Role in Ecosystem Development

Drive Organizational Change

India Leadership Team: Action Items

Influence Policy Decisions

Build Entrepreneurship Culture

Lead and Not Just Manage

Source: Zinnov Analysis

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