gspr-2014 media version image - final

This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov.

Global Service Providers Ratings -201425th September, 2014

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2

Global Engineering R&D Landscape

Key Trends in Global Engineering & RD Services

GSPR – 2014 Rating

3

$577 Billion G500 R&D spend in

2014




R&D spend continues to be on the rise with focus on building better, faster and smarter products

577 BillionR&D spend by

Global 500 companies

AutomotiveElectrical &

Consumer Electronics

Software and Internet

SemiconductorTelecom &

Networking

FY 2014

USD 110 BN USD 68 BN USD 59 BN USD 48 BN USD 45 BN

VolkswagenToyota Motor

General MotorsRobert BoschHonda MotorFord Motor

DaimlerBMW

Nissan MotorDenso

Samsung ElectronicsPanasonic

SonyCanon

Hewlett-PackardApple

ToshibaFujitsuFujifilm

Mitsubishi Electric

MicrosoftGoogle

IBMOracle

Amazon.comSAPEMCeBay

FacebookElectronic Arts

NokiaCisco Systems

EricssonHuawei

TechnologiesAlcatel-Lucent

NSNNTT

Research In MotionTelefonica

ZTE

IntelQualcomm

STMicroelectronicsBroadcom

Texas InstrumentsRenesasTaiwan

SemiconductorAMD

Applied MaterialsNvidia

Source: Zinnov Research and Analysis 4

G500 companies have increased R&D spend by 7% cumulatively over the last two years

Automotive Aerospace Industrial Consumer Electronics

Medical Devices

Semiconductor Telecom Software Product

90.6

21.4

16.0

63.2

8.9

37.143.5 44.9

101.9

21.7 18.7

67.0

9.4

41.246.0

51.5

107.0

22.219.2

66.6

9.8

45.2 47.5

59.4

FY2011 FY2012 FY2013

Vertical wise R&D Spend Growth Rates( USD Billion)9%

3%

2%

5%

10%

15%

4%

10%

X% CAGR


Increased demand for embedded and software content is driving the R&D spend

Consum

er

E..

.

Sem

icondu..

.

Tele

com

ISV

Medic

al D

e..

.

Auto

moti

ve

Aero

space

Industr

ial

4%

17%

6%

10%

6%4% 5%

2%

FY2013

R&D Spend as Percentage of Revenue ( USD Billion)

VerticalTop

SpenderHighest Growth in R&D Spend

Automotive VolkswagenPorsche (90%), Tesla Motors (72%)

Fiat (34%)

Industrial SiemensVale (30%),Au Optronics (27%),

Reckitt Benckiser (20%)


SamsungGreat Wall Technology (57%), Western

Digital (50%), Lenovo (45%)

Medical Devices

Royal Philips NV

Edwards Life sciences (19%), Covidien (18%),

Bruker (18%)

Semiconductor

IntelAsm International (37%), Applied Micro

Circuits (31%), Qualcomm (26%)

Telecom CiscoHuawei Technologies (33%), Polycom

(23%),F5 Networks (22%)

ISV MicrosoftFacebook (212%), Zynga (108%),

LinkedIn (99%)

Star Spenders

Top R&D spenders are from Automotive vertical

820

Hi-tech verticals

Hi-Tech and ISV segments share in G500 spenders

35% China’s R&D

Growth rate is almost 2x of USA’s R&D growth rate

17% 9.2%


The addressable Engineering and R&D globalization and services opportunity stands at USD 170 billion

Total Addressable R&D Globalisation & Services opportunity

USD

170 Billion

USD

55 Billion

Addressable Market*

Addressed Market

Total Addressed R&D Globalisation and Services Market

Current Addressed ER&D market through offshore in-house R&D Centres

USD

29 Billion

USD

26 Billion

Addressed ER&D Globalisation & Services market through Outsourcing partners

*Opportunity Includes market for Captives , Offshore R&D Service Providers and Onshore R&D Service Providers

