Product engineering offshoring market to grow by 23%: Zinnov

The Indian product engineering offshoring market is expected to witness a growth of 23 per cent (compounded annual growth rate) by 2012 from the existing $9.35 billion as large captive centres of global corporations continue to expand their activities, according to Zinnov, an offshoring advisory firm.

The firm has come out with a report titled 'Strategic Guide to R&D Captive Landscape in India, 2008'.

"The majority of growth in captives in India today has been observed due to expansion plans of the large captive centres, which are further expanding their operations. While the entry of software product development captives had slowed down in 2007, it is expected that in the months to come technical support offshoring will grow in India," said Zinnov CEO Pari Natarajan.

The Zinnov study shows that there are close to 600 captive centres of global corporations spread across five major IT cities "" Bangalore, Pune, National Capital Region (NCR), Hyderabad and Chennai.

Of these, while a majority (312) is based in Bangalore, Pune and NCR follow closely with a count of 96 and 87 captives respectively. Another 450 R&D centres are vendors, including those operated by the Indian companies.

The R&D offshoring market is segmented into three horizontals "" Software Product Development (53 per cent),

Engineering Services (21 per cent) and Embedded Systems (26 per cent) which amount to a total of $5.83 billion among the captive R&D centres. The vendors' R&D market is estimated at $3.52 billion.

By 2010, the market (both captive and vendor R&D centres) is estimated to touch $14.2 billion. By 2012, it is estimated to reach $21.4 billion.

"Companies with revenue in excess of $500 million will witness more growth. But some crucial issues have to be overcome," Natarajan pointed out.

The report notes that India produces around 600,000 fresh engineering graduates per annum and reflects an optimistic growth rate of 14.1 per cent by 2012. "Over 100,000 professionals with specific skill-sets of product development reside in Bangalore and the NCR region alone. However, captives continue to face an average attrition rate of 13 per cent, instigated by growing demand of experienced professionals in specialised domains," he added.

He contended that despite the depressed economic conditions and a marked slowdown in the growth rate of the industry at this point and time, the long term potential of the industry was robust.

"We believe that the powerful forces like the potential market for local products, willingness of global product companies to invest in India start-ups, high economic growth of the middle class population and risk taking abilities will continue to drive growth," he said.

"Furthermore, since India has now gained familiarity and experience with offshoring, simultaneously increasing the breadth of service lines, some significant high-potential industries like manufacturing, high-tech telecom, retail and IT & ITES, would bring in sheer volumes," Natarajan said.