global r&d service providers (gspr) rating 2012

No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Zinnov

July 2012

2 Note: Source: Zinnov Research and Analysis

Context

Global R&D spending is expected to grow by about 5.2% to more than $1.4 trillion in 2012

On an average, 45 % of R&D headcount (Captive & Outsourced) of the companies is located outside of Headquarter country

The increase in R&D spend drives up demand in Engineering R&D (ER&D) and Product Engineering Services (PES)

The post 2000 period saw emergence of new global hotspots and a shift of operations to Asia-Pacific and Central/Eastern European region

The service providers in the emerging regions are evolving as key strategic partners to R&D companies; They deliver ~35% of the overall ER&D and PES needs of R&D companies

Agenda

3

1 Zinnov – Global Service Provider Rating

2 GSPR 2012 Market Leader: Analysis & Insights

Global Service Providers Rating is an annual exercise at Zinnov in which we conduct a comprehensive analysis of the service provider landscape in ER&D and PES space

4

Zinnov is a leading management consulting firm in India with a focus on helping its customer globalize their R&D / Product Engineering activities.

• With more than 125 active customers and close to 350 customer engagements in the last 10 years, Zinnov has been at the forefront of evangelizing Globalization of R&D.

• Zinnov works with a number of fortune 1000 companies and its key customers include Google, Microsoft, Yahoo!, Intuit, Amazon, Paypal, Honeywell, Hitachi, BOSCH, Schneider Electric, EMC, DELL, Samsung, LG, John Deere, Continental, Daimler etc.

GSPR 2009

• Zinnov conducted the first ever Rating of the top R&D service providers globally in 2009. Zinnov’s GSPR, quickly became a well accepted document as an objective analysis of the top Product Engineering Services Providers from Emerging Markets.

GSPR 2010 & 2011

• GSPR 2010 and 2011 was much more comprehensive and, ranked the top Product Engineering Service providers across 10 key verticals and 2 horizontals.

• The ratings of the exercise was shared at no cost with 100+ Zinnov customers, as well as a database of 14000 subscribers of our online reports, case studies etc.

• Zinnov’s GSPR has now established itself as one of the key components of the outsourcing play book of most of our customers

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GSPR 2012 was done across 10 major industry verticals

5

Service Offerings

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Industry Verticals

Software Services E.g. system software, device drivers, user experience design etc.,

Embedded Engineering Services E.g. Embedded H/W, Embedded S/W, V&V

Mechanical Engineering Services E.q. CAD, CAM, CAE, etc

6



Methodology

Rating

Zinnov’s GSPR is a structured process and it begins with the filtered list of top 75 R&D service providers from initial list of 200+ service providers across geographies

7

Rating Invitation

Data Collection and Analysis

Rating and Validation

1

2

3

Initial Rating

RFI Response Collection Response Cleanup and Follow-up Clarification

Primary Research

Validation by

Zinnov Experts

Final Rating

Customer Feedback

Secondary Research

Secondary Research Shortlist of 75 companies

List of 200 Companies RFI Creation and Roll-out to 75 Co.

Based on: • R&D Service Landscape • Geographic Spread • Leadership Teams

Based on: • Vertical Presence • Focus on R&D / PES • Client Base & Business models • Organization Size

a

b d

c

Zinnov’s proprietary GSPR methodology is based on a robust framework that effectively quantifies qualitative data and subsequently uses a AHP model

8

Data Point Classification AHP & Rating Scale

Rating & Zones Data Extraction & Rating

Methodology

AHP is a statistical model used for assigning weights to the dimensions and the data points. Rating point of 1 to 5 is

decided for each data point based on criteria

For all data points extracted from RFIs, corresponding rating was mapped in the Rating Scale

Companies were rated based on the scores arrived from the previous steps, using the parameter based modeler.

The vertical specific capabilities were then included to plot the companies in Zinnov Zones

Classification of company and vertical specific data points available from various RFIs

Look-up Score Rank

AHP Rating Scale

Data Point 1

Data Point 2

1 2 3 4 5

Results from the analysis were ported onto an AHP modeler to plot the relative positioning of service providers across the Zinnov Zones at a vertical level

