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Global engineering research and development (ER&D) is set to grow by a compound annual growth rate (CAGR) of 8–9 per cent from 2023 to 2030, largely backed by growing ER&D intensity across sectors with digital imperatives and the resurgence of artificial intelligence (AI).
The niche segment within the IT industry has picked up pace since the pandemic, clocking a CAGR of 7-8 per cent over the last three years.
Spends to soar
The total spend is expected to soar from $1.5–1.8 trillion in 2023 to $2.5–3.3 trillion in 2030, registering a CAGR of 8–9 per cent. The top 3 industries — automotive, software, and healthcare and medical devices — are expected to drive about 50 per cent of the global business ER&D spend by 2030. according to Emkay Research.
This augurs very well for India, a major player in this space. The growth in spending by players in this segment is expected to increase India’s share to 22 per cent in 2030 from the present level of 17 per cent.
In a report, they predicted that outsourcing in ER&D would remain well below that of IT services and would gradually converge with the IT services segment.
“ER&D spending is seeing steady growth, supported by companies focusing on shortening the time to market, making new technologies more affordable, embedding digital capabilities into hardware-centric engineering teams, and exploring new frontiers of value creation.
Sourcing set to benefit
ER&D sourcing (captives or third-party providers) is expected to grow at a much faster clip. This vertical is likely to grow by 16 p.c., from $210–280 billion in 2023 to $600–770 billion in 2030, driven by the evolving nature of the business models, which include the asset-heavy to asset-light model.
“Global companies are facing increased pressure to bring new products to the market faster while managing costs. This leads to an increase in sourcing decisions. Nasscom expects the total sourcing share to increase to 24 per cent in 2030 from the present level of 15 per cent,” it said.
India remains a major destination for ER&D sourcing, with a share of $44–45 billion spent in 2023, and is expected to retain its strong positioning with an expected sourcing of $130–170 billion in 2030. India, however, faces competition from countries like Thailand, Malaysia, Poland, Mexico, and Bulgaria.
There are more than 1,400 ER&D GCCs and about 7 lakh GCC ER&D talent pools in India.
HR issues
The report pointed out that developed economies might face a shortage of skilled talent. “This will drive sustainable opportunities and sourcing from the engineering talent-rich Indian market,” it said.
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