Keerthi Kumar (Deloitte) on India's burgeoning engineering R&D market

02 October 2022 8 min. read
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Earlier this year, Deloitte teamed up with NASSCOM to deliver its latest market outlook of India’s burgeoning outsourced engineering R&D market. To find out more about the report’s key findings and recommendations for business leaders, we posed five questions to Deloitte partner and report co-author, Keerthi Kumar.

What is the scope for engineering R&D as a concept and how is it going to boost global capability centres in India?

There are about 1,400+ global capability centres (GCCs) in India, and the current market share of India is 50%. Looking at the GCCs set up in the last five years, the percentage of R&D hubs among the new centers has consistently been on the rise, and in the last three years, around 25% of the new GCCs set up in India are, in fact, R&D centers.

R&D leaders globally are positive on the growth prospects, with increasing investments being witnessed across sectors.

Not just that, about 40% of the GCC employees are working in engineering R&D today, with CAGR of about 12% for the last 3-4 years. From these, it is evident that engineering R&D is already playing a major role in boosting the GCC prospects in India, and in the next 5-6 years too, the contribution of engineering R&D towards the GCC sector’s growth in India will continue to be significant.

In addition, the advent of digital engineering in traditional R&D that cuts across sectors is consistently on the rise – the key driver for this per our survey is the need for an innovative and connected ecosystem driven product strategy. From a talent standpoint, digital capabilities is an innate area of strength for India.

India is poised to become the hub for digital skills for engineering R&D companies. How much increase can be seen in the engineering R&D spends across Indian and global organisations?

From our report, it is seen that about 50% of the companies with engineering R&D presence in their India GCC are projecting more than 10% increase in their engineering R&D investment towards India. This stands in contrast with the global average, with the majority (54%) predicting that their overall R&D budget will increase in the 0-10% bucket.

Therefore, it is safe to say that the growth in R&D investments in India is the outcome for a focused effort by R&D leadership to grow the quantum and nature of work being delivered in the country currently.

Top reasons for using ER&D GCCs and ESPs

A large part of this India investment is expected to be towards digital engineering, with its share in the overall GCC work projected to reach 40% by 2025. This is understandable, considering India houses a workforce that is skilled in some of the most in-demand digital engineering skills today.

This seems to be validated by our study too, with 50% of the respondents stating that they expect artificial intelligence, automation, and big data analytics to become the three most critical digital engineering skills for the Indian engineering R&D ecosystem in the next few years.

In this rapidly evolving technology landscape, what are some of the emerging models of innovation?

While building inhouse and buying new technologies have conventionally been the go-to approaches for innovation (and accelerating innovation) within most companies, it is very interesting to see that our survey highlights that co-creation is emerging rapidly to become an innovation model of choice.

In fact, 80% of our survey respondents said that their engineering R&D organisations are poised to adopt a co-creation model with start-ups, engineering service providers (ESPs), academia, and competitors to accelerate their initiatives, and interestingly, this thinking was seen across sectors – both the software and hardware-centric ones.

Top engineering R&D activities delivered from India GCCs

This approach makes sense for all stakeholders in the ecosystem because of the presence of a symbiotic relationship, boosting prospects to achieve their respective objectives through mutual contribution for the companies on one side, and the startups, academia and ESPs on the other, leading to a win-win situation.

The survey refers to co-creation as a strong alternative to address business challenges. What is the reason behind emergence of this trend?

Co-creation is understandably shaping up to be a potent tool for companies to both address the challenges they face and to stay ahead of the curve. A few key reasons for this are the velocity of change in technologies, the need for shorter innovation cycles to remain competitive in the market, an increasing demand for shorter time-to-market, and rapidly evolving customer behaviour and preferences.

In this background, it is critical now for companies to find ways to be agile and nimble, considering an organic pace of growth can be a deterrent to meet the aforementioned objectives. This is propelling the need for organisations to collaborate, partner and co-create.

Which sectors/ industries are predicted to witness the maximum growth in future? Are there any key skills that are being sought by global companies?

The results of the survey indicate not only a sector-agnostic growth, but also a more secular growth. In other words, the global growth in engineering R&D investments are less from the R&D share in investments growing, but more a function of the overall investment increasing in the organisations.

A significant percentage of companies are planning to have their India GCCs/ESPs focus on their high priority areas of investment

Automobile, software, hardware & electronics have been the traditional sectors that have been driving investments towards India over the years and we should expect this to continue, but what’s worthy to note is that we could also expect investments from the likes of sectors like aerospace, energy, oil and gas, and medical devices in the future.

This seems to be largely driven by the advent of ‘digital engineering’ solutions in their core processes, and India continuing to be at forefront in the skillset availability in this domain.

Our study indicates that more than 50% of the global companies mentioned that they will look to India for artificial intelligence, machine learning, automation, Industry 4.0, big data and analytics, 5G and cybersecurity as far as digital skills are concerned.

On the core engineering skills, the survey respondents indicated the need for software development, product management, manufacturing engineering, embedded software, mechanical design and engineering and system integration from India in the future.

Start-ups are one of the biggest contributors in India’s growth and development. Do you think that this could be another reason for attracting global organisations? How can these start-ups help in accelerating the engineering R&D ecosystem?

Absolutely. The importance of (and thus the share of investments in) digital engineering is expected to increase in the coming years, and a lot of talent and expertise in the domain (the likes of Industry 4.0, deep tech) will come from startups.

There is a strong push to shorten innovation cycles and get faster to market

Having said that, when we look at the India innovation ecosystem, co-creation as a model is nascent. About 8-10% of the GCCs in India engage with the startup community. But the benefits run both ways: the organisations give the data, access to networks, domain and sectoral insights necessary, and the startups brings cutting edge innovations, agility and nimbleness that will accelerate outcomes.

Safe to say, engineering R&D GCCs – among other GCCs – are more amenable to driving an open innovation construct and driving innovation in India. Engineering R&D GCCs in India therefore can be the conduit for our startups to go global and in turn our startup ecosystem is best placed to infuse new age and emerging technologies into large organisations product portfolio to drive frontline innovation through their GCCs.