WORKING SESSION:RECRUITMENT BEST PRACTICES

MAY 2014

Product Engineering Services TrendsQuarterly Analysis- Zinnov PoVApril 15-July 15

AUGUST 2015

R&D Globalisation and Outsourcing Summary – April 15-July 15

• Product Engineering Services (1.5% QoQ) had a slower growth rate compared to the IT services growth rate (3.5% QoQ)

• European Service providers growing faster than Large India Heritage IT service providers

• Niche service providers targeting inorganic route for horizontal diversification in IoT and Embedded space

A R&D SPEND ANALYSIS

• Overall R&D spend increased by 0.8%(QoQ) for the top 50 R&D Spenders

• R&D spend in Automotive and Healthcare is expected to grow whereas Telecom and Energy will see lesser R&D spend for next two quarters

• Semiconductor and Medical Devices verticals continue undergoing industry consolidation through M&As

• 50 + R&D captives were announced in the last quarter to be set up across the globe

• India continues to be most preferred globalization destination followed by Israel and USB R&D GLOBALIZATION

C PES MARKET

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Key R&D Trends

AutomotiveDevelopment of Autonomous

Vehicles and Fuel Economy have been the prime focus

Telecommunications

ISVs

Healthcare

Energy

Rolling out 3G and 4G and companies invested more on

research for 5G

Large Greenfield projects put on hold amidst diving oil prices

The oil market indicates that prices could stay lower for longer, delivering a fresh blow to hard-hit energy

exploration-and-production companies.

Smaller deals and technology integration are rising among software enterprises

Integration of Technology and Medical Devices has revolutionized healthcare

Audi, Daimler and BMW are inviting other car companies to join their consortium to use “Here”,

the dominant supplier of digital maps for in-car navigation, and share the development costs and

benefitsGM, Honda cut cost of fuel cell stack by slashing the

size, and weight of the chemical processor that combines hydrogen and oxygen to make electricity

MDMs are working on building Smart mobile devices and applications, working in concert with cloud computing and big data analytics Quantified health data, Medical records on-the-go, On-call doctors via telehealth and 3-D printing have accelerated the functioning and diversification of the Healthcare Industry

Telecom Equipment Manufactures are investing more on key 5G technologies like Radio access

technology of air interface technologies5G research and trial investment is expected to

reach 5 BN by 2020

The ISV sector is trying to harness the power of connected technologies to drive digital businessService vendors may have to be content with smaller deals as large contracts seem to have vanished from the market place with customers expecting a prolonged recovery from the economic downturn

| Source: Zinnov research and quarterly reports |

3

-24 %Rise in R&D

spend*

R&D Spend Analysis: Healthcare vertical witnessed the maximum increase in the R&D spend

ISV Automotive Energy

Top Spenders

Top Outsource

rs

4.6 %Rise in R&D

spend*

8.7 %Rise in R&D

spend*

19.5 %Rise in R&D

spend*

Healthcare 1.9 %Rise in R&D

spend*

Telecom

Samsung 3.04 3.65

Intel 2.84 2.9

Microsoft 3.06 2.9

R&D growth

R&D growth

R&D growth

R&D growthCompany Company R&D

growthCompany CompanyCompany

CiscoAlcatel Lucent

British Telecom

MicrosoftAmazonPaypal

General MotorsJaguar & Landrover

Caterpillar

MedtronicGE Healthcare

Toshiba

AlstomParker

GE Energy

Cisco 1.1%Huawei NAEricsson 4.04%Alcatel lucent 5.3%Nokia Networks -2%

Amazon 9%Google 1.09%Microsoft 3.6%Oracle 4.3%Facebook 10%

Volkswagen NAToyota NADaimler 6.2%Honda 13.6%BMW 15.7%

Baxter 30%Medtronic 41%Boston Scientific 14.5%St. Jude 2.3%Thermo Fisher 5.4%

Shell 15.4%Schlumberger 4.4%Cummins -14%Petro China 72%Total -44%

0.8%R&D growth rate Of top 50 R&D Spenders

* Analysis of top 10 R&D spenders in each vertical| Source: Zinnov research and quarterly reports |

