China's R&D offshoring market catching up with India

BANGALORE, INDIA: Zinnov Management Consulting, a leading management consulting firm, today launched a first-of-its-kind study on the R&D offshoring market in China, titled “R&D Globalization: A China Perspective”. 

The study in totality aims to bring to light the entire R&D offshoring market in China and is divided into two chapters, wherein it separately aims to focus on the MNC R&D subsidiary landscape as well as the market for R&D service providers.

The first chapter on the MNC R&D Subsidiary, launched today, estimated the market to be $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.

The report very strongly highlighted that 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 65-70 percent cheaper than in the US.

“MNCs based out of the US and Europe are the biggest R&D investors in China till date, whereas cities like Shanghai and 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 percent of them having more than 150 R&D personnel at these centres”, said 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 very promptly 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.

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.