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Engineering Services ER&D Captive Centers Trends in Q3 2017 | 1

E

China Pips India in ER&D Captive Centers
Announcements in Q3 2017
Engineering Services Captive Centers Trends in Q3 2017
February 2018 | Authors: Pareekh Jain, Senior VP, Engineering Services, HfS Research; and Tanmoy
Mondal, Senior Research Analyst, HfS Research

Overview
Welcome to the Q3 2017 edition of our quarterly engineering services captive centers trends analysis.
Every quarter, we bring you our research and analysis of the location moves of enterprises. The full details
of our Q3 2017 engineering services captive centers research data are shown in the exhibits. An analysis
of the engineering services quarterly announcements of captive centers establishments and expansions
provides interesting insights into the state of the engineering services outsourcing market and emerging
trends. Our key takeaways from the trends of this quarter include the following:

The Details
The key findings of this study are the following:

» China, India, and the United States are hot spots for captive centers: In Q3 2017, there were 9
captive ER&D center announcements for China, followed by 8 for India, and 8 in the United States,
as shown in Exhibit 1 and Exhibit 8. In addition, we identified 25 captive ER&D location moves by
enterprises across Romania, Singapore, South Korea, Israel, Spain, Sweden, and the United
Kingdom. In India, popular ER&D locations were Bengaluru, Bhiwadi, Mysuru, Pune, and
Hyderabad.

The Services Research Company™
© 2018, HfS Research Ltd | www.hfsresearch.com | www.horsesforsources.com

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the greatest activity was in the automotive industry (13 centers). 2018 The Services Research Company™ © 2018. In the automotive vertical. as shown in Exhibit 2 and Exhibit 8. etc. and ISV are hot verticals for ER&D centers: Among the verticals. machine learning.com | www. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 2 E Exhibit 1: The Percentage of ER&D Center Announcements by Country in Q3 2017 China 17% Others 29% India 15% South Africa 4% Romania US 4% 15% Germany Israel UK 4% 5% 7% Source: HfS Research.horsesforsources. among others. 2018 » Automotive. hi-tech. the focus is on digital technologies such as analytics. testing labs. Exhibit 2: The Percentage of ER&D Center Announcements by Industry in Q3 2017 Others 9% Utility Automotive 6% 24% Telecom 6% Chemicals 6% Industrial Equipment 7% Hi Tech Consumer 18% Electronics 9% Internet/ISV 15% Source: HfS Research. electric vehicles. In the Internet/ISV segment. cyber security.hfsresearch. and localization of vehicles.com 28564eb0 . followed by the hi-tech industry (11 centers). HfS Research Ltd | www. The hi-tech research facilities are established as a part of the adjacent manufacturing facility and overall global product development. and ISV (8 centers) industries. the focus of the R&D centers is on autonomous driving.

China was ahead of India in terms of the number of captive centers announcements. whereas China has manufacturing engineering capability. the gap between the number of captive centers announcements in China and India has reduced. India has differentiated itself in the ISV vertical by developing capability in the software domain. Exhibit 3: The Distribution of ER&D Center Announcements by Industry in China. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 3 E » Automotive and hi-tech are hot verticals for ER&D centers in China. among the verticals.com | www. as shown in Exhibit 4. India. as shown in Exhibit 3 and Exhibit 8 in these three countries. Traditionally. In India and the United States. most of the ER&D centers are announced by automotive and ISV/Internet enterprises. 2018 » China has outperformed India in captive centers announcements: In Q3 2017.horsesforsources. and the United States: In China. India.hfsresearch. The Services Research Company™ © 2018. From Q2 2016 onward. and the United States. India. HfS Research Ltd | www. and autonomous robotics.com 28564eb0 . and the United States in Q3 2017 1 1 3 1 4 1 3 1 1 1 1 3 1 2 1 China India US Automotive Chemicals Consumer Electronics Hi Tech Internet/ISV Semiconductor Source: HfS Research. Siemens has announced three research facilities in China in the areas of industrial software. followed by the automotive industry (6 centers) in China. hi-tech enterprises have announced the most number of captive ER&D centers. Overall. the most activity was in the hi-tech industry (8 centers). intelligent manufacturing.