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Key Mergers/Acquisitions: M&As drive consolidation in Telecom, Semiconductors and Oil and Gas verticals

Company Target Acquired Amount(USD Bn) Why

56The acquisition will drive investment in advanced broadband network, allow for wider deployment of new competitive facilities based WiFi networks in public places, and the footprint expansion of optical networks to serve the large marketplace

37 The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors

16.7 The acquisition will couple Intel’s leading-edge products and manufacturing process with Altera’s leading field-programmable gate array (FPGA) technology

15.8The complementary aspects of MarkWest`s, MPLX`s and MPC`s highly diverse asset base provide significant additional opportunities across multiple segments of the hydrocarbon value chain

13.8Pall is a complementary fit for Danaher, with Danaher’s management system and strong financial position with Pall's expertise, brand and channel strength in the field of filtration and separation science

13.4The acquisition will position the combined company as a leader in the musculoskeletal industry and is aligned with Zimmer's strategic framework, which focuses on growth, operational excellence and prudent capital allocation

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Top R&D Spenders initiatives

R&D investment Q1

2015

Focus Areas

Details

| Source: Zinnov research and quarterly reports |

1.2.3.4.

5.

E-Commerce2 .75Bn

USDAmazon Is expanding and restructuring its R&D, With A Focus On Prime Air Drones And Speech Tech

Internet of Things2.99 Bn

USDIntel is looking to explore the IoT market and build products around the same. Over 70% of Intel India’s staff are into R&D

Toyota to restructure R&D organisation, plans to introduce advanced safety and lighting technologies in 2015Fuel Economy also a big focus in R&D spending

2.32 Bn USDSafety and Lighting

Technology

3.65 Bn USD

Samsung is spending a huge amount of money to beat its competitors to the ‘next big thing’Will continue to develop a grand mobility portfolio through IPs

Mobile and Internet of Things

Big Data and IT Security1.78 Bn

USDDaimler to ramp up R&D facility by employing 1700 more engineers in Mercedes-Benz Research and Development India (MBRDI), primarily in the space of big data and IT security solutions

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Top R&D Spenders initiatives

R&D investment Q1

2015

Focus Areas

Details

6.7.8.9.

10.

Activities related to vehicle emissions control, improved fuel economy and the safety of drivers and passengers are the top focus.Also focus on improving digital communications systems for vehiclesApple is said to be working on something positively massive whose significance could dwarf the iPhone, the Apple Watch or any other major product Apple has released so farShell has recently developed a clear base oil derived from natural gas, a cleaner burning fossil fuelShell India Markets Pvt. Ltd. also announced the creation of an in-house Global Information Technology Centre in Bangalore

1.87 Bn USD

1.32 Bn USD

1.91 Bn USDNew and Innovative

Products

Clean and Renewable Energy

1.21 BnUSD

5G network and IoT1.54 Bn

USD

Cloud Computing and Big Data

Alternative Propulsion

Cisco stated that the IoT will most likely be the underlying fabric of 5GThe difference between wireless and wireline networks will to continue to blur, leading to more virtualisation and automation of the networkIBM has developed the “7 nm and beyond” silicon technology that will address serious physical challenges threatening current semiconductor scaling techniquesDevelopment of alternative technologies for post-silicon era chips

Asia North America Europe RoW

50%

10%

30%

10%

ISV Computer Peripherals Automotive Consumer Electronics Rest

28%

14% 12% 12%

34%

25+ R&D centres to be set up in Asia

ISV and Computer Peripherals account for ~40% of all new

captive setups

Globalization Trends: India continues to be the most preferred globalization destination

India 64%

36%

Vertical wise Split50+New R&D Captives to

be set up

Geographical Split

Rest

8

9

Ew Captive’s centers in India

Company Location Why

Perpetuuiti Chennai, IndiaThe facility will play a critical role in developing competitive products for the global marketplace, creating innovative technology solutions that are well aligned with the various advancements happening in the area of artificial intelligence and cognitive computing.

