Operating Costs for MNC R&D Centers in India Decline by 6% in US$ Terms in FY12

Top Quote MNC R&D centers in India added to a cumulative saving of over US$ 70 Bn in the last 5 years. End Quote
  • (1888PressRelease) August 29, 2012 - Zinnov, a leading Globalization and Market Expansion Advisory firm, as part of its R&D Globalization Council initiative, today released the latest 'Operational Costs Benchmarking Study 2012', a detailed analysis of trends, investments and expenditure among MNC R&D organizations in India. The study, based on a survey among a sample of 55 R&D centers with over 37,000 employees across India, found that the average operating costs for MNC R&D centers in India has declined by 6% in US$ terms in FY12. The cost per employee settled at US$40,604 in FY12 as compared to US$43,174 for FY11.

    Key Findings:
    1. MNC R&D centers in India contributed to a net savings of over US$70 Bn for the headquarters in the last 5 years
    2. While the average operating costs for MNC R&D centers in India declined in US$ terms, there was a marginal 3% increase in terms of INR
    3. The average salary increments of 13% in Q4 for FY12 resulted in a slight increase in the overall operating cost in India in INR terms
    4. Infrastructure costs are on the rise with real estate increments seeing a 5%-13% rise, and over 80% of organizations getting affected by STPI withdrawal
    5. Organizations are starting to explore potential in tier-II cities where per-employee operating costs are 30% lower on average as compared to tier 1 cities
    6. Demand for engineering/ embedded R&D related skills is increasing in India

    The study states that the MNC R&D landscape in India is continuing to grow with a current base of over 870 MNCs with their R&D centers in India. In line with the growing maturity of R&D centers, organizations are expanding headcount and talent is a key focus area. The country today boasts of an installed R&D talent pool base of more than 210,000 engineers growing at an average of 9% a year for the last five years.

    Zinnov in its study reveals that FY 2012 witnessed numerous changes in the operating cost dynamics for MNC R&D centers in India. The first one being that the overall operating cost declined by 6% in USD terms. Key factors like weakening of Rupee vis--vis USD and EUR helped gain advantage, while the focus on talent pyramid optimization resulted into these cost savings. Additionally, the expansion into Tier 2 cities reduced the overall operating costs of these centers, while aged MNC R&D centers were better able to optimize their costs based on experience.

    While companies continued to focus on building depth in technical expertise, organization pyramid were balanced with aggressive hiring at the junior levels. Other cost savings measures included use of technology for collaboration and limiting project-critical travel, consolidation of offices into single-facilities, reduction of professional services costs by building in-house talent and negotiating on third-party vendor fees.

    Commenting on the key findings of the study, Praveen Bhadada, Director - Market Expansion, Zinnov, said, "The Indian R&D ecosystem started 25 years ago based on the huge cost arbitrage it offered to headquarters. The fact that MNC R&D centers are now increasingly focused on innovation, leadership and better value addition and yet are able to deliver cost savings of over $70 Bn in the last 5 years is a significant advantage".

    "For this year, we noticed that the Indian currency depreciation proved favorable as MNC R&D centers here and they were able to significantly optimize cost despite a net salary increment of 13% in the last quarter of FY12. Also, we are confident that India will continue to maintain its competitive advantage over other emerging markets for a long time", he added.

    The study also noted that tier-II cities are becoming an attractive option, with approximately 30% lower costs compared to cities like Bangalore, which not only houses the maximum number of large MNCs but is also the most expensive as employees gain experience and more opportunities. Commercial real estate prices are also 15%-20% lower on average in tier-II cities. In addition, attrition is much lower in tier-II cities due to lack of competition and hesitation to migrate, the study revealed. These include Jaipur, Chandigarh, Ahmedabad, Vadodara, Nagpur, Trivandrum and Coimbatore, it added.

    Some of the other key findings that came out as a part of this exclusive study, read that on an average, the per employee operations cost is highest for Semiconductor/Embedded companies followed closely by Engineering Services. It brought to light that the evolution of Semiconductor R&D centers is a nascent phenomenon and these companies tend to pay higher compared to the overall R&D industry owing to task complexity and associated skills. On the other hand, Software Product Development R&D centers are more mature when compared to the recently set up Engineering R&D and Semiconductor companies and hence the cost differential.

    Yet another change that was marked by FY 2012 was the increased focus on contract resource hiring. The Zinnov study read that they have witnessed an increased trend among companies to hire employees on contractual basis in order to optimize on people cost, bring in flexibility and stability in the system and quickly respond to changing economic and business conditions. While contract resources account for 9% of the total MNC R&D population and with this trend expected to continue, this comes with its own set of challenges, it said.

    And last but not the least, the OCB study brought to light that while the STPI withdrawal has impacted 80% of the analyzed sample of R&D centers; however, moving to SEZ is not an option considered by many.

    To download the report, please visit the following link:

    About Zinnov
    Founded in 2002, Zinnov - meaning Zeal in Innovation - is a leading Globalization and Market Expansion Advisory firm, with specialization in areas like Global Sourcing, Emerging Markets Expansion, Human Capital Optimization, Small & Medium Businesses, Innovation, Cloud Computing and Enterprise Mobility. Zinnov provides advice to global leaders in business and technology and works collectively with them to tackle prevailing organizational challenges by analyzing changing dynamics, improving performance, and building institutional capability. The services delivered to its clients through advanced reasoning and analytical techniques, provides solutions that help in integrating organizational vision, business definition and processes.

    For further queries, pls contact:
    Kinjal Chhetri Panwar
    Senior Marketing Manager, Zinnov
    Email: kinjal ( @ ) zinnov dot com
    Phone: +91 9466132313

    Kailash Pandiyan
    Project Lead, Online Marketing
    Email: Kailash ( @ ) zinnov dot com
    Phone: +91 9916906711

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