BANGALORE, India, November 19, 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%
- USD 216 Billion is the overall addressable market for Outsourced Engineering R&D services for 2014-15
- Globally service provides addressed USD 36 Bn of the addressable market in 2014-15. Europe based ER&D Service providers lead the market followed by Indian service providers.
- Indian Engineering R&D service providers which grew at 12.67% outpacing Global Engineering Services market growth of 8.7%.
- Over last year, there was significant M&A activity in the PES space. There were 15+ global M&A's over last year. New heavyweights such as Capgemini and Harman, entered the PES market after acquisition of mid-sized Engineering firms leading to enhanced competition for the market share.
- Wipro, TCS, HCL and Altran emerged as leaders in the Zinnov Global R&D Service Provider Ratings.
- Harman Connected Services, EPAM systems and Aricent scaled their Product Engineering Services practice over last year through mergers and acquisitions and as a result moved significantly ahead in the Zinnov Global R&D Service Provider Ratings
Zinnov, a leading management consulting firm, today released its annual 'Global R&D Service Providers (GSPR) Rating and Landscape Study 2015'. This annual study enables business leaders spearheading technology and engineering initiatives, make right decisions in partner selection across geographies. Zinnov's annual Global Service Provider Rating is an exhaustive exercise that covers Top 40 companies in the ER&D space. 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%).
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.
The study read that India based R&D services companies which account for ~22% of the global addressed R&D Services market grew much faster at 12.67%. 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 target market for Indian Service Providers contributing to 55% of revenues.
Commenting on the study, Hardik Tiwari, Lead Analyst, Zinnov, said, "The Global R&D services outsourcing market presents a huge opportunity in the next few years. We expect the top leaders in the space to look to capitalize on this opportunity through capability building and building deeper relationship with customers. The study also shows a focus amongst market leaders to invest in newer capabilities to help their clients succeed in a disruptive technology landscape"
Key highlights from the ratings and landscape:
- Service Providers are building end-to-end and cross horizontal capabilities through acquisitions of niche engineering services firms. We have already seen 15+ acquisitions this year in engineering services space. Aricent's acquisition of SmartPlay provided Aricent with embedded and semiconductor competency; Altran's acquisition of Nspyr and Sicontech to grow in the US market; QuEST Global acquisition of Nest helped QuEST Global diversify in embedded software services are illustrators of the trend. In the next two quarters, we would see 2-3 further M&As primarily driven by PE investments
- New heavyweights such as Capgemini and Harman entered the PES market after acquisition of mid-sized Engineering firms leading to enhanced competition for the market share. We are seeing high interest from Europe based service providers in the India and US based service providers and can expect multiple small scale acquisitions over next year
- Germany based R&D spenders, particularly Automotive companies, are increasingly exploring offshoring /near shoring 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 last one year.
- Wipro, TCS, HCL and Altran demonstrated continued leadership in the engineering R&D landscape and emerged as leaders in the Zinnov Global R&D Service Provider Ratings.
- Harman Connected Services, EPAM systems and Aricent scaled their PES practice over last year through mergers and acquisitions and as a result moved significantly ahead in the GSPR ratings. They are expected to reach billion dollar in revenues in Product Engineering Services in next two-three years, much faster than the peers.
- Companies with Mid-Sized Engineering practice including Tech Mahindra, L&T Technology Services, Cyient, QuEST Global, GlobalLogic, Tata Technologies, Infosys, Mindtree and IGATE are emerging as close competition to the top 4 players in the ESO space by diversifying their strong embedded or Mechanical engineering capabilities to newer verticals. Among the mid-sized firms, Tech Mahindra, L&T Technology Services, Infosys and IGATE have built the most diversified practices catering with expertise across almost all industry verticals.
- L&T Technology Services and Tech Mahindra were among the mature and diversified players in core engineering verticals by building deep expertise in the verticals they operate in
- Persistent Systems, Tata Technologies, Cyient, QuEST Global emerged as leading players in Software, Automotive, Aerospace, and Aerospace & Energy verticals respectively.
- EPAM systems and Luxoft dominate the Eastern Europe market which is emerging as an alternate to India as an outsourcing destination particularly for software and embedded services. Pactera was the leader in the Chinese market which grew slower than global peers.
- GlobalLogic , Mindtree and Persistent Systems have developed strong capabilities in digital services space for enterprise customers and moved significantly ahead in ISV ratings
- Among the Niche players with an emerging PES practice, Happiest Minds, Harbinger Systems and GlobalEdge emerged as the stand out players which have shown strong capabilities in the newer technology and compete with the industry leaders in their focus technology areas
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 & India. For more information, visit http://www.zinnov.com.
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