Zinnov study highlights India's continued, compulsive attraction for MNCs as an R&D outpost

30th August 2012
Zinnov study highlights India's  continued, compulsive attraction  for MNCs as an R&D outpost

Bangalore, August 30, 2012: A study by market expansion advisers Zinnov Consulting reveals that India continues to be the most attractive destination for multi national corporations looking to set up cost effective research and development centres, outside their own high priced backyards.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 centres in India has declined by 6% in US dollar terms in 2011-12. The annual cost per employee in India was $ 40,604 in fiscal 2012 as compared to $43,174 in 2010-11. This has left  the MNCs -- predominantly American -- with a significant chunk of change as savings -- having  R&D centres in India contributed to a net savings of over $70 Billion for the headquarters in the last 5 years --a fact that Mr Obama may possibly have overlooked in his election-year, anti-outsourcing posture
The study --‘Operational Costs Benchmarking Study 2012’ -- released here on Wednesday also found that:
- While the averageoperating costs for MNC R&D centers in India declined in US terms, therewas a marginal 3% increase in terms of the rupee.
- Infrastructurecosts are on the rise with real estate increments seeing a 5%-13% rise, andover 80% of organizations getting affected by the end of the era of government-sponsored Software Technology Parks of India ( STPI)
- Demand for engineering/ embedded R&D related skills is increasing in India, even as the country today boasts of aninstalled R&D talent pool base of more than 210,000 engineers growing at anaverage of 9% a year for the last five years.
- 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.

Says Praveen Bhadada, Director – Market Expansion, Zinnov: “The Indian R&D ecosystem started25 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 savingsof over $70 Bn in the last 5 years is a significant advantage”.
The study also noted that tier-II cities are becoming an attractive option,with approximately 30% lower costs compared to cities like Bangalore, which notonly houses the maximum number of large MNCs but is also the most expensive asemployees gain experience and more opportunities. Commercial real estate pricesare 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. These include Jaipur, Chandigarh, Ahmedabad,Vadodara, Nagpur, Trivandrum and Coimbatore,
Interestingly while the STPI withdrawal has impacted 80% of the analyzed sample of R&D centres; however, moving to Special Economic Zones is not an option considered by many -- possibly because government vititiates any cost advantage by fiscal brakes like minimum alternate tax.