Vietnam.com 28564eb0 . and Brazil. enterprises have established half of their captive centers in high-cost countries. while the percentage of low-cost countries has increased significantly. a majority of the ER&D captive centers were announced in China. Over the quarters. Hungary. HfS Research Ltd | www. the overall percentage of ER&D captive announcements in India is slowing down. Among the low-cost countries.com | www. followed by Romania. 2018 The Services Research Company™ © 2018. from Q2 16. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 4 E Exhibit 4: Comparison of Number of Captive Centers Announcements in China and India over the Quarters Number of captive centers announcements in China Number of captive centers announcements in India 30 25 20 15 10 5 0 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Source: HfS Research.horsesforsources. and Poland. 2018 » The pace of total captive centers announcement in India is slowing down: As shown in Exhibit 5.hfsresearch. Exhibit 5: The Percentage Distribution of ER&D Center Announcements by Countries over the Quarters 19% 16% 15% 22% 30% 30% 35% 21% 24% 35% 35% 15% 16% 21% 56% 54% 60% 54% 48% 50% 44% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 High-Cost Countries Low-Cost Countries India Source: HfS Research. Some of the other prominent countries are Thailand.

as shown in Exhibit 7 and Exhibit 8. in Q3 2017. robotics.com 28564eb0 . the number of captive center announcements is the lowest in comparison to the last five quarters. we observed 54 captive ER&D center announcements. including 5 expansions and the establishment of 49 new R&D centers. Amazon. local and global product development.horsesforsources. HfS Research Ltd | www. We are anticipating the number of captive announcements to increase from the next quarter. autonomous driving. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 5 E » The pace of total captive centers announcement is slowing down: As shown in Exhibit 6 and Exhibit 8. we identified more than one captive center announcements from five companies: Siemens.com | www. Exhibit 6: Comparison of Number of Captive Centers Announcements over the Quarters 10 21 11 6 12 5 69 64 60 57 50 49 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Source: HfS Research. and ZTE. Overall. 2018 The Services Research Company™ © 2018.hfsresearch. and networking. 2018 New Expansion » Siemens leads the captive centers chart: In Q3 2017. BMW. and Mercedes-Benz) 1 Source: HfS Research. including machine learning. Foxconn. smart manufacturing. Microsoft. Exhibit 7: Number of ER&D Captive Center Announcements by Enterprises in Q3 2017 Company Name Number of Captive Centers Siemens 4 Amazon 2 Cummins 2 Foxconn 2 ZTE 2 Others (42 companies including ABB. Cummins. The focus areas of these five companies are scattered across ER&D areas.

The research center will Wijk bij Industrial focus on its products and AEGIR-Marine Netherlands New Sep-17 Duurstede Equipment services portfolio for innovation. The company aims to make the center a base for collaboration with regional Air Products Saudi Arabia Dhahran New Sep-17 Oil & Gas universities and for supporting all of Air Products’ technical activities in the region. The Services Research Company™ © 2018. Amazon is expanding the size of its new UK headquarters Amazon UK Expansion Jul-17 Internet/ISV to support the growth of its Prime Video service in Europe. HfS Research Ltd | www.com | www.hfsresearch. Exhibit 8: Details of the Location Moves by Engineering and R&D Centers in Q3 2017 Enterprise Country City/State Expansion/ Month ER&D Vertical Details New ABB has completed its acquisition of the automation Industrial supplier B&R and has ABB Austria Salzburg New Jul-17 Equipment announced plans to build an R&D center next to B&R’s headquarters.horsesforsources.com 28564eb0 . Engineering Services ER&D Captive Centers Trends in Q3 2017 | 6 E Research Exhibits The following section includes the ER&D center location moves for enterprises across all industries in the engineering services domain in Q3 2017. It plans to establish a new machine learning-focused R&D hub in Barcelona and Amazon Spain Barcelona New Sep-17 Internet/ISV expects to hire 100+ engineers and scientists for the facility.

The India engineering center is the largest outside Crestron India New Sep-17 Hi-Tech the United States and hosts three dedicated labs for digital media. including IoT.000+ square meters of area and is by far the BMW Group's largest auto R&D BMW China Shenyang New Jul-17 Automotive hub outside Germany. R&D center in Sibiu and to Continental Romania Sibiu New Automotive 17 hire 1. The Services Research Company™ © 2018.com 28564eb0 . It has opened a storage and distribution center in Coca Cola Singapore Singapore New Jul-17 Retail & CPG Singapore and is planning to open its first R&D center in the country. It plans to open a second Aug.hfsresearch. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 7 E BMW Brilliance Automotive (BBA) has established a new R&D center that covers 40. a dedicated lab for audio device testing.com | www. It will invest INR 1.horsesforsources. HfS Research Ltd | www. The R&D center will focus on Crestron products and quality engineering.000 people in the following years. commercial and residential lighting.500 crore in the new R&D facility for Aug- Cummins India Pune New Automotive both India-specific and global 17 products development. The center will focus on new energy technology to establish a complete R&D and production chain in China.

