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    Bangalore more expensive for R&D as compared to Pune and Hyderabad: Zinnov

    Synopsis

    Bangalore continues to be more expensive for R&D as compared to Pune and Hyderabad as per a Zinnov study, "Operations Cost Benchmarking 2015".

    ET Bureau


    PUNE: Bangalore continues to be more expensive for R&D as compared to Pune and Hyderabad as per a Zinnov study, "Operations Cost Benchmarking 2015". The study clearly indicates that MNC R&D centers continue to face cost inflation year on year, with the average overall operation cost per employee (full time) witnessing a 6.5% increase in rupee terms compared to 2013-2014.

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    The study highlighted that the 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. It further said that people cost, which comprises of the employees’ payroll and discretionary cost contributes 65% to the total operations cost of R&D centers.

    The report which is based on the actual cost data of 50+ MNC R&D centers in India provides insights on cost landscape across industry verticals, locations, R&D intensity etc. Close to 20% of the MNC R&D talent in India was covered as a part of the study with representation from companies headquartered in the US, Europe, Asia-pacific etc.

    Pari Natarajan, CEO, Zinnov, said, "This year we have seen that 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". The average overall operating cost per employee in INR terms is expected to increase by 36% in the next three years owing to significant investments made by R&D centers to deliver more value from India.

    Among the different sectors surveyed, the semiconductor vertical has a higher average overall cost per employee in rupee terms compared to software, with a marked differential of approximately 63%. A growing surge towards the adoption of cloud, rise in facility rentals and higher network bandwidth subscriptions has increased the average infrastructure cost per employee by 6.7 % to Rs 4.82 lakhs. More than 80% of the total infrastructure cost per employee is attributed towards facilities and IT/networking, it added. While optimization of infrastructure costs remains a top priority for these organizations, infrastructure is now also seen as a key enabler for enhancing organizational productivity.

    Factors like rising airfares and rise in global roles from India also contributed to a 10.8% increase in average travel cost per employee. Anand Subramaniam, Engagement Lead and Program Manager, Zinnov, said, “Gaining global stakeholder mind-share and owning end to end product development from India are driving small and large centers to take up more business and project related international travel”.

    In FY 2014-15, vendor related costs per employee witnessed an increase by 18.6 % in rupee terms, with close to 50 % of all vendor costs accounted for by IT and product engineering service providers.

    The study also highlighted that the transfer pricing policy changes and open litigations continue to plague MNC R&D Centers. One of the major worries for MNC R&D centers is the comparison to service providers during the transfer pricing assessment which results in higher transfer pricing mark-ups. The regulatory costs have gone up by 5.2% in rupee terms compared to last year.


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