New Delhi: In a rapidly evolving landscape of key industrial sectors facing significant technological disruption, investing in Engineering, Research & Development (ER&D) has become inevitable.
The global ER&D industry is poised for substantial growth, projected to increase from an estimated USD 1.5-1.8 trillion in 2023 to USD 2.5trillion -3.3 trillion by 2030, with a robust compound annual growth rate (CAGR) of 8-9%. India stands as a prominent hub for ER&D outsourcing, with a spending of around USD 44-45 billion in 2023, and it is anticipated to maintain its strong position with expected spending reaching USD 130 billion 170 billion in 2030.
In every passing year and decade, the opportunities and challenges in the ER&D sector fluctuate. Today, we find ourselves at the threshold of a new era in Engineering Research & Development, where the acceleration of ER&D intensity is no longer a choice but a necessity, a mandate.
The global ER&D spending is experiencing remarkable expansion, driven by factors like access to a global talent pool, the pursuit of enhanced agility and scalability, and cost optimization. This presents a wealth of opportunities for industry players and economies worldwide.
The collaborative report by NASSCOM and BCG, titled ‘Seizing the ER&D Advantage – Frontiers for 2030,’ offers a profound examination of the transformative forces shaping the ER&D industry and its trajectory into 2030. It delineates global ER&D spending, the major trends influencing the industry, the sectors leading this growth, and more, both in the present and future.
Additionally, the report sheds light on India’s potential to become a global leader in ER&D. The survey, conducted with over 280 executives across nine sectors, provides insights into the outlook on ER&D intensity, preferred and potential outsourcing destinations, challenges faced by companies looking to outsource their ER&D, and the specific skill sets expected to be in demand in the coming 5-7 years.
The report’s central question revolves around India’s position in the Business ER&D sourcing market in 2030. While India is currently performing well in this space, the report indicates a bright future for India based on two crucial factors – the unparalleled scale of India’s Engineering talent and the potential to leverage existing relationships Indian firms have cultivated through past work.
India is projected to increase its share of the Global ER&D sourcing market to 22% in 2030, compared to 17% in 2023. Several factors come into play here, including favorable demographic trends (e.g., the decline in working-age populations in developed countries) and the need for India to establish a compelling global brand story for its ER&D capabilities. Ultimately, the country that can collectively adapt and enhance its service offerings, such as upskilling in digital engineering or acquiring specialized skills in areas like electric vehicle platform development, will capture a disproportionate share of future spending.
Key Findings
Increasing global ER&D spending
Globally, ER&D spending has accelerated post-pandemic, with a CAGR of 7%-8% from 2020 to 2023.
Five mega trends driving this growth include Digital Engineering, Climate & Sustainability, AI Augmentation, Service Orientation, Population and Skill Inversion.
The imperative for investment in ER&D is driven by the massive technological disruptions in key sectors, compelling the development of new products, solutions, and operational models.
The top three sectors propelling this growth are automotive, healthcare and medical devices, and energy, utilities, oil, and gas.
Expenditure by sector and region
Overall, Global Business ER&D spending is forecasted to grow from USD 1.5trillion -1.8 trillion in 2023 to USD 2.5trillion -3.3 trillion in 2030, marking a CAGR of 8-9% during this period.
The top three sectors expected to contribute approximately 50% of Global ER&D Spend by 2030 are Healthcare & Medical Devices, Automotive, and Telecommunications.
Apart from the largest market, the US, six other key geographical regions and countries are significant in ER&D spending, including Japan, South Korea, Germany, France, the United Kingdom, and the Nordics in 2023.
Global ER&D sourcing and India’s opportunity
Total ER&D Sourcing is projected to rise from USD 210 billion -280 billion in 2023 to USD 600 billion–770 billion in 2030. This surge is driven by the desire to access cost-effective talent and the ability to build large teams at scale. Furthermore, scalability and agility have become key drivers for sourcing across all sectors.
India remains a major player in ER&D sourcing, with spending reaching USD 44billion –USD 45 billion in 2023. It is expected to maintain a strong position with projected spending of USD 130 billion-USD170 billion in 2030.
However, emerging locations like Thailand, Malaysia, Poland, Colombia, and Bulgaria are expected to pose stiff competition. India’s unique offering includes a large number of STEM graduates and a competitive innovation index among mid-sized economies.
Imperatives for India’s success
For this growth, India needs a comprehensive action plan, including:
Infrastructure & Policy Support: Providing robust infrastructure and incentives to attract players interested in entering India and fostering an innovation-focused ecosystem.
Branding and promotion: Promoting India as a preferred global ER&D destination through events, fairs, and other initiatives.
Skilling & Research Focus: Developing relevant talent at scale by aligning with industry demands for skillsets, curriculum redevelopment, and hands-on training through internships.
