Engineering, R&D services market to hit $45 bn by 2020: NASSCOM

A shift in business to growth markets such as India and China, where global firms have built low-cost products for the local market, and the pressure to cut product development costs is fuelling growth in India’s engineering services industry. Bulk of this growth is coming from auto firms looking to replicate frugal engineering concepts such as those used on Tata Motors Ltd’s ultra-cheap Nano car, information technology (IT) industry lobby National Association of Software and Services Companies (NASSCOM) and consultancy firm Booz and Co. Inc. say in a report released on Thursday. Also contributing are local research arms of global technology firms such as Cisco Systems Inc. and consumer electronic companies that are building products for the global market out of India.

The market opportunity for engineering research and development in India is estimated to reach US$ 45 billion (around Rs. 2.1 trillion) by 2020. Of this, at least $ 5 billion would be spent by Indian firms locally, NASSCOM and Booz say in their report. The engineering research and development (R&D) services industry contributes $8 billion to India’s $50 billion software exports. “This is high value work”, said Som Mittal, President of NASSCOM. “There is tremendous opportunity for India as it is already a preferred destination for global R&D. It also impacts a lot in building an ecosystem that includes manufacturing”.

Booz and Co.’s Vikas Sehgal, who authored the report, said around 150,000 people are employed by the engineering services outsourcing industry in India, and this would increase to at least one million jobs in a decade. Global spending on engineering R&D surpassed $1 trillion in 2009 and is expected to touch $1.4 trillion by 2020, the report says. Automotive, consumer electronics and telecom are the top spenders on engineering R&D globally.

India has close to 300 global firms such as Nokia Oyj. and General Motors Corp. that use local talent to build products for both the domestic and global markets. Around 80 Indian firms such as HCL Technologies Ltd, Wipro Ltd and Infotech Enterprises Ltd, too, employ engineers to work on projects for customers such as Boeing Co.
and United Technologies Corp.

While there is huge demand from global firms to outsource engineering work to India, Nasscom cautions that India needs a national innovation policy to promote local research, build skills and create a support system.

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