Global R&D Services Outsourcing Market Grew by 8.7% in 2015 to Reach USD 36 Billion; India-based R&D Service Providers Dominate Growth at 12.67%

BANGALORE, October 6, 2015 /PRNewswire/ --

Key Findings of the Study 

- Overall global 500 R&D spend grew by 2% to reach USD 614 billion in 2015. Major R&D spend was concentrated in US at 41% of the global R&D spend, while China recording the highest growth at 23%  

- Average R&D spend as percentage of revenue increased from 4.13% in 2014 to 4.31% in 2015 with embedded and software content in products increasing across all verticals  

- USD 216 billion is the overall addressable market for Outsourced Engineering R&D services for 2014-15  

- Globally, service provides addressed USD 36 billion of the addressable market in 2014-15. Indian service providers constituted 22% of the addressed market at about USD 7.76 billion  

- Overall India-based R&D Globalization and R&D Services market reached USD 20 billion in 2015 up by 9.9% over 2014 - R&D Services market stood at USD 7.76 billion and R&D Globalization market (Captives) stood at USD 12.25 billion  

- Indian Engineering R&D service providers, which grew at 12.67%, outpaced Global Engineering Service providers' growth of 8.7%. Automotive, Medical Devices and Software Products were the high growth verticals for India-based Engineering R&D service providers  

Zinnov, a leading Management consulting firm, today released its annual 'Global R&D Service Providers Landscape Study 2015'. This annual study enables business leaders spearheading technology and engineering initiatives, make right decisions in partner selection across geographies. According to the study, the total R&D spending by global top 500 R&D spenders grew by 2% to reach USD 614 billion, of which the addressable market for Outsourced Engineering R&D services stands at USD 216 billion. Automotive and Software Product companies account for ~30% of the Global R&D spend, while Software Product companies saw highest growth in R&D (>15%).

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The study read that the Global Engineering R&D Services Outsourcing market grew by 8.7% to reach USD 36 billion in size, which is dominated by Europe-based ER&D Service Providers (constituting 55% of the overall market and grew at 7.7%). The study brought to light that Europe's ER&D Service Providers market comprises of companies such as Altran, Alten, Assystem and Bertrandt, which focus primarily on core engineering verticals like Automotive, Aerospace and Energy and cater to Europe-based R&D Spenders. Automotive vertical, which grew at 12.5% for Europe, is expected to continue being the key driver for growth going ahead.

The study read that India -based R&D services companies, which account for ~22% of the global addressed market, grew much faster at 12.67%. The market for ER&D companies in India is mainly structured across pure play PES companies such as Cyient, QuEST, eInfochips and the larger IT companies with a PES play such as Wipro, TCS, HCL. Automotive, Medical Devices and Software Products were the key growth verticals for India-based R&D service providers. India's ER&D services market is expected to reach USD 15-17 billion by 2020 and for these service providers, North America continues to be the largest market contributing to 55% of revenues. Additionally, companies in Software Products, Medical Equipment and Hi-Tech are target growth customers in US geography.

Commenting on the study, Hardik Tiwari, Lead Analyst, Zinnov, said, "R&D services outsourcing is becoming a critical component of the Indian IT industry. Global market, especially in Europe, is quite mature with multiple companies with close to billion dollar R&D services practice. We expect at least 3-4 India-based engineering R&D services companies to reach billion dollar in revenue by 2017."

"With IOT-led disruption, Software and Telecom is permeating across verticals and Indian service providers have built mature expertise in Software, Telecom and Embedded. With this trend, they are definitely poised to be the preferred product development partners for organizations and will capture a larger share of global R&D outsourcing going ahead," he added.

Key Trends in Global Engineering R&D Services:  

• Service Providers are building end-to-end and cross horizontal capabilities through acquisitions of niche engineering services firms. We have already seen 10+ acquisitions this year in engineering services space. Aricent's acquisition of SmartPlay provided Aricent with embedded and semiconductor competency; QuEST acquisition of Nest helped QuEST diversify in embedded software services are illustrators of the trend.
• Germany-based R&D spenders, particularly automotive companies, are increasingly exploring offshoring/nearshoring to service providers in low-cost locations because of two reasons:
  • High wage inflation affecting margins and causing hiring difficulties
  • Revision in temporary staffing laws making temporary in-house staffing more difficult
• Europe-based service providers are aggressively looking at scaling up or setting offshore operations in India to access India's cost effective large talent pool. Assystem, Altran and Alten already have scaled up their centers in India over the last year.
• India-based Engineering R&D Service providers are building newer capabilities in support engineering functions such as supply chain, regulatory compliances and manufacturing engineering to address larger engineering opportunity in Aerospace and Medical Devices verticals.
• Internet of Things or Connected Products is becoming a critical investment area for global R&D spenders. Global companies are exploring partnerships with R&D service providers for IoT products. As a result, service providers are investing in building competency in new-age technologies around Analytics, Usability engineering, Communication technologies to partner with R&D spenders in their IoT initiatives.

The Zinnov study also brought to light that offshoring through captive centers in low-cost locations continues to be a key globalization tool for technology organizations. The overall R&D offshoring market through captives stands at 31 billion USD. Engineering and R&D centers in India delivered USD 12.25 billion worth of services to their parent companies in 2015 growing by 8.65%. China is the other preferred globalization destination constituting market worth USD 9.7 billion, it read.

About Zinnov: 

Founded in 2002, Zinnov is headquartered out of Bangalore with presence in Houston, Silicon Valley and Gurgaon. In over a decade, Zinnov has built in-depth expertise in engineering and digital practice areas. We assist our clients in globalizing their operations and maximizing their footprint by:

- Effectively leveraging global resources for engineering, IT, digital and business ops for higher throughput - innovation, productivity, cost savings.

- Enabling companies to focus on new product development and core business processes by finding the best partners. 

- Growing revenue for their products and services in India and other emerging markets.

With our team of experienced professionals, we serve clients in software, automotive, telecom & networking, semiconductor, consumer electronics, storage, healthcare, banking, financial services & retail verticals in US, Europe, Japan and India.

For more information, visit: www.zinnov.com .

Media Contact:
Kinjal Chhetri Panwar
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Zinnov Management Consulting