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8

R&D Globalization as a phenomenon is here to stay with locations in emerging economies being the hotspot

Overall R&D Globalisation in

Emerging Economies

11. 4 BN

9.2 BN

2.9 BN

1.9 BN

R&D Globalisation Hotspots

China

India

354

229

G500 globalisation intensity

India

China

Brazil

South Africa

0.8 BNEastern Europe

# of In-house R&D centers of the G500 R&D spenders

Source: Zinnov Research and Analysis

Addressed ER&D Globalisation & Services market through offshore in-

house R&D Centers

$26 Billion is the overall Engineering and R&D outsourced services market as of 2014

6.9 BN

1.6 BN

0.5 BN

8.8 BN

1 BN6.2 BN

Geographies Profiles of players Key Players

India Niche Engineering Services companies, Engineering Services divisions of large IT service providers

HCL, TCS, Wipro, Aricent, STC

China Large Engineering Services companies focussed on Hi-Tech verticals

Pactera, BeyondSoft, Neusoft

Eastern Europe No heritage players, Development Centers of US / Europe / Russia companies focussed on Software Product Development

Luxoft, GlobalLogic, EPAM

Western Europe Large Engineering Services companies (Primarily Onshore)

Altran, Tieto, Alten, Bertrandt

USA Large Staffing organizations Randstad Technologies, CDI

China

India

Eastern Europe

Western Europe

LaTAM

USA


Engineering and R&D Outsourced Services

Addressed ER&D Globalisation & Services market through Outsourcing

partners

R&D Outsourcing Hotspots

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Customer perception of the service providers capability has shifted dramatically and so have the drivers for outsourcing

Customer RequirementsOutsourcing Drivers

Source: Zinnov’s survey (2014) covering top 35 R&D spenders across 8 verticals (Automotive, Industrial Automation, Consumer Electronics, Semiconductor, Telecom, CH&E, Medical Devices, Energy)

• Cost Arbitrage• Engineering Support for non

Core operations• Accelerated Product

Development

• Deeper management commitment• Flexibility in scaling up and down• Low Attrition• Strong Talent hiring process• High Quality talent pool• Ability to take high engineering ownership• High Capability expertise

• Strong Program Management Skills• Strong Training Programs • Competitive Pricing • Ability to manage attrition• Ability to ramp up quickly• Favourable Location Presence• Strong R&D Infrastructure and IP

experience• Sufficient Onsite team • Experienced Talent Pool

Top R&D Spenders with broad global footprints

Smaller/Mid R&D Spenders with limited

global footprints

• Accelerated Product Development

• Need for agile and flexible workforce

• Need of complementary skillsets

High

Low

High

Low

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$38 Billion by 2020

India’s ER&D services and Globalization revenue (Expected)

India Engineering R&D Landscape


India’s ER&D globalization and services market is expected to reach $38 Billion by 2020

Product Engineering Services Growth Rate ( In USD Billions)

USD

16.56 BN

USD

18.20BN

9.9%Growth rate

Note 1: There is an increase of $264 Million to the overall numbers for 2013 because of a revision in the Automotive vertical numbers, we have corrected the estimates for 2013 retrospectively.Note 2: The estimated growth does not include Defense

12.05 %

Growth rate (Expected)

FY 2013 FY 2014 FY 2020 (E )

USD

38BN

FY 2013 FY 2014

$6.193$6.887

$10.372$11.312

9.06%

11.20%Service Providers

Service Providers

In-houseR&D Centers

In-house R&D Centers

All figures in USD Billion

• Service provider growth driven by entry of existing players into newer verticals

• Verticals like Medical Devices, Industrial Automation and Energy and beginning to adopt outsourcing aggressively

• New In-house R&D centers are in incubation stage, growth through ramp-ups will reflect in coming years


Growth

Growth

Automotive, Telecom and Software Product development will continue to define the Indian ER&D landscape till 2020