9

Nurture Zone Breakout Zone Execution Zone Leader Zone

Att

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ges

• Acquiring new customers. • Building product engineering

competencies • Developing PES specific Sales

organization • Understanding the differences

between PES/ IT Service business

• Acquiring large customers • Growing existing accounts and

repeat business • Developing across the PDLC

competencies • Building domain capabilities • Building a product engineering

culture within the organization

• Growing small accounts into deep relationships

• Building Concept to Market Capabilities with deep domain expertise

• Building relevant IP’s • Executing on new & innovative

business models • Driving innovation culture inside

the organization

• Succeeding as go to market partner in emerging markets

• Building end to products of their own

• Building product management capabilities

• Scaling new vertical practices in PES to drive continued growth

• Focus on targeted customer segment and vertical

• Build technology competency in niche focus areas

• Focus on building credibility by delivering on initial projects

• Focus on PDLC Skill Development

• Focus on augmenting domain skills

• Work on building trust with existing customers

• Focus on IP creation • Focus on Account Mining and

execution on new business models

• Focus on internal and external innovation incubation efforts

• Focus on end customer of customers

• Drive customer led innovation • Build strong Go-To-Market

capability to become viable channel partner for customers

• Capable of performing concept to Go-To-Market for the product –Significant investment in Lab infrastructure

• Niche capability across Engineering, Embedded and Software services

• Formal innovation culture, resulting in IP’s and strategic innovations

• Leadership role in alliances, leverage startups, Specific academic research, and co-creation with customers

• Capable of delivering complete product development as a true engineering partner, Customer Labs

• Niche capability spans across two service types and at least generic capability level in one service type

• Reusable IP’s built, and benefits quantified

• Alliances with Customers who are

Industry Leaders

• On the way into big league, delivering R&D services effectively, tear down , purpose fit labs

• Generic Capability across Engg, Embedded and Software services and Niche capability in one area

• Innovation frameworks resulting in tangible benefit to customers

• Specific industry alliances, partnerships and membership in Global forums

• R&D and PES as a focus area

• Niche capability in one type of PES service (Engineering / Embedded / Software)

• Innovation, if at all, in process optimization

• Generic - MoUs with universities and alliances

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Zinnov Zones – Vertical Rating Model

Results from the analysis were ported onto an AHP modeler to plot the relative positioning of service providers across the Zinnov Zones at an overall level

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• Emerging Companies with Presence Across Multiple Verticals

• Focus on Building Competencies Across Multiple Verticals

• Developing Cross PDLC Competencies across multiple verticals

• Market Leaders across verticals • Presence Across Multiple Verticals • Strong Focus on IP Creation, Innovation

and Ecosystem Linkages across most verticals

• Excellent Breadth and Depth of Services across most Verticals

• High Scalability across most verticals

• Market Leaders in Niche Verticals • Well Established Competency in One or

Two Verticals • Excellent Breadth and Depth of Services

in Focus Verticals • High Scalability in focus verticals

• Emerging Companies in Niche Verticals • Focus on Building Niche R&D and Vertical

Competencies • Developing Cross PDLC Competencies in

Focus Verticals

Emerging Established

Niche

Expansive

Specialization, Scale, R&D Practice Maturity, Innovation & IP, Eco-System Linkages

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Zinnov Zones – Overall Rating Model

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Methodology

Rating

Overall Rating

12

Emerging Established

Niche

Expansive

Specialization, Scale, R&D Practice Maturity, Innovation & IP, Eco-System Linkages

