According to market advisory firm Zinnov Management Consulting, the estimated overall addressable R&D globalisation and services opportunity is $170 billion by 2014. Currently only $55 billion of this opportunity is addressed globally. India’s share of the addressed market is 33% with in-house R&D centres contributing $11.3 billion worth of services to their parent companies.
The study finds that the Engineering services landscape is undergoing rapid shifts from the perspective of range and nature of services. The global outsourced Engineering services market currently stands at $26 billion with players from US, Europe and India having an almost equal share. Indian service providers lead the pack amongst the global service providers.
As of 2014 the Indian service providers deliver $6.9 billion worth services which is 27% of the addressed outsourced services market. The study estimates that by 2020 the Indian outsourced ER&D services market will reach $15 billion growing at a 13% CAGR. This growth will be primarily driven by addressing the increasing demand for embedded systems and software needs across all verticals.
The study indicates a significant increase in the maturity of solutions that service providers are building especially in the IoT space. Solutions are not only go-to-market arrow heads but are significant contributors to non-linear revenues and are becoming the key differentiators. This has shifted the investments from lab infrastructure to solution development initiatives. Also, the attrition rate has come down by 2 percentage points to 12% making it a stable operating environment from a people perspective.
Large and strategic deals are now mainstream in engineering services space. A typical large deal is structured around supporting the customers with their global market expansion. Over the last year, there has been an increased activity around M&A both by the private equity companies and niche service providers. This is most likely to translate into deals in Q3 and Q4 of FY 2015.
Transforming from being a proverbial service provider to a true engineering partner is the key challenge facing the engineering service providers. To overcome this challenge, service providers are putting together structured engagement models to collaborate with startups and expanding their eco-system partnerships with OEMs and technology partners.