13A&D*-Aerospace & Defence CPS**- Computer Peripherals & Storage

• Hi-Tech Verticals account for ~71% of Engineering R&D Services market

• ISV and Telecom Vertical account for ~50% of India’s Engineering R&D Services market which is going to stay almost similar till 2020

• Automotive and ISV verticals are expected to grow at higher pace and will occupy much higher share by 2020

In-house R&D centers continue to be the preferred sourcing option in the Hi-Tech verticals

• Aerospace vertical is driven by offset considerations and hence has had low level of captive growth

• Service providers have mature and differentiated capabilities in Automotive vertical and are the preferred sourcing option

• With high levels of capability and maturity amongst service providers and captives, the Telecom and Networking companies have multiple sourcing options

Note: There was a revision in the Automotive vertical numbers, Hence there is a marked increase in Service Providers share over last year

Increase in Service Providers share

Increase in in house R&D Centers share

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There is a resurgence in new R&D center setup as the companies are focussing on being agile and global

1990 1995 2000 2005 2010 2014

16 47151

456

813906

Total number of MNCs with India R&D centers New Centers

Automotive

Aerospace


Computer Peripherals & Storage

Industrial Automation

Semiconductor

Medical Devices

Telecom

ISV

Others

1

1

1

0

2

0

1

3

15

5

260K Direct Jobs

1Million Indirect Jobs

USD 26+ BillionRevenue Addition

G500 Companies


Non G500 CompaniesUSD 17 BillionEfficiency advantage

Indian ER&D outsourced services segment grew by ~11.2%; Key growth verticals being Automotive and Medical Devices

• Growing Cloud adoption and commoditization of hardware has significantly impacted the Computer Peripherals and Storage segment

• Re-classification of Core vs Context and increasing cost pressures have resulted in increased outsourcing in Automotive, Industrial Automation

• High Software content in Medical Devices which is non-core capability to traditional devices companies is driving up outsourcing

Source: Zinnov Research and Analysis 16Note 1: There is an increase of $264 Million to the overall numbers for 2013 because of a revision in the Automotive vertical numbers, we have corrected the estimates for 2013 retrospectively.

US continues to be the largest market for Indian service providers, while there is an increasing traction in Japan and S. Korea


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Automotive and Industrial Automation presents the highest opportunity for growth as we look into the future

• Indian service providers are yet to fully capitalize the opportunities in Automotive, Consumer Software and Industrial Automation verticals

• Telecom is a well established vertical with high levels of penetration leaving little room for fresh growth

• Medical Devices and Enterprise Software are high growth verticals with Indian service providers working with most of the top R&D spenders

• Consumer Electronics and Semiconductor verticals are beginning to witness higher levels of outsourcing

Emerging

Established

Ready

Nurture


All figures in USD BillionSize of the bubble indicates the Total R&D Spend

HighLow

Hig

hLo

w

Indian Service Providers Penetration

Gro

wth

Rate

19

Engineering Services is getting re-

defined




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aggressively pursuing the “in-country sourcing” opportunity

collaborating with start-ups to drive innovation

exploring newer customers segments for added growth

building deep solution capabilities for the connected world

The Product Engineering

landscape has evolved and Service

providers are responding to the

change by….

diversifying into newer verticals because of reduced entry barriers


21

Increased embedded and software content in products has created a level playing field, triggering a new wave of competition

Increasing standardisation of architecture, OS, components etc. is making OEMs more open to engaging with newer vendors and allowing Service providers to rapidly build client agnostic capabilities Examples

• Android OS standardisation in Consumer Electronics

Increased Standardisation & Interoperability

Service providers are increasingly working/collaborating with start ups to enter traditional verticals Examples

• Wearable health monitoring companies( Fitbit, Nike etc.) in Medical devices

• Building Automation cos. (Google Nest) in Industrial Automation• Electric Vehicle manufacturers, Infotainment OEMs in Automotive• New age consumer electronic cos. (Xiaomi, Micromax etc.)