4 million) into the entire China Wuhan New Sep-17 Automotive Renault R&D center. It plans to establish an R&D center at the Mohammad Bin Rashid Al Maktoum Solar Park. The company has invested nearly 590 million yuan Dongfeng ($89.com 28564eb0 . The company plans to transform its current Aug. HfS Research Ltd | www. The company will invest about $100 million for the Aug.hfsresearch. energy efficiency. smart grid integration. including the production of electricity from solar energy. The facility will include 17 technologically-advanced labs and office spaces for about 30 employees. with a total investment of Dh500 million up to 2020. consisting of a prototype shop. and test track. Dewa UAE Dubai New Jul-17 Utility The facility will work on four main areas of operations.horsesforsources. and water. Warwickshire engineering Detroit Electric UK Warwickshire New Automotive 17 and manufacturing center into a fully-fledged R&D center. innovation center that is Dow Chemical US Midland New Chemicals 17 expected to accommodate about 200 employees.com | www. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 8 E The R&D center will support all of Cummins' aftermarket business throughout the Aug- Cummins Mexico New Automotive world. test lab. The Services Research Company™ © 2018.

According to reports. It plans to invest $2. in the research facility that Flex-N-Gate US New Automotive Heights 17 will create about 50 jobs.com | www. advanced infrastructure. including an R&D facility and manufacturing plant. and proximity Dynacommerce India Bengaluru New Sep-17 Internet/ISV to other fast. The R&D facility aims to further enhance Electrolube’s capability as a Electrolube China Suzhou New Sep-17 Chemicals supplier to meet the specific needs of Chinese manufacturers. The center will cater to rapid and flexible manufacturing of ETAL UK Lewes New Jul-17 Hi-Tech prototypes and small production batches.growing emerging markets are the key reasons for its first offshore facility in Bengaluru. the availability of world-class talent. The Services Research Company™ © 2018.250 crore) over five years Dyson India New Jul-17 Electronics in India.2 million Sterling Aug. HfS Research Ltd | www. The company plans to invest 150 million pounds (INR Consumer 1.horsesforsources. India to provide customer- Dunnhumby India New Internet/ISV 17 centric services and data- driven solutions to its global clients.hfsresearch.com 28564eb0 . Engineering Services ER&D Captive Centers Trends in Q3 2017 | 9 E The company plans to open its second R&D center in Aug.

the company plans to invest 4. Foxconn is planning to build a Aug. 3D printing HeyGears China Foshan New Jul-17 Electronics research and development center. The Services Research Company™ © 2018. The R&D facility will consist of three main sections: training and education base Consumer for 3D printing. HfS Research Ltd | www. The UK Clinton New Jul-17 Utility Energy R&D center will evaluate next generation bearing technology for GE’s own onshore wind business. According to reports. and 3D printing production service center. "multi-billion dollar" R&D Foxconn US Michigan New Hi-Tech 17 facility to develop self-driving cars.horsesforsources. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 10 E According to reports.5m) research facility to test prototype bearing designs for GE Renewable onshore wind turbines.58 billion yuan for the R&D Foxconn China Nanjing New Sep-17 Hi-Tech center in addition to a liquid crystal display TV plant and other facilities.hfsresearch. The company is planning to Consumer open an R&D center for Hisense South Africa New Jul-17 Electronics smartphones-related research.com | www. The company plans to set up a USD 29 million (EUR 25.com 28564eb0 .

According to reports. The company is investing USD $25 million in the R&D facility that will provide increased capacity for engineering. The expansion will also support the company’s growing portfolio of partners and customers in the region.578 billion) on an 800.horsesforsources.hfsresearch. Aug- Host Analytics India Hyderabad Expansion Internet/ISV and research and 17 development. HfS Research Ltd | www. making it the automaker’s third test course in the world after Japan and the United States.com 28564eb0 . Engineering Services ER&D Captive Centers Trends in Q3 2017 | 11 E Honda R&D Asia Pacific invested 1. product testing.7 billion Thai baht (Php 2. The center will work on electronics development in KTM Germany Rosenheim New Jul-17 Automotive the motorcycle segment. the company has reached an agreement with Capital OIZ administration for an integrated domestic solar Aug.000 square-meter property in Prachinburi. The Services Research Company™ © 2018. Honda Thailand Prachinburi New Jul-17 Automotive Thailand for vehicle testing. panel production facility and Kalyon Energy Turkey Ankara New Utility 17 research and development (R&D) center with an estimated investment of $450 million.com | www.

