Even as the country is trying to bring in semiconductor fabrication plants to India, the industry has been undergoing a transformation with the explosion of electronic devices. For these electronic products increasingly, a lot of intelligence built by embedded software companies are being added that makes them more efficient. The amount of software which is getting into these chips has kind of transformed beyond recognition and most of this work globally is outsourced to India.
According to Zinnov, the Indian embedded engineering R&D and product engineering services, has grown three times from less than $5 billion in 2009 to $15 billion in 2012. And the industry has been on a upswing because of the number of devices getting into the market and the chip companies are doing well. Predominant part of this is coming from the R&D development centres set up by the global majors.
Industry estimates that there are some 850 centres that develop the embedded software and product design services from India while there are some nearly 100 service providers who are also providing these services to these global majors. The global outsourcing of engineering R&D and product engineering services forms around 20% of the total IT export market of around $90 billion.
Global Edge Software, which has been operating in the systems programming area for nearly 10 years, is growing at over 30% and will cross R100 crore this year. The company which had acquired Dearborn electronics is seeing a huge rise in demand of the industry because of Internet of Things. According to MP Kumar, founder chairman and CEO, the company will add around 250 people this year and is working with 10 of the top 25 semiconductor companies.
Increasingly, the industry is seeing the different devices, components and different machines talking to each other. With the advent of cloud based computing, there is some amount of connection, which is happening that improves communication between various things notwithstanding the distance.
According to Kumar, what has happened in the smartphones industry is happening everywhere. ?The features available only in high end phones is getting trickled down. That is where the R&D services and the embedded engineering services are going to be more important and more prevailing and complex,? Kumar says. According to him, intellectual property (IP) and product business selling business is difficult while it has started happening and the company is building some components to some of its clients and licensing them.
?The legal system, IP systems are very rigorous and quite tedious. So, what we are doing now is to check for opportunities for tier 2 and tier 3 for them. The big opportunities the big companies would want to handle themselves,? Kumar says. According to him, India currently does not have the understanding of complete product design as the outsourced R&D is about getting only a part of the work done. While China has chip manufacturing as well as the final products.
According to Kumar, for the time being, India will need to build products for domestic market. While he feels that the entrepreneur activities may address some of them and the understanding developed over a period of time will help achieve the technological maturity needed for product design. ?What the country lack is the support of an ecosystem. We do not have a fab here and all related stuff which happens with it.
Also the test and certification infrastructure is not there.?
The big companies outsource around 40% of the work, unless, there is a serious IP issue. ?They are not able to fulfill the needs. Second thing is also efficiency and also, in some areas they want to develop some partners and also about de-risking. they usually outsource.
While it is very difficult for a niche player, to succeed as it is imperative to have some scale. Also the companies need to work on future technologies. ?For instance, we started working on LTE, which was not there two years ago, and built capabilities. For us to get any revenue took time but it is going to come. Some people invested in Wi-Max, but it did not work and many people were wiped off. You have to bet and keep working on new technologies.?
The competition for India comes largely from China because nobody else has these numbers but it currently have language issues. ?In terms of maturity we can always have an advantage. But with their manufacturing base and experience and getting approved product designs itself, China is a threat to India. For the final product integration, the companies need to be close by and that work is done in Taiwan, China or Korea,? Kumar says.
Companies from Japan like Sony and Panasonic did not outsource. But the speed at which they could change and adapt to the new challenges was much lower than the aggressive companies like Samsung. ?Today, nobody has got the luxury of time. They are fighting not days, but hours as to who will release the product first,? Kumar says.