Availability of Newer client Base

Increasing embedded and Software component across verticalsIncreasing digitization and acceptance of Engineering Analytics is driving up the software relevance across verticals Service Providers with strong embedded and software capabilities are leveraging their expertise to penetrate verticals such as Automotive, Medical Devices and Industrial

Drivers Lowering the Entry Barriers

1

2

3

22

Service providers from emerging economies are now aggressively pursuing the long ignored “in-country sourcing” opportunity

Acquisition of small scale onshore service providers

Establishing Near shore Facilities

Winning Strategies

Onshore Engineering Services Providers

Engineering Staffing Organizations

Services arm of Tier II or Tier III suppliers

Altran, Alten, Tieto

Randstad, Kelly Services, Manpower, CDI

Digitalaria, MDS Technology, Pineone

USD

14 Billion

Total Opportunity Size

Year 2014-15

Competition

All major engineering service providers have established delivery centres in Europe and US catering to local clients

Local Partnership

Service Providers are looking at acquiring smaller PES organizations to target the in country sourcing opportunityExample• Geometric acquired 3Cap

technologies based out of Germany

• Tata technologies acquisition of Cambric

In-country Sourcing refers to the work that is sourced from third party engineering services companies in the home country (typically developed markets like US and Europe) of the R&D company.


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Playing Greater role in clients’ globalisation strategy

Targeting non traditional outsourcers

Service Providers are increasingly working with MNCs to achieve their Globalisation objectives through multiple avenues

• Offshore Engineering Centre (ODC) to support Indian market• L&T TS setup engineering offshore

center in India for Calsonic Kansei• Engineering Support for New

Product Development in emerging economies (China, Brazil and India)• HCL set up global engineering

center for Manitowoc cranes in India

• JV for growth market• L&T TS acquired majority stake in

Thales Software India

Service Providers are exploring newer set of clients for added growth

a.Sub Billion dollar companies Service providers are working with newer and first time

outsourcers as their end to end engineering partnersb. Mature Stage start upsEngineering service providers are owning majority of

engineering and development work for growth stage start ups such as Jawbone, Fitbit, Nest etc.

Theme for large deals revolve around supporting global expansion, whereas start-ups, and newer geographies are driving added growth

In Focus: Japan & S. Korea

Japan, South Korea and China are emerging as lateral focus markets for many engineering service providersUSD

450

Mn

Total ER&D Services market addressed by emerging market service providers (Markets: Japan, S.Korea and China)

• NeST• TCS• Tech

Mahindra

• L&T TS• Infosys

Service Providers that have good traction in Japan, S.Korea and China


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01

02

03

Building Capabilities

Forging Partnerships

Developing Solutions

Service Providers are building non- traditional PES capabilities to address the Engineering Analytics market• Statistical Programming and Mathematical modelling• UI/UX designer• Cloud and Mobility Expertise

Service Providers are connecting with OEMs and M2M platform providers to address the Engineering Analytics market• L&T Technology Services partnered with Proximetry, a device management and configuration platform

provider for the Internet of Things (IoT)• Tech Mahindra has partnered with Texas Instruments to set up a lab focussed on IoT innovations• Aricent partnered with Axeda a machine-to-machine (M2M) software company, to enable expedited

deployment of M2M applications.

Service Providers are developing solution accelerators ,IPs and frameworks to create differentiators from the competition• STC’s InSight Connect™ Vehicle Relationship Management - Cloud and predictive analytics powered, secure

remote in-vehicle software and configuration management over-the-air.• TCS’s RIPSAC framework- A vertical agnostic scalable platform for entire IoT value chain incorporating sensor

integration, data storage, sensor analytics and visualization.

Service providers are channelizing their investments towards improving IoT readiness by adopting a holistic solutions strategy

IoT = Internet of Things


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ER&D Service Providers are proactively looking to engage with startups throughout the value chain

Engage

Explore

Invest

Connecting with the ecosystem and engaging with the startups broadly through start up events and programs

Connecting with start ups to identify synergies through incubation. accelerators , joint GTM etc.

