R&D Centres Help Enterprises Save USD 40 bn

Zinnov Management Consulting, launched its study titled “R & D Operations Cost 2010- The Need to look beyond Cost Control”. The released study highlights that the cost of running R&D centres in India has continued to decline over the last two years and currently stands at INR 18.2 Lakhs (USD 38,199 or EUR 27,028) per person per year. It brings to light that the cost has declined by 0.9% in INR, 4.0% in USD and 3.3% in EUR terms in FY 2010, indicating signs of continued cost optimisation due to the constrained economic environment. It also reads that the decline was primarily driven by strict budgetary constraints by MNC R&D centres in the form of minimal or no salary increments, focus on variable pay, freeze on hiring, and cost optimisation across infrastructure, travel & communication.

As per the study, R&D centres in India have generated significant cost savings to the headquarters because of the lower operating costs over the years. In a conservative estimate highlighted in the study, R&D centres in India have helped the parent organisations save a cumulative of USD 40 billion for the last 3 years. The report reads that the future outlook also looks promising and with right strategies and long term view, companies will be able to continue to optimise costs. The study also forecasts an expected inflation in costs in FY 2011 with companies planning around 10% salary hike for FY 2011, hiring laterals, escalation in rents and opening up of travel. However, the report also reads that in a long term scenario the costs are expected to go up only by 6.7% CAGR through FY 2020 to reach INR 35 Lakhs per person per year.

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Pari Natarajan, Co-Founder and Chief Executive Officer, Zinnov Management Consulting, said, “Though India offers a significant cost arbitrage when compared with the costs in US and Europe, the R&D centres in India are losing out on certain key aspects because of excessive focus on cost. While cost control is the top priority, aspects like innovation, competency creation and leadership roles often get over looked. While a few companies have been fairly successful in uplifting the maturity of the centres in India, others should also start looking beyond cost control to bring in global leadership and innovation capabilities at the centre which would help them move up the value chain and become critical centres for the parent organisation.”

Bringing into perspective a comparative analysis of cities, the study said that Bangalore based companies incur higher cost as compared to the other cities. On an average, costs in Pune are around 3.5% lesser than Bangalore, with Tier 2 locations like Madurai, Coimbatore, Baroda, etc. almost 25% cheaper. In terms of size, smaller centres (0-400 employees) incur higher costs as compared to their mid-sized counterparts (400-1000 employees). However, the cost further increases for very large centres (1000+ employees).