India loses top slot for R&D hosting

India is no longer the preferred destination for global corporations to set up offshore R&D centres on account of the cost escalation and rising attrition levels.

The number of R&D centres being set up in the country has been falling in the last three years. As against 75 offshore development centres in 2005, the number fell to just 15 in 2007. There are about 600 captive R&D centres of global corporations in India at present.

Management consulting firm Zinnov, in its study, found that the captive R&D centres were witnessing a cost escalation of 8 per cent to 15 per cent with the attrition levels reaching the 20 per cent level. These two factors impacted the scaleability of the captive R&D centres.

Zinnov Consulting CEO Pari Natarajan said software product development alone accounted for over 50 per cent of the offshore R&D market.

"The rest is shared between embedded systems and engineering services. The captive R&D centres for software product development are 390, engineering services 120 and another 84 for embedded systems. The entry of software product development captives has slowed down in 2007," he added.

Due to the slowdown in the entry of software product development captives, vendors have started getting more business. "Most of the less complex work in embedded systems (testing and platform porting) is being given to vendors, thus increasing the share of embedded systems," he pointed out.

According to him, the captives are facing challenges in terms of hiring and retaining good quality talent. "It is expected that more of front-end work in the embedded value chain would be channelled to vendors," Pari said.

However, it is expected that technical support offshoring would grow in the country in the coming months.