Brocade Bangalore, IndiaThe center will enable Brocade India to showcase proofs-of-concept and pilot projects for customers and partners while contributing to the development of next-generation, fabric-based and software networking solutions

Inspirata Bangalore, IndiaDevelopment centre aims to support all three of its business units, i.e. digital pathology work-flow solution, companion diagnostics and the cancer information data trust, and also will work on data mining, data analytics and predictive software algorithms.

HID Global Chennai, IndiaThe center will accelerate the development of new features and capabilities for Genuine HID products and reduce time to market for new products. It also features validation and verification service for all electronic and software products and services.

Danaher Bangalore, India Centre will concentrate on data analytics, internet-of-things and cloud computing. The unit will deliver high-end technology solutions for our global and local businesses.

TOTAL IT SERVICES REVENUES

PES GrowthYoY

PES GrowthQoQ

Large European Service

Providers

3.77%

1.98%

10% Overall PES Growth YoY

1.5 %

Overall PES RevenueGrowth QoQ

Large India Heritage IT

Service Providers

16%

0.39%

Niche PES Service

Providers

22.5%

3.8%

10% Overall Revenue Growth YoY

3.5% Overall Revenue Growth QoQ

PES REVENUES

Market Financial Analysis : Niche Product Engineering Services companies lead the PES market growth

Large Engineering Services companies (Primarily Onshore)

Product Engineering Services divisions of large IT service providers

Midsized PES companies focusing on few verticals

| Source: Zinnov research and quarterly reports | Based on Analysis of Listed Companies

10

Market Financial Analysis : EBITDAs and PAT stay healthy for Large IT services companies

| Source: Zinnov research and quarterly reports |Based on Analysis of Listed Companies 11

Niche service providers outpaced large IT India heritage SPs- PES division growth while Large Onshore based Service providers struggled for growth

Average EBITDA18% Average PAT14%EBIDTA average percentage PAT average percentage

Margins

19.914.1

21.5

16.313

8.6

Utilization of Service providers have improved

Utilization

79.4%

Company Target Why?With IGATE, CapGemini operations in North America have taken a new dimension and are now its largest market in revenuesThe combined operations in India reached the size to compete at par with the world leaders in our industry

The acquisition of Skava is part of Infosys' strategy to help clients bring new digital experiences to their customers through IP-led technology offerings, new automation tools and unparalleled skill and expertise in these new emerging areas

The acquisition will enhance EPAM’s ability to provide digital consulting, architecture and content solutions to customers in North AmericaGlobant acquisition will reinforce its capabilities in User Experience, Design and Technology. Globant expands its delivery capabilities for the first time out of the Americas by acquiring a company with operations in India

Acquisition of SiConTech will enable Altran to accompany strategic American clients operating in semi-conductors and embedded software.

Mindtree's acquisition of Bluefin will strengthen presence in the European market, and also allow Mindtree bid for transformation deals.

Acquisition will help Wipro to evolve its go-to-market digital offerings. Designit's capabilities in strategic design, user experience and interaction design will complement Wipro Digital's capabilities

Mergers and Acquisitions: Aggressive M&A continues to drive the industry forward

| Source: Zinnov research and analysis

Insights

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2

3

Mid Sized PES companies are exploring PE investments to help them scale

Global Players are exploring India based delivery approach through acquisition of niche service providers with an offshore presence.

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Service providers are extensively investing in digital services companies across the entire value chain to offer comprehensive suite of offerings to their customers

Bangalore 69 "Prathiba Complex", 4th 'A' Cross, Koramangala 5th Block,Bangalore-560 095. Phone: +91-80-41127925/6

SingaporeLevel 42, Suntec Tower Three8 Temasek BoulevardSingapore 038988Phone:+65 6829 2123

Texas21, Waterway AveSuite 300 The WoodlandsTX-77380 USAPhone:+1-281-362-2773 

BeijingMeilifang Tower 4, Entrance 4, 10/F #1003,11 Beiyuan Shuangying Road,Chaoyang District, BeijingChina 100012 

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