China growing stronger in R&D offshoring: Study

BANGALORE: Zinnov Management Consulting in a study on the R&D offshoring market in China estimated it to be USD 6.4 billion, as opposed to a market of 5.8 billion in India. It brought to light that China as of today is home to about 920 MNCs, who have established 1,100 R&D centers there, which is greater than the number in India.

According to the management consulting firm, companies are realigning their global strategies in the wake of the recent US meltdown and counties like India and China, still continue to hold strong growth prospects as offshoring destinations from across the world.

According to Pari Natarajan, Chief Executive Officer, Zinnov Management Consulting, “With the changed global scenario, offshoring is undoubtedly showcasing an aggressive growth trend and some key drivers that are helping increase offshoring to China are reasons like the increased Government support along with huge availability of local workforce, the domestic market opportunities and last but not the least cost arbitrage”.

“Top Indian offshore business destinations today are facing tough competition from cities like Shanghai and Beijing as favored offshoring destinations and hence it’s time for India to look into various aspects that can further strengthen the R&D landscape in India”, said Natarajan.

Though offshoring to China began in the early ‘90s, the momentum started picking up only in mid-2000. The local government in China infact has been very active in promoting R&D activities by offering a multitude of incentives.

Additionally, a huge base of installed as well as fresh talent pool suitable for working in R&D space along with enormous domestic market opportunity are some of the favourable factors. Report states that even though the cost advantage has come down over the last 5 years, the total cost of running a centre in China is still 65 to 70 percent cheaper than in the US.

“MNCs based out of the US & Europe are the biggest R&D investors in China till date, whereas cities like Shanghai & Beijing collectively account for more than half of the R&D establishment. These global firms have established large R&D centres in China with 53 per cent of them having more than 150 R&D personnel at these centres”, said Mr. Praveen Bhadada, Engagement Manager, Zinnov Management Consulting Pvt. Ltd.

“There is a definite desire among China centers to grow fast and the leadership teams at these centers have been aggressively in touch with their headquarters to get more work, both in terms of quality and quantity. India centers in due course of time are most likely to face tough competition from their China counterparts and hence it’s time for us to look into matters that can strengthen the R&D landscape in India”, he added.

The report also cited that the India centers are much ahead on the overall maturity curve, with all requisite processes in place and better talent; they are indeed well-positioned to take up more work in the overall R&D value chain as compared to China. And at the end of it all, both India and China do not account for more than 10 to 15 percent of the total R&D for most of the companies and the future will witness more work being offshored to both these locations.