Q&A: The Changing Engineering And R&D Landscape

Senior Vice President of Engineering and R&D Services of HCL, Sukamal Banerjee took some time to speak with IMPO about the demand of engineering and R&D services both domestically and abroad. Banerjee explains the ins-and-outs of the factors driving demand, to changes in the industry and finally, the issue of skilled labor within engineering and R&D services.

Maura Falk: What do you think are some of the key factors driving stronger demand and growth for HCLs engineering and R&D Divisions both domestically and abroad?

Sukamal Banerjee: Following the 2008 financial crisis, R&D intensity (i.e. the ratio of expenditures by a firm on research and development to the firms sales) for all the engineering and manufacturing companies have been running flat or declined. Therefore, all engineering organizations have been re-evaluating their R&D investments to improve returns. Most of our leading customers were struggling with stagnating revenues and single digit operating margins at the time of deal.

Global OEMs & technology companies today are differentiating through software and services. These companies are increasingly expanding from core products to services driven models. For example, Xeroxis expanding from multi-functional device manufacturing to Managed Print Services (MPS).Even for the worlds most innovative OEM, software and services contribute 10 percent revenues, and is the fastest growing segment. While faster technology migrations have become the order of the day, it is also essential to ensure sustained engineering and end of lifecycle product support. The partnership model for such needs are a natural and strategic choice for product companies. With enhanced service capabilities and high domain expertise, HCL has assisted in extending the product life and in process generated hundreds of millions in revenues for customers, which would have otherwise not happened without a focused ownership.

Also, the emerging convergence of digital and platform engineering is playing a significant role in the engineering and R&D services market. We focus on proactively creating solutions for top of the mind challenges faced by OEMs through our enhanced solutions capabilities and fast-track R&D transformation for legacy products. We have seen engineering and R&D services evolve and grow to a $900+ million business at HCL Technologies.

The key factors contributing to the growth of engineering and R&D outsourcing continue to be accelerated time to market, increased complexity driven by convergence, need for access to varied and scalable talent pool. HCLs investments into the business line and developing proactive technology and process related innovations has helped us drive a disproportionate share of the market.

MF: Last year ISG reported that engineering services markets were moving abroad. Is this a trend that you have seen continue in your own firms? And is a wider global presence contributing to the increased demand for certain engineering services more than others?

SB: With the convergence of technologies, increased use of devices of varied form factors, electronic components and communication technologies, the engineering services market, like all other markets, is also hit by an accelerated need for innovation and execution. This has led close to the customer, closer to the product value chain execution. This has meant local presence is needed to work effectively with customers on such programs.

While theres an expansion of the engineering services internationally, the US continues to be an important market. Emerging markets have evolved to become prominent players in the recent years and are likely to become increasingly dominant in the future. The European market is opening up and is expected to contribute significantly in the coming years. We also see the ESO spend shifting to emerging markets like India and other adjacent Asian markets.

According to IDCs Engineering Services Buyer Study results (2013), global delivery presence contributes to about 17 percent of ESP selection. It is our ability to share risks and partner with the company that has been instrumental in the growth of the HCL Engineering and R&D Services division. We strive to co-create a conducive ecosystem for product development and also help in taking the products to the market with innovative business models like the risk & reward model and output-based model. We adopt a hybrid global delivery model based on the requirements and the nature of work involved. High-end and complex work which is more core to the customer is carried out in the onsite development centers, while context-based ground work and low-complexity services can be carried out at the offshore sites. We have seen an increase in joint innovation and development work carried out at our Onsite Delivery Centers to up to 25 percent in the recent past.

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Q&A: The Changing Engineering And R&D Landscape