Ver

tica

l Co

vera

ge

Infosys

HCL

Wipro

iGate

Tech M & Mahindra Satyam

Sasken

L&T IES

Persistent

Symphony Teleca Infotech Enterprises

Beyondsoft

MindTree

Aricent Group

Virtusa Sonata Software

Cybage

Tata Elxsi

Luxoft

Clasoft Labs

EPAM Vanceinfo

Quest Global

GlobalLogic

Syntel

Aspire Systems Xchanging

Span Systems CoMakeIt

BlueStar Infotech

Mindfire Solutions

Aerospace and Defense

13

Low

High

Scalability

R&D Practice Maturity

Zinnov Zones – Leading Aerospace & Defense R&D Service Providers

Nurture Zone Breakout Zone Execution Zone Leadership Zone

Breadth

Innovation

HCL

Infotech Enterprises

Infosys

Wipro

L&T IES

Quest Global

Tata Elxsi

Luxoft

Clasoft Labs









Industry Leaders









Eco-system Connect

Automotive

14

Low

High

Scalability


Zinnov Zones – Leading Automotive R&D Service Providers


Breadth

Innovation

HCL Wipro

Tata Elxsi iGate

L&T IES

Infosys

Symphony Teleca


Luxoft

Eco-system Connect









Industry Leaders









Computer peripherals and storage

15

Low

High

Scalability


Zinnov Zones – Leading Computer Peripherals & Storage R&D Service Providers


Breadth

Innovation

HCL

Infosys

Wipro

L&T IES

iGate

MindTree

Symphony Teleca

Clasoft Labs

Eco-system Connect









Industry Leaders









BlueStar Infotech

Consumer Electronics

16

Low

High

Scalability


Zinnov Zones – Leading Consumer Electronics R&D Service Providers


Breadth

Innovation

HCL


Sasken

Wipro

L&T IES

Tata Elxsi

iGate MindTree

Symphony Teleca









Industry Leaders









Eco-system Connect

Consumer Software

17

Low

High

Scalability


Zinnov Zones – Leading Consumer Software Service Providers


Innovation

Customer Type

Wipro EPAM

MindTree

Persistent Global Logic

VanceInfo

Aspire BlueStar Infotech

Sonata

Symphony Teleca

Cybage

• Capable of performing concept to Go-To-Market for the product


• Large Internet and Consumer ISVs

• Capable of delivering complete product development as a true engineering partner

• Reusable components IP’s built, and benefits quantified

• Large Internet and Consumer ISVs

• On the way into big league


• Niche ISVs



• Generic ISVs, Startups

HCL

Beyondsoft

Healthcare

18

Low

High

Scalability


Zinnov Zones – Leading Healthcare R&D Service Providers


Breadth

Innovation

HCL

Infosys

Wipro

L&T IES

BlueStar Infotech

Tata Elxsi

iGate

Global Logic Persistent

Clasoft Labs


Symphony Teleca


Aspire Systems

Eco-system Connect









Industry Leaders









Industrial Automation

19

Low

High

Scalability


Zinnov Zones – Leading Industrial Automation R&D Service Providers


Breadth

Innovation

iGate

HCL

Wipro

L&T IES

Eco-system Connect









Industry Leaders









ISV – Enterprise Software (Outsourced Software Product Development)

20

Low

High

Scalability


Zinnov Zones – Leading Software/ ISV R&D Service Providers


Innovation

Customer Type

Wipro

Virtusa

EPAM

MindTree

Persistent

Infosys

Global Logic

VanceInfo

Span Systems

Aspire Systems

Luxoft

iGate

BlueStar Infotech

Sonata Software

Symphony Teleca

Cybage

• Capable of performing concept to Go-To-Market for the product


• Worlds Largest ISVs

• Capable of delivering complete product development as a true engineering partner

• Reusable components IP’s built, and benefits quantified

• Large ISVs and Niche ISVs

• On the way into big league


• Niche ISVs



• Generic ISVs, Startups

HCL

Mindfire Solutions

Clasoft Labs

Beyondsoft Impetus Technologies

Xchanging

Semiconductor

21

Low

High

Scalability


Zinnov Zones – Leading Semiconductor R&D Service Providers


Innovation

HCL

Wipro

Sasken

MindTree

Tata Elxsi








Industry Leaders







Eco-system Connect

L&T IES

Luxoft Symphony Teleca

Telecommunication

22

Low

High

Scalability


Zinnov Zones – Leading Telecommunication R&D Service Providers


Breadth

Innovation

Aricent Group

Wipro

HCL

MindTree


Luxoft

Persistent

Infosys

Sasken Global Logic





Industry Leaders










Symphony - Teleca

L&T IES Beyondsoft

Span Systems

VanceInfo

Eco-system Connect





Xchaging

Transport

23

Low

High

Scalability


Zinnov Zones – Leading Transport R&D Service Providers


Breadth

Innovation


L&T IES

iGate









Industry Leaders









Infosys

Eco-system Connect

Agenda

24



India is the world’s leading offshore ER&D and PES destination with ~22% market share in the R&D offshoring segment


FY2011 FY2012

13

14.7 Growth in ER&D

Exports (USD Billion)

The ER&D, PES revenue grew by 13% over FY 2011

ER&D and PES segment contributes 19% of the Indian IT Exports India has close to 850+ MNC captive centers and 85+ service providers

delivering a wide range of ER&D & PES services

15 of the top 20 Global Service Providers in ER&D and PES space are Indian

Telecom, ISV and Semiconductor are the largest verticals in the ER&D and PES space

26

Semiconductor

11%

Telecom 19%

Automotive 8%

Aerospace 4%

Computing Systems

7%

Consumer Electronics

6% Others* 10%

Medical Devices/He

althcare 3%

ISV(OSPD) 32%

Others: Cons,Infra, Heavy Machinery, Energy, Industrial/Industrial Automation)

