1. Executive Summary: R&D Operations Cost 2010
~ The need to look beyond cost control~
July 2010
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2. R&D operating cost in India has continued to decline for the last 24 months; Companies have 1
generated significant cost savings to the Head quarters
India R&D Center Adjusted Operating Cost/
FTE1/ Year in INR Lakhs
Year on Year Cost Savings by India R&D Centers
20 40% (USD Billion)
18.5 18.4 18.2
17.1
30%
15 14.6 2010 14.8
16.8% 20%
15.5%
INR (in Lakhs)
8.2%
10 10% Net Saving
2009 13.3
~USD 40 Bn
0%
-0.7% -0.9%
5
-10% 2008 11.6
0 -20%
0 5 10 15 20
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Total Cost/FTE/annum YoY Growth
Note: 1Full Time Equivalent; Adjusted for FY 2006 to FY 2010 based on data compiled for the participating companies Zinnov
Source: Zinnov analysis based on information provided by the participating companies Confidential

3. While most of the R&D centers in India do not hedge for cost, the relative strengthening of INR 2
against USD had a marginal adverse impact on further declining cost
India R&D Center Adjusted Operating Cost/ Percentile Break up of Total Cost/ FTE,
FTE1/ Year in USD FY 2010 (in USD)
45,000 50%
42,335
39,795 90th
57,737
38,199 Percentile
40%
35,576
31,207 30% 75th
49,659
30,000 Percentile
19.0% 19.0%
20%
14.0%
50th
36,065
Percentile
10%
15,000 25th
0% 26,573
Percentile
-4.0%
-6.0% -10%
Average 38,199
0 -20%
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 0 15,000 30,000 45,000 60,000
Total Cost/FTE/annum YoY Growth
Note: 1Full Time Equivalent; Adjusted for FY 2006 to FY 2010 based on data compiled for the participating companies Zinnov
Source: Zinnov analysis based on information provided by the participating companies Confidential

4. The cost of operations decreases as the company size increases due to cost optimization and 3
further increases with increase in headcount due to overheads
Percentile Break up of Total Cost/ FTE,
FY 2010 (in INR Lakhs)
40
0-400 employees 400-1,000 employees 1,000+ employees
Sample = 63% centers Sample = 17% centers Sample = 20% centers
30 Advanced Implementation Higher maturity,
investments in of best practices ownership of work,
people & from market investment in people
INR (in Lakhs)
infrastructure learning & infrastructure
20
27.3 26.4 26.6
10 20.6
18.7
15.7 16.0
12.0
7.9
0
10th Average 90th 10th Average 90th 10th Average 90th
Percentile Cost Percentile Percentile Cost Percentile Percentile Cost Percentile
Effective Conversion Rates for FY 2010:
USD 1 = INR 47.6, EUR 1 = INR 67.3
Note: Zinnov
Source: Zinnov analysis based on information provided by the participating companies Confidential

5. Bangalore being the costliest in terms of people cost, witnesses the maximum cost of 4
operations in India
Percentile Break up of Total Cost/ FTE,
FY 2010 (in INR Lakhs)
40
Bangalore Pune Others
Sample = 63% centers Sample = 16% centers Sample = 21% centers
30 Higher cost of Relatively lesser as Cost lesser than
talent & compared to Bangalore by 24.2% on
infrastructure Bangalore but fast an average. Much lesser
INR (in Lakhs)
catching up for tier 2 locations
20
27.4 26.3
10 19.8 21.2
19.1
13.6 15.0
10.8 10.1
0
10th Average 90th 10th Average 90th 10th Average 90th
Percentile Cost Percentile Percentile Cost Percentile Percentile Cost Percentile
Effective Conversion Rates for FY 2010:
USD 1 = INR 47.6, EUR 1 = INR 67.3
Note: Zinnov
Source: Zinnov analysis based on information provided by the participating companies Confidential

6. Excessive cost control focus is restraining centers to move up the value chain faster 5
Unmet needs:
• The current state of maturity of R&D centers is low and only about 4% of the products R&D is in the
highest level of maturity (Product/ business ownership), indicating a significant scope for improvement
• Product concept and design related work is still in the nascent stage and in India and product
maintenance, QA/ testing & support continue to be the key focus areas (86% of total work) for
majority of the MNC R&D centers in India
• More than 80% of the total installed R&D talent pool in India is less than 8 years of experience and
witness lack of technical and product management talent in the current landscape
• Attrition is a again a key perceived challenge with attrition peaking up to reach 19.2% (YTD basis) after
witnessing a downfall during the economic downturn
Zinnov
Confidential

7. The future outlook looks promising and with right strategies and long term view, companies 6
will be able to continue to optimize cost going forward
Future Outlook:
• Companies will focus on increasingly optimizing the people related costs while choosing the optimal
pyramid structures and controlled salary increments. Also increasing infrastructure utilization, and
optimizing of travel will ensure controlled inflation in costs
oHowever, with companies planning for a near 10% salary increment for FY 11, hiring laterals,
escalation in rents and opening up of travel, the costs are expected to go up in FY 2011
• The aspiration to move up the maturity value chain will force R&D centers to hire experienced talent
pool but will also look to optimize the experience pyramid to manage costs efficiently
• With increased availability of low cost talent and ever improving infrastructure in tier 2/3 locations,
companies will be running pilot efforts with non-core activities in these locations to start with
Zinnov
Confidential

8. Companies need to make a paradigm shift beyond cost control to strengthen the R&D value 7
proposition from emerging locations
1
Focus beyond cost
efficiency
5 2
Enhance technical Aspire to become
leadership & product global strategic
management partners
Increasing
R&D Value
Proposition
4 3
Emerging/ Global
Accelerate ecosystem
From cost focus to market innovation
partnerships
focus
innovation & global
leadership
Zinnov
Confidential

9. About Zinnov 8
Zinnov helps organizations globalize their business and improve
people strategy.
Our consulting solutions are based on rigorous research techniques, data analytics and communities
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