Engineering R&D : Advantage India

Zinnov

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Agenda

1 Global R&D Outlook

2 India Product Engineering Landscape

3 India Captive Centers: Story of Resurgence

4 India Service Provider: Consolidating Growth

5 Product Engineering in India: The Way Forward

The markets across various verticals are increasingly shifting towards emerging
economies

Medical Devices Consumer Electronics

One of the fastest growing vertical
segment globally owing to increased
governmental spend in healthcare and
also increased instances of lifestyle
diseases
The market is expected to reach over
USD 1.3 trillion dominated by US and
China

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
Key Market
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
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
Trends 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

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
Telecom
ISV
The industry is witnessing de-regulation
Post the recession in 2009, software
in some of the world’s largest telecom
segment is poised to witness
markets like India and China fueling
a higher growth. The markets for both
further growth prospects for the
enterprise and software have witnessed
industry
significant growth
This has created an increased focus on R&D in these high growth markets with US
and Europe still dominating the R&D spend
R&D Spend Across Geographies
Top five R&D Spenders Top five R&D Spenders Top five R&D Spenders
from North America from Europe from rest of world
 Microsoft  Volkswagen Top five R&D Spenders
 Samsung
 Intel  Daimler from Japan
 Huawei Technologies
 General Motors  Nokia  Honda Motor
 Hyundai Motors
 IBM  Robert Bosch  Panasonic
35% 11%  ZTE
 Cisco Systems  Ericsson  Nissan Motor
32% 5%  LG
 Sony
13%  Canon
16%
North America 3%
RoW* 20%
% Contribution Europe
Verticals of North Japan
% Contribution %
America to R&D
Verticals of Europe to Contribution %
Verticals
R&D of RoW to Contribution
ISV 35% R&D Verticals
of Japan to
Automotive 54% R&D
Consumer
Semiconductor 23% Electronics
35%
Telecom 20% Automotive 49%
Automotive 17% Semiconductor 31%
Aerospace 10% Consumer
43%
Electronics
Telecom 13% Telecom 28%
Semiconductor 7% Semiconduct
8%
or
Aerospace 9% ISV 5%
Others 5%
Indicates Increase in R&D Spend in FY 2011 over FY
Others 3% Others 4% 2010
Note: * Rest of world X% Indicates % contribution of a region to overall R&D
Source: Zinnov Research & Analysis, Annual reports spend
Automotive and Industrial Automation giants lead the global R&D investment

R&D Spend Increase of Key Companies Across Verticals, FY 2012

Consumer Industrial
Automotive 11% Aerospace 3% Electronics -3% 15%
Automation

Company % Company % Company % Company %

Toyota Motor 6% Boeing -5% Panasonic -2% Siemens 8%

Volkswagen 16% EADS 7% Samsung Electronics 11% Mitsubishi Electric 11%

General Motors 17% Finmeccanica -3% Sony 1% ABB 27%

Daimler 17% United Technologies 18% Canon 1% Danaher 32%

Honda Motor 7% Rockwell Collins 24% FUJIFILM 4% Schneider Electric 20%

Medical
8% Telecom 5% ISV 11% Semiconductor 12%
Devices

Company % Company % Company % Company %

Abbott 11% Nokia 0% Microsoft 8% Intel 27%

Medtronic 1% Cisco Systems -6% IBM 4% Samsung 7%

Boston Scientific -5% Ericsson 4% Google 37% STMicroelectronics 0%

Huawei
St. Jude Medical 12% 42% Oracle 0% Toshiba 1%
Technologies
Stryker 17% Alcatel-Lucent -8% SAP 9% Broadcom 13%

Note: % Indicates growth in R&D investments YoY.

