Engineering R&D in India: Becoming an Innovation Powerhouse
Blog: NASSCOM Official Blog
By Karthik Natarajan, President & COO, Cyient Ltd.
NASSCOM, India’s top trade association for IT and ITES estimates the global spend on engineering R&D (ER&D) to cross the $1.5 trillion mark by 2025-2026, of which $200 billion will be in the form of outsourced services. As the largest exporter of ER&D services, this has huge implications for India, and the opportunity could be as large as $100 billion.
Going by the latest finding in a report by consulting firm, Zinnov, while COVID-19 has severely impacted the global economy, India continues to be in a strategically advantageous position owing to its strong focus on tech excellence, IP protection, ease of doing business, favorable demography, world-class infrastructure, a large domestic market, and a large engineering talent pool. Additionally, recent investments and government initiatives such as Make in India, Skill India, Digital India, and Start-up India have significantly contributed to establishing the country as an attractive destination for ER&D and innovation.
And the impact is there to see. In a 2019 report by Zinnov, India surpassed China in attracting funds for engineering R&D, clearly marking India as the next destination for high-end ER&D. Of the overall $100 billion spent globally on outsourced ER&D, India accounted for about $31 to $32 billion. Global companies across Asia are increasing investment in India to leverage the country’s advantages in talent, cost, and policy support.
However, unlocking this value will require the Indian ER&D ecosystem and key stakeholders to come together, work toward this shared goal, continue building on the inherent strengths, and address the challenges aggressively.
What makes India the preferred destination for ER&D services?
India continues to be the leading destination of choice for ER&D services. The 2020 Global Innovation Index places India on top of the list of countries exporting ICT services—a fact corroborated by the $31 billion in ER&D service exports clocked by Indian firms in 2019. According to Everest Group’s Global Locations Annual Report 2019, India accounted for almost one-fourth (23%) of the new centers set up globally in 2018. And no, cost arbitrage is not the driving factor for this shift. India is rapidly emerging as the destination for innovation and technology by tapping into its robust and thriving start-up ecosystem. Additionally, proactive and supportive policies are also an attractive advantage.
Owing to its large English-speaking population and engineering talent that offered companies a distinct cost and quality advantage, India, today, is home to more than 1,250 Global Capability Centers (GCCs) that conduct offshore product development and provide product engineering services for their headquarters. These GCCs represent some of the largest Fortune 500 companies that have their largest or second-largest R&D centers located here, including GE, Samsung, Cisco, Intel, Daimler Benz, Airbus, Boeing, and Bosch.
Besides, fast-paced technological advances, changing consumer preferences, and evolving business models are forcing companies to re-evaluate their priorities. This calls for new models of collaboration for OEMs and a fundamental shift in how they approach technology development and innovation. With the following advantages, this is where sourced ER&D services and the robust ecosystem that India (as an ER&D destination) offers comes into play:
- Speed: Outsourcing designing, prototyping, and testing with design/engineering automation can significantly reduce the time-to-market for new products
- Sustainability: As climate change and ecological sustainability become core principles for OEMs, India’s track record in building sustainable products and services can help
- Security: Indian firms have a demonstrated ability to provide a secure environment for handling sensitive data and protecting IPs, which forms the foundation of a relationship based on mutual trust
- Scalability: Given the current volatile economic climate, ER&D service providers offer OEMs engineering and innovation at a scale which can be dialed up or down depending on the business and innovation needs
However, while there is a definite place within the ecosystem for frugal engineering to make technology more accessible, making incremental progress will require India to move further up the global innovation value chain. Recognizing this paradox is the first step in this journey of becoming an innovation powerhouse, and breaking through will need us to operate at the leading edge of engineering and creative application of emerging technologies.
Critical success factors for the next phase of growth
As we prepare for the next phase of growth, the key is to shift from product engineering and support to become a global digital engineering and innovation hub. How well we succeed in moving up the value chain will be determined by the following factors:
Currently, there are approximately 700,000 engineers involved in ER&D in the country. To service a $100 billion market, we will need to add another one million engineers in the next five years. Additionally, as we move toward a more software-defined future, the demand for new skill sets and the number of engineers will increase substantially. Consider an autonomous car, for example, which requires over 100 million lines of code; so, if a company is looking for 5,000 engineers to do it, India is a great place to get it done. In addition to fresh engineers, this also provides an excellent opportunity to reskill and upskill the existing pool of engineers to make them more relevant and future-ready.
If India is to move up the global engineering value chain and become an innovation powerhouse, we need to “innovate for the world.” This requires not only a change in the mindset of our engineers but also a better understanding of the outside world—from cultural nuances that influence personal preferences and buying behavior of end-users to country-specific techno-legal regulatory landscapes within which the OEMs need to operate. In addition to providing global exposure to our engineers and getting them first-hand experience of the customers/consumers they are designing for, it is equally essential to offer product managers opportunities to collaborate with global clients and colleagues to impart a better understanding.
A key piece of the talent jigsaw that is often ignored or underestimated is technology leadership. This becomes particularly crucial if we are to add one million engineers over a relatively short period of five to seven years. While engineering will remain the core strength for this pool of technology leaders, they will need to be groomed across multiple disciplines, including business, strategy, and project management, advanced manufacturing, and digital technologies, among others. Based on industry benchmarks, managing one million engineers will require 1,000+ CTOs and CDOs, 10,000+ product managers, and 100,000 software/digital architects, including agile scrum masters, program managers who can manage large/complex programs, and project managers.
Diversity and inclusion
A natural way of developing a better understanding of end-users is to inculcate a culture of diversity within the organization—from the leadership team to project teams. This includes increasing the representation of women in the engineering domain from its current levels of 17% as well as the inclusion of candidates from other backgrounds, including race, religion, disabilities, sexual orientation, and so on. The idea is to create a microcosm of the real world within the organization to help bring out different perspectives and nuances. And while it is a tall ask, our ability to increase the representation of candidates from diverse backgrounds to as close as 40% over the next five to seven years could very well determine how well we succeed.
To ensure a strong pipeline of technologically sound and updated talent, academia and industry need to work closely. This includes updating the curriculum based on real-world trends and providing opportunities for engineers to upskill and reskill. In addition to this, academic research plays a crucial role in the development of technologies. While not a completely alien concept, the current pedagogy at colleges and universities is notorious for being theoretical. Providing collaborative learning opportunities that are more application-focused and industry apprenticeships that offer exposure will play a key role as we move forward.
Engaging with the government
ER&D is a resource and people-intensive function. With thousands of jobs and billions of dollars at stake, the role of governments and policymakers becomes crucial as it did during the early years of the ICT boom with STPIs. The success of India’s ER&D sector will also depend largely on the ability of the government to provide incentives and favorable tax policies, as well as its ability to negotiate trade tariffs and other international factors that affect business, including ease of doing business and setting up innovation clusters across various themes such as sustainable mobility, affordable healthcare, advanced manufacturing digital stack for Bharat4.0 (on the lines of Industry 4.0 ) and smart cities
While technology has changed our lives in multiple ways, the rate of change has increased significantly in recent years. And if there was ever any doubt, the COVID-19 pandemic has highlighted the importance of technology and has accelerated digital transformation across the board. So, if an OEM today is not innovating for tomorrow, it is moving toward obsolescence. And while the process is layered and complex, that global companies need to make India their innovation and engineering R&D hub is not an option they can ignore.