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Overview
Welcome to the Q3 2017 edition of our quarterly engineering services captive centers trends analysis.
Every quarter, we bring you our research and analysis of the location moves of enterprises. The full details
of our Q3 2017 engineering services captive centers research data are shown in the exhibits. An analysis
of the engineering services quarterly announcements of captive centers establishments and expansions
provides interesting insights into the state of the engineering services outsourcing market and emerging
trends. Our key takeaways from the trends of this quarter include the following:
The Details
The key findings of this study are the following:
» China, India, and the United States are hot spots for captive centers: In Q3 2017, there were 9
captive ER&D center announcements for China, followed by 8 for India, and 8 in the United States,
as shown in Exhibit 1 and Exhibit 8. In addition, we identified 25 captive ER&D location moves by
enterprises across Romania, Singapore, South Korea, Israel, Spain, Sweden, and the United
Kingdom. In India, popular ER&D locations were Bengaluru, Bhiwadi, Mysuru, Pune, and
Hyderabad.
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China
17%
Others
29%
India
15%
South Africa
4%
Romania US
4% 15%
Germany
Israel UK
4%
5% 7%
» Automotive, hi-tech, and ISV are hot verticals for ER&D centers: Among the verticals, the greatest
activity was in the automotive industry (13 centers), followed by the hi-tech industry (11 centers), and
ISV (8 centers) industries, as shown in Exhibit 2 and Exhibit 8. In the automotive vertical, the focus of
the R&D centers is on autonomous driving, electric vehicles, testing labs, and localization of vehicles,
among others. The hi-tech research facilities are established as a part of the adjacent manufacturing
facility and overall global product development. In the Internet/ISV segment, the focus is on digital
technologies such as analytics, machine learning, cyber security, etc.
Others
9%
Utility Automotive
6% 24%
Telecom
6%
Chemicals
6%
Industrial Equipment
7%
Hi Tech
Consumer 18%
Electronics
9%
Internet/ISV
15%
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» Automotive and hi-tech are hot verticals for ER&D centers in China, India, and the United States:
In China, most of the ER&D centers are announced by automotive and ISV/Internet enterprises. In
India and the United States, hi-tech enterprises have announced the most number of captive ER&D
centers. Overall, among the verticals, the most activity was in the hi-tech industry (8 centers),
followed by the automotive industry (6 centers) in China, India, and the United States, as shown
in Exhibit 3 and Exhibit 8 in these three countries. Siemens has announced three research facilities
in China in the areas of industrial software, intelligent manufacturing, and autonomous robotics.
Exhibit 3: The Distribution of ER&D Center Announcements by Industry in China, India, and the United States in Q3 2017
1
1
3 1
4
1 3
1 1
1 1
3 1
2
1
China India US
» China has outperformed India in captive centers announcements: In Q3 2017, China was ahead
of India in terms of the number of captive centers announcements. From Q2 2016 onward, the gap
between the number of captive centers announcements in China and India has reduced, as shown
in Exhibit 4. Traditionally, India has differentiated itself in the ISV vertical by developing capability
in the software domain, whereas China has manufacturing engineering capability.
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Exhibit 4: Comparison of Number of Captive Centers Announcements in China and India over the Quarters
25
20
15
10
0
Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
» The pace of total captive centers announcement in India is slowing down: As shown in Exhibit 5,
from Q2 16, the overall percentage of ER&D captive announcements in India is slowing down. Over
the quarters, enterprises have established half of their captive centers in high-cost countries, while
the percentage of low-cost countries has increased significantly. Among the low-cost countries, a
majority of the ER&D captive centers were announced in China, followed by Romania, and Brazil.
Some of the other prominent countries are Thailand, Vietnam, Hungary, and Poland.
Exhibit 5: The Percentage Distribution of ER&D Center Announcements by Countries over the Quarters
Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17
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» The pace of total captive centers announcement is slowing down: As shown in Exhibit 6 and
Exhibit 8, in Q3 2017, we observed 54 captive ER&D center announcements, including 5 expansions
and the establishment of 49 new R&D centers. Overall, the number of captive center
announcements is the lowest in comparison to the last five quarters. We are anticipating the
number of captive announcements to increase from the next quarter.
