Cost of R&D captives to drop 10-12%

The cost of running product engineering captives in India is expected to come down by about 10-12 per cent over the next 12 months, owing to the efforts of these centres to optimise their cost points and depreciating rupee against the dollar.

According to a study by management consulting firm Zinnov, the cost of running R&D centres in India has already come down by 6 per cent in the year 2008, when compared with the previous year, in absolute dollar terms. The report said that owing to global economic meltdown and strict budgetary constraints, “R&D centres in India were mandated by their headquarters to manage costs effectively over the last 12 months.”

Currency depreciation against all major currencies including US dollar , euro and yen has favoured reduction in cost across the multinational R&D centres in India. On a yearly average basis, the Indian currency has depreciated by about 9 per cent against the US dollar from the year 2007 to 2008.

“The downturn has indeed helped these India R&D centres in multiple ways to come up with modes and methods to reduce costs significantly. Some measures like lower base-lining of infrastructure cost components such as rentals will further help reduce cost escalations.”

“In addition to this, emphasis on communication solutions such as telepresence will help put travel cost in control which did account for about 5 per cent of the total cost in 2008,” said Praveen Bhadada, Engagement Manager, Zinnov Management Consulting.

The Zinnov study is based on a survey the company had conducted amongst 25 R&D centres spread across Bangalore, Hyderabad and Pune, which are the key locations for R&D offshoring in India.