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Why India is more lucrative R&D destination than China?

Radha Bhongale
Wednesday, November 2, 2011
Radha Bhongale
The existence of multinational R&D centers in India has been a constructive influence on the ecosystem of India. While the R&D factory in India is still growing as compared to other Asian countries like Japan, China, South Korea, and Israel, particularly because their local R&D ecosystem was always very favorable for MNC companies to penetrate and perform business, India has saved a cumulative $44 billion for their parent organizations in the last three years. Additionally, operating cost in India at present is 25 percent lesser as compared to China.

A study conducted by Zinnov Management Consulting, a globalization advisory firm, “Operations Cost Benchmarking 2011” (OCB’11), revealed that though China is rapidly evolving in its R&D globalization journey, India is comparatively a more lucrative R&D destination.

The last three years has seen a significant change in the operating cost prototype with the MNC R&D fraternity in India. With business being as usual in 2007-08 and costs increasing by 19 Percent, while during the Economic Downturn in 2008-08 there was a cost decline by 6 percent and 2009-10 saw Cost Optimization being focused on and costs declining by a further 4 percent in USD terms. Operating costs at R&D centers usually comprises of key components like Payroll & Payroll Related Benefits, Infrastructure and communications, Travel Professional services and Government and Regulatory.

The Fiscal Year 2011 was marked by a variety of changes in the operating cost dynamics with key trends like Increase in Operating Cost, Investments for Growth, Demand for engineering/ embedded R&D work increasing in India, increased focus on IT Cost Optimization, less concerns for STPI Waiver, firms looking forward to expansion in Tier 2 Locations and centers expecting costs to increase further owing to salary increases and attrition. The operating costs of MNC R&D centers in India have increased considerably in FY 2011 owing to pay raise of 10-15 percent at an average and attrition management being one of the key challenges that was to be addressed. The operations costs have increased from 17.6 INR lakhs in 2009 to 19.1 INR lakhs in FY 2011. Centers even focused on increasing the experience pool for innovation and value creation. With all going on, India is now looked at with prospective of innovation, leadership and increasing productivity, high talent and strategic instead of treating it as a low cost destination for business.

MNC R&D landscape in India has rapidly grown in the last decade and can now boast of a current base of 718 MNCs with their R&D centers here. India also has an installed R&D talent pool base of over 195,000 engineers that has been growing at an average of nine percent a year for the last five years. The talent pool supply includes migrations from industries, software professional returnees and the fresh engineering graduates. As the global economies started to recover from the downturn, employees of R&D centers in India have witnessed salary increments of ten to fifteen percent. And to compensate for no or minimal salary revisions the previous year, some of the R&D centers clubbed salary increments with one time bonuses.

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