10 21
11
6
12
5
69 64
60 57
50 49
» Siemens leads the captive centers chart: In Q3 2017, we identified more than one captive center
announcements from five companies: Siemens, Amazon, Cummins, Foxconn, and ZTE, as shown in
Exhibit 7 and Exhibit 8. The focus areas of these five companies are scattered across ER&D areas,
including machine learning, local and global product development, autonomous driving, robotics,
smart manufacturing, and networking.
Siemens 4
Amazon 2
Cummins 2
Foxconn 2
ZTE 2
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Research Exhibits
The following section includes the ER&D center location moves for enterprises across all industries in the
engineering services domain in Q3 2017.
Exhibit 8: Details of the Location Moves by Engineering and R&D Centers in Q3 2017
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According to reports,
Foxconn is planning to build a
Aug- "multi-billion dollar" R&D
Foxconn US Michigan New Hi-Tech
17 facility to develop self-driving
cars.
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According to reports, it is
planning to set up a research
center in Philippines. The
Mitsubishi Aug-
Philippines New Automotive company wants to establish
Motors 17
R&D facility in the countries
where it has a manufacturing
plant.
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Source: News reports and company websites. Note: Actual timing of the location moves may differ, but media
announcements or news appeared in Q3 2017.
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A seasoned outsourcing consultant, Pareekh has seen the engineering services outsourcing industry from
three perspectives: service provider, advisor and buyer. He started his career as a software engineer with
Geometric, which gave him the service provider perspective. He was then with neoIT, an outsourcing
advisory firm. At neoIT, he was a key contributor on a number of engagements with leading US and
European clients, which spanned across the outsourcing lifecycle. He also produced neoIT’s seminal report
on city competitiveness for outsourcing. In his last assignment he gained the perspective of an outsourcing
buyer as he led strategic planning, sales planning, product planning and R&D initiatives for the APAC region
of Emerson Network Power—a Fortune 100 manufacturing multinational whose APAC operations are
based in Kuala Lumpur, Malaysia.
Pareekh is a thought leader, having authored a variety of publications on topics related to outsourcing,
engineering services, technology and regional competitiveness in outsourcing. He loves business fiction
writing in his free time and his first novel "Who is that lady?" was published recently.
Pareekh received his MBA from the Indian Institute of Management (IIM), Bangalore and a Bachelor of
Technology from the Indian Institute of Technology (IIT) Delhi.
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Tanmoy Mondal
Tanmoy Mondal is a Senior Research Analyst at HfS Research, identifying
global trends in engineering services from both industry & technology
perspectives, tracking global outsourcing deals & investments including
partnership agreements & R&D announcements in the sector and
supporting the domain leads in secondary research, data analysis, PoV’s
and research writing. His coverage areas include mechanical engineering
services, embedded engineering services, software product engineering
services, PLM services, and Industry 4.0.
Tanmoy has over 4 years of research, pre-sales and market intelligence experience in TCS, HCL and Tracxn.
At his TCS & HCL role, he has worked on preparing RFP responses including solution construct and
commercial proposition. He was responsible for analyzing the business scenario for ERP implementation
for different industry verticals and participated in several Enterprise Transformation projects across
domains to optimize the IT landscape, increasing IT integration among client business verticals, improving
productivity & reducing business incidents. In Tracxn, he was part of the emerging technology team that
helps finding companies (Start-ups) specializing in upcoming technologies (virtual/augmented reality,
drone etc.) for acquisition & portfolio investments for PE and VC firms.
Tanmoy holds Master’s in Business Administration from IIFT (Indian Institute of Foreign Trade), and
Bachelor of Engineering from Jadavpur University, Kolkata.
Tanmoy is passionate about football and loves to read economics related books & articles.
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About HfS
HfS’ mission is to provide visionary insight into the major innovations impacting business operations:
automation, artificial intelligence, blockchain, digital business models and smart analytics.
We focus on the future of operations across key industries. We influence the strategies of enterprise
customers to develop operational backbones to stay competitive and partner with capable services
providers, technology suppliers, and third party advisors.
HfS is the changing face of the analyst industry combining knowledge with impact:
» ThinkTank model to collaborate with enterprise customers and other industry stakeholders
» Comprehensive data products on the future of operations and IT services across industries
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