Investments in or buy outs of Growth stage startups

Accelerator program provides start ups with ready-to-use infrastructure, key technical consulting through in-house experts, mentorship, access to service providers, plug-n-play office and connections with VCs, investors and client prospects

Persistent Venture Fund

Tata Elxsi’s Incubate

Wipro Investments

Quarterly meetup platform for startups of interest to showcase their offerings to SME's and TechM leadership for collaboration (GTM, Co-Innovation and Funding).

Tech Mahindra’s i5 STARTNET

Joint GTM and, Implementation and Integration support with startups in the Engineering Analytics and Smart Grids –L&T TS partnered with Proximetry to provide services using Proximetry's technology for mission-critical substation monitoring solutions,

L&T Technology Services

Early-stage fund to provide seed capital to companies operating in the areas of social, mobile, analytics and cloud computing (SMAC). Investments : Ustyme, Hyginex inc.

Wipro has invested in multiple technology start ups in the areas of M2M and analytic Key Investment- USD 5 Million in Axeda - provider of cloud-based services and software for M2M products

TCS Co Innovation NetworkCoIN Program at TCS brings start-ups to work on innovative solutions with TCS and its customersStart up Alliances - Cicero, ESQ, Neospeech

Collaboration with start-ups is going mainstream and structured engagement models are emerging to sustain the initiatives


26

Indian Companies

Leaders in the ER&D Services




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

27

Data Point Classification AHP & Rating Scale

Ranking & 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 was 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 ranked based on the scores arrived from the previous steps, using the parameter based modeler. The vertical specific

characteristics were then included to plot the companies in Zinnov Zones

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

Look-upScore Rank

AHP Rating Scale

Data Point 1Data Point 2

1 2 3 4 5

The GSPR rating is done by evaluating the participants across pre-identified key performance parameters

28

Human CapitalHuman Capital is critical in analysis of company’s capability to deliver specific engineering needs. We considered vertical wise and overall headcount, distribution by product development breadth, experience level, and special/additional qualifications

Capabilities & Innovation

Capabilities of the organization is assessed to understand the overall ability of the vendor to deliver on the requirements of clients; it encompasses people dimension, operational capability, business models employed, Innovation & IP / solutions / Frameworks / Products built / delivered by the organization

FinancialsFinancial Strength of a company plays a key role in the assessment process; apart from showcasing the financial health of the organization, it also contributes in analyzing the ability to scale, invest and potential of the vendor to support the customer’s growth

Ecosystem LinkagesStrategic partnerships with OEMs and industry leaders, University connects for research, membership and contribution to global development forums tell a lot about the provider’s capability in harnessing the ecosystem in R&D and product engineering space and hence is an important criterion in evaluation

InfrastructureInfrastructure investment (Labs, ODCs) demonstrates capability and commitment to growth. Also, geographic spread and expansions throws light on the ability to leverage geo specific advantages. Investments in certifications and adoption of standards have strong bearing on determining the processes orientation that is needed for delivering on remote product engineering and R&D activities

Business Sustainability Client relationships, engagement model maturity with the customers, the ability to articulate and create a USP and the Governance Risk and Compliance status are indicators of sustainability. We used these parameters to assess the sustainability index of the partner, which help customers differentiate long term players from others

Rating Parameters

Rating Parameters

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Zinnov Zones – Overall Rating Model

Specialization, R&D Practice Maturity (depth and breadth of services), Innovation & IP, Eco-System LinkagesEmerging Established

Niche

Expansive

Sca

le, #

of

Vert

icals

serv

iced, C

lient

Spre

ad • Emerging Companies with

Presence Across Multiple Verticals• Focus on Building Competencies

Across Multiple Verticals• Developing Cross PDLC

Competencies across multiple verticals

• Emerging Companies in Niche Verticals

• Focus on Building Niche R&D and Vertical Competencies

• Developing Cross PDLC Competencies in Focus 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

What has changed?