0%

20%

40%

60%

80%

100%

FY 2012Revenue

Distribution

ServiceProviders

CaptiveCenters

MNC Captive centers = 11%

Service Providers = 16% Pe

rcen

tage

Growth Rates in ER&D and PES

Vertical wise revenue distribution FY 2012 ER&D and PES Services

Captive & Service Provider Analysis

Service Providers contribute close to 36% of overall ER&D and PES revenues; Software and Telecom are the verticals that are most catered to by service providers

27

Verticals Presence

Aerospace & Defence

Automotive

Cloud computing

Consumer electronics

Consumer software

Computer Peripherals & Storage

Enterprise Mobility

Healthcare


ISV

Semiconductor

Telecom

Transport

Cost pressure, Access to flexible capacity,

local market access for growth and decreasing time to market are some of the key reasons of driving ER&D/PES offshoring

Indian ESPs have been expanding their capabilities across new verticals such as Aerospace, Consumer Electronics, Healthcare etc.

Industry Automation being the most underpenetrated vertical still offers a large scope of growth for service providers

<20 %

Number of companies present in verticals (by % of total companies covered under GSPR )

20-30% 30-50% 40-50% >50 %

Service Providers have built strong capacity of experienced professionals in Telecom, Automotive and Consumer Electronics are other verticals with a better revenue mix

28 Note: Transport & Industrial Automation verticals were not included as the data was not sufficient to arrive at conclusive figures Source: Zinnov Research and Analysis

Service Provider Experience Pyramid ( Number of Years of Experience)

58% 49% 52%

59% 59% 59% 50% 54%

27%

33% 34%

29% 28% 29%

29%

33%

9% 12% 9% 8% 8% 9%

15% 9%

6% 6% 5% 4% 5% 4% 6% 4%

Aerospace &Defence

Automotive Consumerelectronics

ComputerPeripherals and

Storage

Healthcare ISV Semiconductor Telecom

0-5 5-10 10-15 15+

Vertical Growth Insights

29

Verticals Presence

Aerospace & Defence

Automotive

Consumer electronics

Computer Peripherals & Storage

Healthcare


ISV

Semiconductor

Telecom

Inorganic growth in Aerospace came through Quest Global’s acquisition of GKN Aerospace - In Aerospace, Infotech & HCL were the major contributors to the growth

Companies like HCL and Igate grew in the

Automotive space

Even though, there was a growth across the board in the consumer electronic space it was not significant and hence posted a single digit growth

Telecom witnessed a de-growth in revenues across

major telecom R&D service providers The growth in Healthcare/Medical devices was

restricted to only the Industry leaders; Global Logic significantly increased its capacity in this vertical

The growth in Computer Peripherals & Storage

vertical was led by Wipro

In their quest to improve the domain and technical capabilities the Service Providers have significantly invested in improving the quality of experience pyramid

30

Improved Quality of Experience Pyramid

56%

28%

11% 4%

0-5 yrs 5-10yrs 10-15 yrs 15+ yrs

Experience Pyramid(2011) Experience Pyramid(2012)

54%

30%

12%

4%

0-5 yrs 5-10yrs 10-15 yrs 15+ yrs

Billing Rates

31

25

20

10

45

27 25

0

5

10

15

20

25

30

35

40

45

50

ProjectManagement &

Consulting

Design &Development

Testing &Support

Minimum Maximum

33.5

Average and Range of Offshore Billing rates in USD/Hour

70

45 40

120

95

70

0

20

40

60

80

100

120

140

ProjectManagement &

Consulting

Design &Development

Testing &Support

Minimum Maximum

Average and Range of Onsite Billing rates in USD/Hour

23.27

18.01

85.00

60.95

45.00

Average

The mature delivery models, adopted by Indian service providers enables them to offer multiple pricing options and hence still remain competitive


Model Tren

d Insights

BOT

Risk Reward

Revenue Share

Fixed Price

Time & Material

• BOT model has the least number of clients and engagements out of all Business Models • Telecom vertical has seen a maximum increase in the number of engagements over the

last year • ISV and Computer Peripherals & Storage are verticals in which BOT model is not

followed

• Both the number of clients and number of engagements have increased for the Risk reward model

• Aerospace, and Telecom verticals have the maximum adoption of Risk reward model

• The number of clients have remained same for the revenue share model, however there has been an increase in the number of engagements

• Telecom verticals has the maximum adoption of Revenue share model, it witnessed both an increase in the number of clients and number of engagements

• Fixed price is the second most preferred business model across all verticals except Transport vertical where it is the most preferred model

• Fixed Price model has seen a tremendous increase in adoption in the Automotive, Consumer Electronics, Healthcare and ISV verticals

• Time and Material continues to be the most preferred business Model across all verticals expect Transport

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