Operating cost of captive IT R&D centres comes down

[dhilipkumar]

Operating cost of captive IT R&D centres comes down

The slowdown in the global economy, along with the depreciating rupee against the US dollar, have seen a reduction in the operational costs of captive IT R&D centres in India, according to a study.

The cost of running an R&D unit or a product engineering captive in India was down by about 6% in 2008 in absolute dollar terms and it is expected to decline further by another 10-12% in the next 12 months, according to the study 'Operations Cost Benchmarking for Product Engineering Captives in India' by Zinnov, a management consulting firm.

The report said that owing to the global economic meltdown and strict budgetary constraints, R&D centres in India were mandated by their headquarters to manage costs effectively over the last 12 months. In addition to this, the depreciation of the rupee against all major currencies favoured reduction in cost across MNC R&D centres in India. According to Zinnov, the cost of running an R&D centre in India was in the ratio of $39,000 per full time equivalent (FTE).

An FTE is an employee engaged on a regular basis. This has seen an increase of more than 15% till 2006, but decreased for the first time in the last five years. "We have found people cost to be the single largest contributor to the entire pie of operations cost and we believe that salary escalation will be in control in the foreseeable future and will only start picking up in the next 2-4 years," said Praveen Bhadada , engagement manager, Zinnov. The study said that with India continuously moving up in the R&D value chain, there would be increased requirement of experienced talent with enhanced domain/technical expertise in future, leading to a moderate increase in cost. However, the overall outlook for operations cost for these product engineering captives look promising in the near future.

Majority of these R&D centres in India are now looking at every single cost component to optimise their investments, the study said, adding, that R&D offshoring market will grow at about 23% by 2013.

indiatimes