Zinnov recently conducted a study 'Cost Escalation at India R&D centres and some best practices to resolve these challenges'.

According to Pari Natarajan, CEO, Zinnov, “R&D offshoring has seen a phenomenal growth in the last 5 years and has played a key part in showcasing India’s capability in innovation and high quality of work. However, operating cost escalation has become a serious constraint to the growth of R&D centres in India.”

The study mentions that cost escalation has been greater than 12% when compared to the last three years, and is rising primarily due to salary escalation and dollar appreciation. The average cost per FTE in the year 2007 was about $41,000 for software product development in India, excluding depreciation cost.

People, infrastructure and travel related costs are the major areas where companies are spending most of their dollars. Improving productivity of engineers, implementing stringent performance management systems, increase in hiring of talented fresh graduates and setting up centres at alternate locations are some of the best practices that it puts forth to reduce the increasing cost pressure.

“However, some stability in the talent market is in the horizon, as about 67% of companies out of the total R&D captive base in India have seen a healthy decrease in the attrition rate. This is surely an encouraging sign”, added Natarajan.

To discuss this subject further, Zinnov is hosting a conference titled ‘R&D Offshoring 2008’ on March 13-14, 2008 in Bangalore.