The MNC R&D centres in India are caught in the downturn spiral. The growth of India’s R&D offshoring sector, valued at $10 billion at last count, is projected to taper down in 2009 to 14% from 21% last year, according to a study by HR and offshoring advisory firm Zinnov Management Consulting Pvt.Ltd.

The sobering prediction for product R&D firms comes in the wake of decisions to set up new captive R&D centres being deferred as upfront capital investment has dried up considerably, said Chandramouli CS, director at the consultancy which provides advisory services to MNCs wanting to set up offshoring operations in India and elsewhere.

With the slowdown staring in the face, firms are rolling back their R&D spends and some of the existing centres are in talks with vendors for a BOT model to pare investment costs. India is the R&D hub to 671 firms with over 780 research centres present in India.

Chandramouli was talking on the sidelines of an event to release the ‘Compensation and Benefits Study 2009’ released by the firm in Bangalore on Thursday. The study surveyed 30 software product development companies spread over three cities —Bangalore, Pune and Chennai.

The economic strain is taking its toll on the pay packets too. In Jan 2009, 27% of the participating firms announced a salary freeze across the board. The average increment levels have dropped between 5% and 12%, while 15% of the companies have put off their appraisal cycles. The salary cuts across board were 5-10%.

Firms are trying to hold on to key talent by offering short-term incentive schemes liking individual performance to that of the organisation. Companies are trying to address critical business needs without losing talent. They are focusing on variable pay to incetivise employees and are rewarding top performing employees.

Talking about the compensation trends across cities, Sahana Shetty, senior consultant, Zinnov, said Bangalore continues to score over Pune and Chennai when it comes to the average pay packets for engineers and quality positions. The city offers 5% higher salaries than Pune and 8% more than Chennai.”

Compensation trends among senior positions in functions like engineering, quality testing and technical architects continue to stay upbeat, while the junior positions in Pune and Chennai are is 2% and 3% lower than Bangalore. In Chennai, the average salaries of engineering managers and technical architects are 4% lower than Bangalore.

The attrition across board is the lowest in 2008 when compared to the last two years. Bangalore continues to reflect high attrition rate among the trio and the churn among participating companies varied between 5-8%. To cut the slack, organisations have weeded out 5-10% of low performers. India will take centrestage as the global R&D hub for companies who are moving towards full product ownership here. This also provides them an opportunity to introduce more product lines. With Indian having only 800-1,000 product managers, who act as an interface between customers and their marketing team, the demand for these top jobs will grow manifold with India emerging as an innovation powerhouse.

Shilpa Phadnis/ DNA-Daily News & Analysis Source: 3D Syndicatio