Source: Zinnov Research & Analysis, Annual reports
Energy efficiency and convergence are the major areas of focus for most R&D
organizations across various verticals
Key Technology Focus Areas
1
Automotive Energy Efficiency, Automotive Electronics

2
Aerospace Green Energy, Integrated Avionics, Higher Electronics Content

3
Consumer Electronics Connectivity, Device convergence, Digitization

4
Computer Peripherals Application Optimized Storage, Miniaturization, Energy Efficiency
5
Semiconductor Optoelectronics, Sensors/MEMs
6
Medical Devices Homecare Solutions, Medical robotics, Wearable Technologies
7
Telecom Mobile-Cloud Convergence, Device & Network Convergence

8 Redesign for cloud, Mobile Use, Complex Data Analytics, Context Aware,
ISV Vertical Market Specialization
98
Industrial Automation Sustainability, Industrial Automation 2.0, Safety

Note:
Source: Zinnov Research & Analysis
Agenda

1 Global R&D Outlook

2 India Product Engineering Landscape

3 India Captive Centers: Story of Resurgence

4 India Service Provider: Consolidating Growth

5 Product Engineering in India: The Way Forward

India is the leading offshore destination in delivering engineering and R&D
services with a 22% market share

Overall Product Engineering Growth Rate( In USD Billions)

42

13 14.7

FY2011 FY2012 FY2020 E

Service Provider Growth Rate( In USD Billions) Captive Center Growth Rate( In USD Billions)
5.439
9.261

4.689 8.343

FY2011 FY2012 FY2011 FY2012

Note:
Source: Zinnov Research & Analysis
MNC Captive centers continue to drive the India product engineering growth story

Captive Vs. Service Provider Split Across Verticals

Captive Split Service Provider Split

21% 26%
31% 32% 30%
35%
50%

76%

79% 74%
69% 68% 70%
65%
50%

24%
Telecom

Medical Devices
Automotive

Aerospace

ISV(OSPD)
Consumer Electronics
Semiconductor

Computing Systems

Note:
Source: Zinnov Research & Analysis
Talent, Business and Technology imperatives will drive future growth across most
verticals

Drivers for Globalization of Product Vertical wise Revenue Distribution FY 2012

Engineering to India Product Engineering

Semiconduc
Globalization tor
2011 2020 E
Drivers 11%

Talent ISV(OSPD)
32% Telecom
19%
Business

Technology

Automotive
Talent- Availability, Quality, Scalability Others* 8%
Consumer Computing
10%
Business- Costs, Risk Mgmt., Market/Customer Electronics Systems Aerospace
Technology-Innovation, Technology Trends Medical 6% 7% 4%
Devices/Hea
lthcare
3%

Note:
Source: Zinnov Research & Analysis
Agenda

1 Global R&D Outlook

2 India Product Engineering Landscape

3 India Captive Centers: Story of Resurgence

4 India Service Provider: Consolidating Growth

5 Product Engineering in India: The Way Forward

Over the last two years there has been a resurgence in the number of engineering
R&D captives centers setup in India

Growth in the Number of Captives, FY 2011 Split of Captives in India Based on Vertical 2012
Automotive
Semiconduct 6%
874 or
9%

Telecom
ISV(OSPD) 17%
41%

836
Others*
10%

Aerospace
Medical 2%
Devices/Heal Consumer Computing
FY2011 FY2012 thcare Electronics Systems
6% 4% 5%

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

Captive Revenue Growth Rates-Vertical Wise( In USD Billion) 18%

3.168

2.692

2%

10%
1.347 1.38

17% 13% 1.1

12% 0.997
0.765 0.81
0.666 0.718 26%
0.656
13% 0.595
0.397
0.315
0.165
0.146

Automotive Aerospace Consumer Computer Semiconductor Medical Devices Telecom ISV

Electronics Peripherals &
Storage

Note:
Source: Zinnov Research & Analysis
Large Medical device manufacturers are looking at India to establish their regional
R&D center for emerging markets

