Globalization an Innovation Imperative

8/9/2019 Globalization an Innovation Imperative

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Business Transformation

Globalizationthrough

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Globalization: An Innovation Imperative

Pari NatarajanCEO

Zinnov


2/18

The Rapid Growth of the MNC R&D Centers in India & China

The current wave of globalization started in the 1980s and rapidly evolved

over the last 10 years

Volvo

BenQCisco

RedHat

ToyotaHoneywell

1Note:

Source: NASSCOM Strategic Review, FY 2009/ 2010; Zinnov India R&D Database Telecom Regulatory Authority of India (TRAI); Manufacturers Association of Information Technology (MAIT); Zinnov Analysis

Texas

Instruments

MotorolaCadence

1980s

Adventurous

1990s

Early adopters

2000s

The rest

OracleCiscoMicrosoft

SAP

Rockwell

AutomationIntel

EMC

GoogleNvidia

Freescale

Hyundai

Pace

Micro

Lockheed

Pou ChenEmersonIntel

Alcatel

Lucent

MicrosoftHitachi

MotorolaLG

Sanyo

ChinaIndia


3/18

The presence of global 100 R&D spenders significantly increased between

2002 and 2007

60%

70%

80%

90%

100%

India/ China R&D Center Evolution Pattern of Top 100 R&D Spenders

2

3%15%

33%

68%

84%

0%

10%

20%

30%

40%

50%

Till 1990 Till 1995 Till 2000 Till 2005 Till 2008

Note:

Source: European Union Industrial R&D Score Card; NASSCOM; Zinnov India R&D Database; Zinnov Analysis


4/18

Most global centers are optimized mainly for cost savings and access to

relevant talent

R&D Globalization Driver Priority as Perceived by US Stakeholders (Percentage of

Respondents)

15%

23%8%

8% 10%

42%

17%

75%

100%

3

54%

18%

33%

64%17%

25%

0%

25%

50%

Cost Talent Market Access Innovation

Very High High Medium Low

Note:

Source: Data aggregated based on Zinnov Survey of 100+ US R&D Stakeholders in Nov 2009; Zinnov Analysis


5/18

Engineering Support Engineering Leadership Product Leadership

smovedtoInd

ia 52% 24%

15

Module Leadership

19% 4%

Product team maturity vs. Time since product was transitioned to India

This has resulted in product teams of the MNCs operating at a sub-optimal

level of maturity and with low level of innovation capability

4

Timesin

cetheProductw

a

Levels of Maturity0

3

7

Highest

Value

(4%)

Sub-Optimal(26%)

Progressive

(15%)

Note:

Source: Data aggregated based on the analysis of more than 200 product teams across multiple MNC R&D centers in India; Zinnov Analysis


6/18

Different functions of shared services are at different maturity levels. They

are optimized for cost savings and for supporting local operations

IT*

Human

Customer

SupportF&A

ationRate

Globalization Maturity of Support

Functions

High

5

Sales &

Marketing

Resources

ProcurementInside

Sales

Maturity

Laggards Rapidly

Growing

Mature

Globaliz

Low


7/18

While companies have been setting up their operations in emerging

locations, the market in these locations has seen rapid growth (1/2)

75%

100%

Split of top 1000 Global

Companies by HQ Location

90

120

Split of Small & Mid-

sized Businesses by

Location (in Millions)

$4

$6

Annual Per Capita

Disposable Income (in USD

Thousands)

6Note:

Source: Euro monitor International; Zinnov Syndicated Study on SMB Landscape in India; NASSCOM Strategic Review FY 2009/10; Forbes.com; FICCI; Zinnov Analysis

12

58

221

0%

25%

50%

2000 2009 2015E

India & China Others

0

30

60

2000 2009 2015E

India & China US

$0

$2

2000 2009 2015E

India China Developed Economies


8/18

While companies have been setting up their operations in emerging

locations, the market in these locations has seen rapid growth (2/2)

13.5%

11.5%

6.0%

9.0%

12.0%

8%

12%

16%

Expected YoY IT Spend Growth, 2010

7Note:

Source: Telecom Regulatory Authority of India (TRAI); Zinnov Syndicated Study on SMB Landscape in India; NASSCOM Strategic Review FY 2009/10; Forbes.com; FICCI; Zinnov Analysis

0.0%

.

0.0%-1.0%

-4%

0%

4%

India China Asia

Pacific

Western

Europe

Central/

Eastern

Europe

Middle

East &

Africa

Latin

America

North

America

Canada


9/18

The innovation ecosystem has also evolved and will continue to strengthen

in the next five years (1/2)

230400

480

560

Growth of MNC R&D Talent

Pool in Thousands, 2000-

2009

30,000

40,000

50,000

Number of Patents

filed (1990 to 2015E)

310

549

8

180

319

130

0

80

160

240

2000 2009 2015E

India China

0

10,000

20,000

1990 2000 2009 2015E

India China

Note:

Source: Zinnov India/ China R&D Database; Primary Interviews with Key Stakeholders; World Intellectual Property Organization; US Patents and Trade Office, Zinnov Analysis

