OPERATIONS COST BENCHMARKING

January 2015

This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov.

JANUARY 2016

The coverage of Zinnov’s “Operating Cost Benchmarking -2015” in the leading newspapers

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People Cost Travel Cost Vendor Cost Regulatory Cost

Zinnov’s Operations Cost Benchmarking study is in the 8th year and is meant exclusively for MNC R&D Centers in India to benchmark their operations costs across 5 key cost dimensions

o Payroll

o Benefits

o Facility

o Utilities

o IT/Networking

o Admin

o Miscellaneous

o International

o Domestic

o Legal

o Accounting & Payroll

o Service providers

o Audit

o Transfer Pricing

o Corporate Tax

o Litigation

o CSR

Infrastructure Cost

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The operations cost benchmarking study deep dives into different perspectives such as cost analysis across industry verticals, locations, R&D intensity etc.

Across Industry Verticals Across Locations Across Headcount

Software

Semiconductor

Engineering Services

Operations Cost Perspectives

Across R&D Intensity*

> 30%

15 to 30%

< 15%

Across Year of Establishment**

• 1990 - 1994• 1995 - 1999• 2000 - 2004• 2005 - 2009• 2010 Onwards

Across Years of Experience

• 13 Yrs+• 9 – 12 Yrs• 5 – 8 Yrs• 2 - 4 Yrs• 0 – 1 Yrs

1500+800-1499

400-799<400

NCR

Pune

BangaloreHyderabad

Chennai

4* R&D Intensity is a percentage of India R&D headcount against Global R&D headcount ** Year of Establishment refers to the year in which the India center was setup

35+ MNCs participated in the study of which ~ 60% are headquartered in the US and 67% belong to the Software vertical

Percentage distribution of companies by HQ Location

44%20%

16%

2%

US West Coast

US East Coast

Europe

Asia

Others

18%

Software

Percentage distribution of companies by industry vertical

Semiconductor

Engineering Services

67%

15%

18%

50+ MNC R&D CENTERS35+ MNCsParticipant Demographics

Percentage distribution of companies by R&D Intensity

< 15%

24%

15% to 30%

40%

30% and above

36%

Source: The OCB 2015 cost data is based on participation of 50+ MNC Centers in India* R&D Intensity is a percentage of India R&D headcount against Global R&D headcount

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₹$€

24.20 Lakhs

32,640

39,026

Average Overall Operations Cost

per FTE 2014-2015

6.5%

5.4%

19.5%

People Cost

Travel Cost Vendor Cost Regulatory Cost

Infrastructure Cost

% allocation of costs

Cost per FTE (in INR terms)

% change in costs (in INR terms YOY)

65% 18% 7% 4% 6%

15.80 Lakhs 4.82 Lakhs 1.33 Lakhs 0.93 Lakhs 1.07 Lakhs

6.7% 10.8% 18.6% 5.2%6.5%

Quantitative Insights

6% Change in Costs compared to FY 2013-14Source: The OCB 2015 cost data is based on participation of 50+ MNC Centers in India

MNC R&D centers continue to face cost inflation year on year, with the average overall operation cost per FTE witnessing a 6.5% increase in INR terms compared to 2013-2014

Contribution of people cost to the overall cost has increased owing to the increased focus of MNC R&D centers on employee retention and competency building initiatives

65% 18% 7% 4% 6%

63% 19% 8% 4% 6%

People Cost Infrastructure Cost Travel Cost Vendor Cost Regulatory Cost

2013-14

2014-15

Source: The OCB 2015 cost data is based on participation of 50+ MNC Centers in India

Overall Operations Cost Percentage Distribution across 5 Key Dimensions

• Organizations are allocating a larger component of the overall cost towards people as compared to the last year. This can be attributed to increasing industry wide salaries, a growing focus on employee engagement and up-skilling of employees across the experience pyramid.

• Even though the percentage cost allocation towards travel has remained range bound, travel costs have gone up, with organizations leveraging international travel and driving global roles out of Indian centers to gain ownership of global projects .

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