While the depressed economic condition in the US has caused worry for the Indian IT& ITeS industry, the good news is that R&D offshoring market in the subcontinent is expected to grow by 23 per cent by 2012, according to a study released by Zinnov, a management consulting firm, on Monday.

“The majority of growth in captives in India today has been observed due to expansions of the large captive centres. Technology companies consider India to be a leader in developing technologies suited for emerging markets. Large MNCs including Google, Cisco and Intel have created investment funds to actively invest in Indian firms,” Pari Natarajan, CEO of Zinnov said while launching ‘Strategic Guide to R&D Captive Landscape in India, 2008.’

The $5.38 billion R&D offshoring market in India is segmented into software product development, engineering services and embedded systems. The country has close to 600 captive centres across Bangalore, Pune, NCR, Hyderabad and Chennai, of which 312 centres are based out of Bangalore.

The report points out there has been a slowdown in the Software Product Development captives in India since 2007, due to which vendors have started getting more business now.

The captives, which currently have a market size of $5.8 billion is expected to grow by 20 per cent and be $11.9 billion market by 2012. Challenges faced by the captive centres included increased operating cost, productivity issues, inability to attract and retain talent and problems related to integration of global centres. “Ten per cent of the captive centres are expected to close in the next 3-4 years,” he said.

Vendors rise

On the other hand the vendors, which currently has a market size of $3.5 billion is expected to reach $9.5 billion in 2012, with a growth rate of 28 per cent. Here the embedded systems is a major focus area for vendors in the R&D space. According to Zinnov’s report, most of the less complex work in embedded systems is being given to vendors thus increasing the share of embedded systems.

While 53 per cent of the R&D offshoring market consists of software product development, the engineering services sector is expected to grow rapidly.