R&D centers in India help MNCs to save $40 Billion
By siliconindia   |   Thursday, 15 July 2010, 15:24 IST   |    5 Comments
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R&D centers in India help MNCs to save $40 Billion
Bangalore: The cost of running R&D centres in India has continued to decline over the last two years. R&D centres of MNCs in India have generated significant cost savings for their headquarters because of the lower operating costs over the years. According to a study 'R&D Operations Cost 2010 - The Need to Look Beyond Cost Control' launched by management consulting firm Zinnov Management Consulting. As per the study R&D centres in India have helped parent organizations save a cumulative of $40 billion for the last three years. Currently, the cost of running R&D centres in India stands at 18.2 lakh ($38,199) per person per year. It reveals that the cost has declined by 0.9 percent in Rupee terms, 4 percent in US Dollar terms and 3.3 percent in Euro terms in FY 2010, indicating signs of continued cost optimization due to the constrained economic environment. The study has found that the decline was primarily driven by strict budgetary constraints of R&D centres of global companies in the form of minimal or no salary increments, focus on variable pay, freeze on hiring, and cost optimization across infrastructure, travel and communication. The report shows that the future outlook also looks promising and with right strategies and long term view, companies will be able to continue to optimize costs. The study also forecasts an expected inflation in costs in FY 2011 with companies planning around 10 percent salary hike for FY 2011, hiring laterals, escalation in rents and opening up of travel. However, the report also reads that in a long term scenario the costs are expected to go up only by 6.7 percent CAGR through FY 2020 to reach INR 35 Lakhs per person per year. Speaking about the findings, Pari Natarajan, Co-Founder and CEO, Zinnov Management Consulting, said, "Though India offers a significant cost arbitrage when compared with the costs in U.S. and Europe, the R&D centers in India are losing out on certain key aspects because of excessive focus on cost. While cost control is the top priority, aspects like innovation, competency creation and leadership roles often get over looked." Bringing into perspective a comparative analysis of cities, the study said that Bangalore based companies incur higher cost as compared to the other cities. On an average, costs in Pune are around 3.5 percent lesser than Bangalore, with Tier 2 locations like Madurai, Coimbatore, Baroda, etc. almost 25 percent cheaper. In terms of size, smaller centers (0-400 employees) incur higher costs as compared to their mid-sized counterparts (400-1000 employees). However, the cost further increases for very large centers (1000+ employees).

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