The “Make In India” clarion call sent out by the PM finds significance in Engineering Services as well. Global R&D spends have been stagnant for some time now, but despite this ER & D has shown a characteristic resilience, driven by trends and pressing needs. Despite economic headwinds, ER&D is driven by technological advances and consumer preferences which function in a highly competitive market, globally.
Showing huge promise and a likely market size of 40 Billion USD by 2020, this continued growth can be sustained if Indian ESPs are able to invest in Capability building and make the transition to higher valued ER & D on a much bigger scale. This needs to happen on three counts: Talent, product ecosystem & matured operating models. Ramping up has to happen rather quickly because China is fast gaining ground as one of the biggest spenders in this space and emerging as a key offshoring destination for Engineering Services. Asia is likely to show 45% of the ER&D spend in the next 5 years and this growth will come from verticals like automotive, consumer electronics & telecom. Technological disruption such as Cloud Computing, Mobile, Analytics & Social is already driving this.
Soon, in less than a decade, the global market in this space will be a 110 Bn USD plus industry, of which India alone will hold a significant share of the pie. 40 Bn USD as projected or thereabouts, out of which close to 10 Billion will come from the domestic market. Additionally, Govt spend is expected to rise because of investment in energy and infrastructure which should put its share close to 40% of the total domestic market. Over the years, corporate ER &D spends have clocked nearly 30% CAGR in India, with chemicals, automotive & medical leading the space. In the times to come by, these shares are likely to be usurped by verticals such as infrastructure, aerospace & energy verticals.
Coming of age, ESPs in India are increasingly doing high end work and engaging in product management, strategic partnerships with the global user base. Pricing models are shifting as well, as we witness IP licensing and the likes gaining more prominence. To provide for this high-end services Indian companies had tried the acquisition route but it was fraught with integration challenges. Mismatch of skill-sets, one of the main reasons needs to be addressed through reversed mitigation strategies and build capabilities accordingly. ESPs have started building deep specialisation in verticals but capacity utilisation and scaling remains a challenge. In addition to building domain capabilities, access to a vibrant engineering ecosystem needs to be significantly enhanced through investment in infrastructure, building partnerships and offering incentives.
It is a very bright future that we are witnessing, but like every other aspect of the IT industry there still remains some groundwork to be done and leverage on the opportunities optimally. The recently concluded NASSCOM Engineering Summit in Pune is a step towards that. A congregation of all relevant stakeholders to deliberate on these issues from various angles – geography, capabilities, pricing, operating models and a host of others.