R&D offshoring hurt by rapid cost escalation: Zinnov Consulting
20 Feb 2008
New Delhi: operating cost escalation has become a serious constraint to the growth of R&D centres in India, affecting the prospects of R&D offshoring, which has been witnessing rapid growth in the country.
A new study by management consulting firm Zinnov from its recently conducted, first of its kind study, Cost Escalation at India R&D centres and some best practices to resolve these challenges, says that cost escalation has been over 12 per cent, as compared to the last three years, and is rising primarily due to salary escalation and dollar appreciation.
"R&D offshoring has seen a phenomenal growth in the last five years and has played a key part in show casing India's capability in innovation and high quality of work," said. Pari Natarajan, chief executive officer, Zinnov. "However, operating cost escalation has become a serious constraint to the growth of R&D centres in India. To get to the bottom of the problem, Zinnov has conducted a detailed study on the subject, trying to identify best practices to resolve some of these challenges."
The average cost per FTE in the year 2007 was about $41,000 for software product development in India, excluding depreciation cost. People, infrastructure and travel related costs are the main areas where companies are spending most of their dollars.
Improving productivity of engineers, implementing stringent performance management systems, increase in hiring of talented fresh graduates and setting up centres at alternate locations are some of the best practices that it puts forth to ease up the increasing cost pressure.
Pari said that some stability in the talent market is on the horizon, as about 67 per cent of companies out of the total R&D captive base in India have seen a healthy decrease in the attrition rate.
To facilitate the sharing of best practices from among the R&D offshoring services sector, Zinnov will host a one-of-its-kind conference on "R&D Offshoring 2008" on 13 and 14 March 2008 at Bangalore.