According to reports.horsesforsources. Consumer LG Electronics US Troy Expansion vehicle (EV) components in 17 Electronics Michigan and is also expanding the R&D center. The R&D center will focus on technology and products that Aug- Micron US Boise Expansion Semiconductor Micron plans to bring to the 17 market in the next five to 10 years. The center replaces a smaller Laird facility in nearby Holly.com | www. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 12 E The R&D center includes state-of-the-art engineering and design facilities. The research center is a part Aug- Lite-On China Tianjin New Semiconductor of the company's efforts to 17 develop smart cars. The company is establishing a factory for advanced electric Aug. it will Aug- Mercedes-Benz Portugal Lisbon New Automotive open an advanced R&D 17 center in Lisbon. an Laird US Grand Blanc New Sep-17 Hi Tech outdoor testing range. The new R&D center will Mavenir Israel Ra'anana New Jul-17 Telecom focus on 5G Network and Services solutions. sophisticated testing labs for quality assurance. The Services Research Company™ © 2018. HfS Research Ltd | www.com 28564eb0 . The research center will focus on self-driving cars and will work to develop a Lyft US Palo Alto New Jul-17 Internet/ISV network of hardware and software that other auto companies can use.hfsresearch. Michigan. and other facilities.

horsesforsources. The company will establish the world's largest nanotube production facility and a R&D OCSiAI Luxembourg Differdange New Jul-17 Hi Tech center. The Mitsubishi Aug- Philippines New Automotive company wants to establish Motors 17 R&D facility in the countries where it has a manufacturing plant.hfsresearch. HfS Research Ltd | www. Industrial in emerging technologies and Taiwan Taipei Expansion Instruments 17 Equipment applications in the fields of micro-LED and silicon photonics. The Services Research Company™ © 2018.com 28564eb0 . It is expected to generate 200 jobs. of which up to 50 will be in R&D. The R&D center will focus on Physik Industrial Germany Karlsruhe New Jul-17 future precision engineering Instrumente Equipment innovations. new manufacturing facility at India Bhiwadi New Automotive Scooters 17 Bhiwadi in 2018.com | www. The expansion is targeted to the future development of traditional LED-related technology. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 13 E It will build an innovation Aug- Microsoft Israel New Internet/ISV center as a part of its new 17 campus in Israel. it is planning to set up a research center in Philippines. and cooperation Oxford Aug. The company will establish a R&D center in addition to the Okinawa Aug. According to reports.

com 28564eb0 . The R&D center will build applications for Siemens Control Products and Systems (CPS) technology Siemens US Chicago New Sep-17 Hi-Tech and will employ 100+ professionals. According to reports. Both the industrial Aug. The company will build its industrial software global Aug. The R&D center will focus on Aerospace & Rafael Israel Beersheva New Sep-17 different areas of research in Defense aerospace and defense. R&D center in the Chengdu Siemens China Chengdu New Hi-Tech 17 high-tech development zone. The Services Research Company™ © 2018. software global R&D center Siemens China Chengdu New Hi-Tech 17 and this center will cost one billion yuan (about 147 million U. HfS Research Ltd | www.hfsresearch. Consumer Pylon Audio Poland New district and is being partially County 17 Electronics financed by the European Regional Development Fund.S.horsesforsources. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 14 E The center will be located in the Zambrów administrative Zambrów Aug.com | www. dollars). Siemens will develop an Intelligent Manufacturing Innovation Center in Chengdu. the facility will be a global Siemens China New Sep-17 Hi-Tech research center in autonomous robotics.

The R&D facility will build on the work being done in Japan by Toray’s parent company. Source: News reports and company websites. Front End. The company foresees benefits for the African market due to technology ZTE South Africa New Jul-17 Telecom innovations that are expected to emanate from this new facility.com 28564eb0 . Android. It plans to hire 10 software engineers for the R&D center Aug.horsesforsources. in the technology areas of Tremend Romania Brasov New Internet/ISV 17 PSP (Drupal and Magento). C++.hfsresearch. The company chooses Italy for a European 5G hub and ZTE Italy New Jul-17 Telecom aims to build an R&D center in collaboration with Italian universities. The Services Research Company™ © 2018. It is expected to open in 2018.com | www. JavaScript. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 15 E The facility will support Meritor to cater to the The Kalyani growing technological India Mysuru New Sep-17 Automotive Group. Czech supporting its strategy to be Toray Graphics New Sep-17 Chemicals Republic a full-service partner to waterless offset printing operations. Java. and QA. Meritor demands of both Indian customers and those in Asia- Pacific. but media announcements or news appeared in Q3 2017. Note: Actual timing of the location moves may differ. HfS Research Ltd | www.