• The Y-Axis earlier was a function of vertical coverage.

• In 2014, the Y-Axis is a function of 3 key parameters (Scale, Vertical Coverage and Client Spread)

• The additional dimensions were added based on customers feedback to bring more granularity

• The Y-Axis should not be compared to GSPR 2013 ratings on a like for like basis

30

Overall Rating

31

VERTICAL WISE RATING

ZINNOV ZONES EXPLAINED

32

Nurture Zone

Breakout Zone

Execution Zone

Leader Zone

Att

ribute

sC

halle

nges

Reco

mm

end

ed Init

iati

ves

• Acquiring new customers., diversifying revenue

• Building product engineering competencies

• Developing Engineering Services specific Sales organization

• Understanding the differences between PES/ IT Service business

• Focus on targeted customer segment and vertical

• Build technology competency in niche focus areas

• Focus on building credibility by delivering on initial projects

• New entrants, providing skill sets to supplement R&D bandwidth

• Presence in only a few verticals: Focused growth

• Innovation, if at all, in process optimization

• Limited number of clients• Typically work in T&M model

• 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

• Focus on PDLC Skill Development• Focus on augmenting domain

skills• Work on building trust with

existing customers

• On the way into big league, delivering R&D services effectively

• Presence in two or more verticals• Innovation frameworks resulting in

tangible benefit to customers• Typically work in T&M and Fixed

Price model

• 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• Limited self owned R&D infrastructure

• Focus on IP creation; create vertical agnostic IPs

• Focus on Account Mining and execution on new business models

• Focus on internal and external innovation incubation efforts

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

• Presence in almost all verticals• Reusable IP’s built, and benefits

quantified• Capable of working in all models,

including Risk Reward and Revenue Share

• 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 R&D

services to drive continued growth• Scaling R&D infrastructure

• 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

• Presence in almost all verticals• Formal innovation culture, resulting

in IP’s and numerous tactical innovations

• Capable of working in all models, including Risk Reward and Revenue Share

AEROSPACE - 2014

AUTOMOTIVE - 2014

35

COMPUTER PERIPHERALS AND STORAGE - 2014

CONSTRUCTION AND HEAVY MACHINERY - 2014

37

CONSUMER ELECTRONICS - 2014Zinnov Zones – Leading Service Providers


38

ENERGY - 2014Zinnov Zones – Leading Service Providers


39

INDUSTRIAL AUTOMATION - 2014

40

MEDICAL DEVICES - 2014


41

OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT – ENTERPRISE SOFTWARE


42

OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT – CONSUMER SOFTWARE


43

SEMICONDUCTOR - 2014


44

TELECOMMUNICATION - 2014


45

TRANSPORT - 2014


46

Bangalore 69 "Prathiba Complex", 4th 'A' Cross, Koramangala 5th Block,Bangalore-560 095. Phone: +91-80-41127925/6

Gurgaon Office:First Floor,Plot no. 131, Sector 44, Gurgaon-122002,Phone: +91 124 4420100

SingaporeLevel 42, Suntec Tower Three8 Temasek BoulevardSingapore 038988Phone:+65 6829 2123

California Office3080 Olcott Street Suite A125, Santa Clara, CA 95054 Phone: +408-716-8432

Texas21, Waterway AveSuite 300 The WoodlandsTX-77380 USAPhone:+1-281-362-2773

BeijingMeilifang Tower 4, Entrance 4, 10/F #1003,11 Beiyuan Shuangying Road,Chaoyang District, BeijingChina 100012

Thank You

gspr-2014 media version image - final

Documents

g500 rd

rd globalization

offshore rd service

analysis6 rd growth

chinas rd growth rate

usas rd growth rate17

onshore rd service providers7

star spenderstop rd