Why MNCs prefer to set up R&D centres in India

There is rising demand for R&D related skills in India as multinationals find it to their advantage to set up research and development centres here due to lower expenditure, according to a recent report.

The average operating costs for MNC R&D centres in India has declined by 6 percent in dollar terms in FY12, the study by Zinnov, a consultancy firm, has said. The report ‘Operational Costs Benchmarking Study 2012’ is based on a survey among a sample of 55 R&D centres with over 37,000 employees across India, Zinnov said.

[caption id=“attachment_436244” align=“alignleft” width=“380”]  The average salary increments of 13 percent in the fourth quarter for FY12, resulted in a slight increase in the overall operating cost in India in rupee terms. Reuters[/caption]

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“The MNC R&D centres in India contributed to a net savings of over $70 billion for the parent company in the last five years,” the study said. At present, India has installed R&D talent pool base of more than 2,10,000 engineers growing at an average of 9 percent a year for the last five years.

“The cost per employee was settled at $40,604 in FY12, compared to $43,174 in FY11,” it added. However, the report observes that there was a 3 percent increase in the operating cost, when compared in rupee terms.

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The average salary increments of 13 percent in the fourth quarter for FY12, resulted in a slight increase in the overall operating cost in India in rupee terms, the study said.

“For this year, we noticed that the Indian currency depreciation proved favourable as MNC R&D centres here and they were able to significantly optimise cost despite a net salary increment of 13 percent in the last quarter of FY12,”

Zinnov Director for Market Expansion Praveen Bhadada said. The study also said tier-II cities are becoming an attractive option, with approximately 30 percent lower costs compared to cities like Bangalore, which not only houses the maximum number of large MNCs, but is also the most expensive as employees gain experience and more opportunities.

“This is mainly due to 15-20 percent lower commercial real estate prices in tier-II cities. In addition, attrition is much lower in tier-II cities due to lack of competition and hesitation to migrate,” it said.

PTI