New York — August 4, 2010 — The global market for engineering research and development (ER&D) services sourcing has defied the economic downturn, with demand from such sectors as computing systems, medical devices, energy and infrastructure fueling growth in the market, a new study has found.
Meanwhile, providers in emerging economies, led by India, are poised to gain share as multinational corporations seek to invest in innovation and drive future growth, according to the study, "Global ER&D: Accelerating Innovation with Indian Engineering," conducted by management consulting firm Booz & Company with the National Association of Software and Services Companies (NASSCOM) in India.
The report sheds light on multinational corporations' perspectives on ER&D services sourcing, growth trends in the Indian service provider landscape, and competitive positioning of emerging markets as sourcing destinations.
Overall spending on ER&D increased 12 percent from $980 billion in 2008 to $1.1 trillion in 2009 and is expected to expand to $1.4 trillion by 2020. India, a pioneer and leader in the global sourcing industry, remains a dominant player in the global ER&D services market, with revenue growth of more than 40 percent over the past three years, to $8.3 billion in 2009, and expectations of reaching $40 billion to $45 billion by 2020.
The joint report also examines and prioritizes 11 key verticals for growth in the global ER&D market. While automotive, consumer electronics and telecom — all traditionally high spenders on ER&D — continue to lead ER&D spend, emerging sectors include computing systems, medical devices, energy and infrastructure.
Also according to the study, growth in global ER&D spend is being driven by four emerging trends:
- Continued R&D investment considered imperative by multinational conglomerates when it comes to pursuing innovation and penetrating new, emerging markets.
- Increasing use of electronics, the search for alternate fuel sources and greater fuel efficiency, and the convergence of technologies that enable a single device to perform multiple functions.
- Growing sophistication and maturity of the ER&D services industry.
- Changing view of India as a strategic partner focused on innovation rather than simply sustenance and maintenance of existing products.
"Many corporations are seeing the recent economic downturn as not a threat but an opportunity to earmark ER&D budgets for innovation to drive growth in times of economic recovery," said Vikas Seghal, a partner at Booz. "Companies are no longer offshoring simply for cost benefits, but are seeking flexible resource capacity, reduced time to market and localized products for emerging markets. Our study aims to help multinationals understand these trends as ER&D becomes a major driver of innovation and expansion."
India Poised to Become "Engineering Powerhouse"
According to the study, the ER&D services industry is now global with the emergence of several new, low-cost destinations. The United States, which accounts for approximately 40 percent of ER&D spend — the most in the world — continues to be a leader in terms of establishing global engineering networks; however, it faces a shortage of low-priced talent. India has established itself as the premier location for offshore ER&D services and has played a strategic role in globalizing the ER&D value chain, according to Booz.
The report suggests that India is emerging as an innovation partner to mature markets, especially the U.S. India's supply base is currently involved in supporting leading innovations across multiple industries, including automotive (hybrid technology), aerospace (avionics and structures), telecom (next generation routers) and medical devices (low cost medical devices). Further, its supply base is partnering with U.S. companies to lessen the impact of economic downturns through innovative business models.