No. of New Captives Added in 2011 New Captives Large Captives

Others 8 Walmart, Open solutions Paypal, Fidelity, GE Energy

ISV 12 Linkedin, Zynga, Facebook, ORCC Microsoft, Oracle, SAP Labs

Ruckus Wireless, Fluk networks, Huawei, Nokia Siemens, Ericsson

Telecom 5
Posedge

Medical Devices 5 Ricoh, Medline Huawei, Nokia Siemens, Ericsson

Semiconductor 2 Intel, ST Microelectronics, TI,

STEC, Silicon Image
AMD

Industrial Automation 2 Momentive, Hysitron Schneider Electric, GE, Siemens

Computer Peripherals &

0 IBM, NetApp, Symantec, EMC
Storage

Consumer Electronics 2 Panasonic, Hitachi Samsung, LG, Toshiba, Philips,

Sony

Aerospace 0 Honeywell, GE, EADS,Boeing

Automotive 3 Faurecia, Peugeot, CASKA Bosch, Volkswagen, GM

Note:
Source: Zinnov Research & Analysis
While ISV is the most mature vertical in the India captive landscape, medical
devices space is rapidly gaining traction

Vertical Maturity Levels- Captives

ISV
Captive Presence

Computer Peripherals
and Storage
Telecom
Automotive

Semiconductor
Consumer Electronics
Medical Device Industrial Automation
Aerospace

Nascent Vertical Emerging Vertical Rapidly Growing Mature

Size of Bubble Indicates

Headcount
Competency
Note:
Source: Zinnov Research & Analysis
Many companies have started their core research teams operating from India

Snapshot of core research by MNC R&D centers in India

GE EADS
Focus Areas: Focus Areas:
• Composite material design • High performance computing
• Electromagnetic analytics • Avionics
• Nondestructive evaluation technology • Structures

Focus Areas: Honeywell Focus Areas: Siemens

• Next generation magnetic sensors • Decentralized energy systems
• Image analysis and computer vision • Embedded systems
• Intelligent vehicle technologies • S.M.A.R.T.* technologies

General Motors Focus Areas: 3M

Focus Areas:
• Smart system modeling • Abrasives / adhesives
• Vehicle structure and safety • Coatings
• Chemical reaction modeling • NVH materials

Focus Areas: Philips Focus Areas: ABB

• Healthcare systems and technologies • Manufacturing technologies
• Energy and lighting • Communication technologies
• Consumer lifestyle technologies • Robotics

Note:
Source: Zinnov Research & Analysis
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

1 Global R&D Outlook

2 India Product Engineering Landscape

3 India Captive Centers: Story of Resurgence

India Service Provider: Consolidating

4
Growth

5 Product Engineering in India: The Way Forward

Product Engineering in telecom and ISV segment continues to be the mainstay for
Indian service providers

Service Provider Growth Rates-Vertical Wise

FY 2011 FY 2012
7%
18%
1.399
1.312 1.328

1.128

13%

17% 0.512 37%

0.454
21%
24%
0.347 0.32 26%
0.297 0.286 0.293
0.234 0.23 0.243
0.211
0.167

Automotive Aerospace Consumer Computer Semiconductor Medical Devices Telecom ISV

Electronics Peripherals &
Storage

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

Vertical Maturity Levels-Service Providers

Service Provider Presence

Telecom

Consumer Peripherals
ISV
and Storage

Medical Devices
Aerospace Automotive

Semiconductor
Industrial Automation
Transport

Nascent Vertical Emerging Vertical Rapidly Growing Mature

Size of Bubble Indicates

Headcount
Competency
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
University GDFs* MNC Partners Certifications
Automotive

Aerospace

Consumer
Electronics

Computer Peripherals
and Storage

Industrial Automation

Semiconductor

Medical Devices

Telecom

ISV

Note: GDF( Global Development Forums)

Source: Zinnov Research & Analysis
Key Service Provider Trends

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

Note:
Source: Zinnov Research & Analysis
Key Service Provider Trends

1 Global R&D Outlook

2 India Product Engineering Landscape

3 India Captive Centers: Story of Resurgence

4 India Service Provider: Consolidating Growth

Product Engineering in India: The Way

5
Forward

Note:
Source: Zinnov Research & Analysis
The Road Ahead

• 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

Note:
Source: Zinnov Research & Analysis
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