32


10/18

The innovation ecosystem has also evolved and will continue to strengthen

in the next five years (2/2)

1,061

800

1,000

1,200

300

400 Average # ofStrategic

Research

Projects

Average # of

Consulting

Projects

Research Scenario in Tier-1 and

Tier-2 Universities in India in 2010

rojects

Numbe

1,329

1,000

1,500

Number of Software Product

Start-ups in India (2000 to

2015E)

9Note:

Source: Zinnov India/ China R&D Database; Primary Interviews with Key Stakeholders; World Intellectual Property Organization; US Patents and Trade Office, Zinnov Analysis

148

36

359

63

161

0

200

400

600

0

100

200

Tier - 1

Universities

Tier - 2

Universities

Average # of

Doctorate

Scholars

NumberofP

r

ofPhDScholars

126

518

0

500

2000 2009 2015ETier-1 Tier-2


11/18

The service providers also play an important role in the maturing R&D

ecosystem in emerging locations

Capabilities

across Various

Emerging

Locations

Capabilities

across Various

Emerging

Locations

GTM PartnersGTM Partners IP LedIP Led

a

10Note:

Source: Zinnov Analysis

Revenue Share

Models for

Sunset Products

Revenue Share

Models for

Sunset Products

EmergingMarkets

EmergingMarkets

Focus onProducts

Focus onProducts

Reduce CostPressure on

Product

Companies

Reduce CostPressure on

Product

Companies

Evolving Service

Providers

Ecosystem

b

cd

e


12/18

Local companies in emerging locations are leveraging the innovation

ecosystem to compete in both global and local markets

MNCs from Emerging

locations

Leveraging emerging

market linkages

Asian companies are increasing their R&D investments to

come up with products that compete against global MNCs

a

b

11Note:

Source: Zinnov Syndicated Study on SMB Landscape in India

Global start ups

Companies in India are increasingly leveraging the

manufacturing ecosystem of China and Chinese companies are

looking to leverage the mature R&D talent pool in India

Disruptive technology and business models such as

Cloud/SaaS is allowing start up companies to leverage the

emerging market ecosystem

c


13/18

Global MNCs should rapidly evolve and transform their emerging location

centers to increase their innovation capability

Operational

Support

Operational

Independence

Strategic

Independence

Global Strategic

Partnership

Cost SavingsCost Savings

Talent AccessTalent Access


InnovationInnovation


Talent AccessTalent Access

12


Access to New

Markets

Access to New

Markets


Talent AccessTalent AccessAccess to New

Markets

Access to New

Markets


Talent AccessTalent Access Access to NewMarketsAccess to NewMarkets

Access to New

Markets

Access to New

Markets



14/18

Companies face a number of key challenges in this transformation. Some

are real and some are perceived challenges

Lack of domain

expertise

Micro-

management

Global teams do not

have deep domain

expertise

Middle management

teams in the US tend

to micromanage the

global teams

12

13Note:


Cost escalation

LowerProductivity

High attrition

Lack ofcustomer

access

Productivity at Indiacentre is perceived to

be lower than US

Attrition at global

centres is very high

and could result in

business continuity

risks

Costs in emerging

locations continue to

increase at 15% to

20% a year

teams do not haveaccess to customers

at developed

locations

3

45

6


15/18

Companies should focus on the key enablers to improve the innovation

capability of their centers

Operational

Support

Operational

Independence

Strategic

Independence

Global Strategic

Partnership

Deliver LeadershiDeliver Leadershi

Global LeadershipGlobal Leadership

Global Innovation

Groups

Global Innovation

Groups

Engineering

Leadership

Engineering

Leadership

Business LeadershiBusiness Leadershi

14

Key Enablers

Engineering TalentEngineering Talent

Process ManagementProcess Management

Basic InfrastructureBasic Infrastructure

HR as SupportHR as Support

Process LeadershipProcess Leadership

Advanced

Infrastructure

Advanced

Infrastructure

HR as a GrowthAgentHR as a GrowthAgent

Global VisibilityGlobal Visibility

Global HRGlobal HR

Focused Ecosystem

Linkage

Focused Ecosystem

Linkage

HR as a Change

Agent

HR as a Change

Agent


16/18

Organizations that moved to higher level of maturity have similar

characteristics in their approach

Technical Leadership

Product management

Customer engagement

2

3

1

15Note:


Ecosystem connect

Global roles

Organization structure

4

5

6


17/18

If the Roman empire could figure this out 2000 years ago, we can as well

Ate fish from

Gibraltar

Drank wine

from Spain

or FranceSilk from

China

Globalization Footprint of the Roman Empire

16

Ate bread

baked with

wheat grown

in North

Africa or

Egypt

Dressed ingarments of

Linen from

Egypt

Diamonds/

Pearls from

India

Furniture in

Indian Ebony/

Teak

Note:

Source: Based on a 2008 article by Peter Jones and Lionel Casson in the Spectator; Globalization Is Great! by Tom G. Palmer, Senior Fellow, Cato Institute; Zinnov Analysis

Based on a 2008 article by Peter Jones and Lionel Casson in the Spectator


18/18

Thank You

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Globalization an Innovation Imperative