He loves business fiction writing in his free time and his first novel "Who is that lady?" was published recently.horsesforsources.com. He established the global engineering services practice at HfS Research which covers mechanical engineering services.0. HfS engineering services quarterly trends. etc.hfsresearch. he was a key contributor on a number of engagements with leading US and European clients. Bangalore and a Bachelor of Technology from the Indian Institute of Technology (IIT) Delhi. and Industry 4. In his last assignment he gained the perspective of an outsourcing buyer as he led strategic planning.com 28564eb0 . which spanned across the outsourcing lifecycle. He also tracks telecom and manufacturing vertical along with outsourcing deals and runs India operations for HfS Research. software product engineering services. He started his career as a software engineer with Geometric. Pareekh has seen the engineering services outsourcing industry from three perspectives: service provider.jain@hfsresearch. product planning and R&D initiatives for the APAC region of Emerson Network Power—a Fortune 100 manufacturing multinational whose APAC operations are based in Kuala Lumpur. He was then with neoIT. PLM services. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 16 E About the Authors Pareekh Jain Pareekh Jain is a Senior Vice President at HfS Research. A seasoned outsourcing consultant. advisor and buyer. sales planning. He also produced neoIT’s seminal report on city competitiveness for outsourcing. an outsourcing advisory firm. engineering services. Pareekh is a thought leader. Pareekh received his MBA from the Indian Institute of Management (IIM). The Services Research Company™ © 2018. which gave him the service provider perspective. having authored a variety of publications on topics related to outsourcing. Follow him on Twitter @pareekhjain. Pareekh can be reached at pareekh. Malaysia. He is regularly quoted in media on engineering services and outsourcing trends. embedded engineering services. HfS Research Ltd | www. technology and regional competitiveness in outsourcing. HfS engineering services top 20. He authored various industry leading engineering services research reports including HfS engineering services blueprints.com | www. At neoIT.

Tanmoy has over 4 years of research. Follow him on twitter @17_mondal. he was part of the emerging technology team that helps finding companies (Start-ups) specializing in upcoming technologies (virtual/augmented reality. The Services Research Company™ © 2018. data analysis.com | www. identifying global trends in engineering services from both industry & technology perspectives. improving productivity & reducing business incidents. His coverage areas include mechanical engineering services. increasing IT integration among client business verticals. Tanmoy holds Master’s in Business Administration from IIFT (Indian Institute of Foreign Trade). At his TCS & HCL role. In Tracxn. Tanmoy is passionate about football and loves to read economics related books & articles. drone etc.0. and Bachelor of Engineering from Jadavpur University. tracking global outsourcing deals & investments including partnership agreements & R&D announcements in the sector and supporting the domain leads in secondary research. HCL and Tracxn.horsesforsources. Tanmoy can be reached at tanmoy. Engineering Services ER&D Captive Centers Trends in Q3 2017 | 17 E Tanmoy Mondal Tanmoy Mondal is a Senior Research Analyst at HfS Research. Kolkata. software product engineering services. He was responsible for analyzing the business scenario for ERP implementation for different industry verticals and participated in several Enterprise Transformation projects across domains to optimize the IT landscape.mondal@hfsresearch.) for acquisition & portfolio investments for PE and VC firms.com 28564eb0 . HfS Research Ltd | www. embedded engineering services. he has worked on preparing RFP responses including solution construct and commercial proposition. PoV’s and research writing.hfsresearch. and Industry 4. PLM services.com. pre-sales and market intelligence experience in TCS.

Engineering Services ER&D Captive Centers Trends in Q3 2017 | 18 E About HfS HfS’ mission is to provide visionary insight into the major innovations impacting business operations: automation. artificial intelligence.hfsresearch. HfS Research Ltd | www. technology suppliers. and third party advisors. The Services Research Company™ © 2018. Read more about HfS and our initiatives on our website. We influence the strategies of enterprise customers to develop operational backbones to stay competitive and partner with capable services providers. HfS is the changing face of the analyst industry combining knowledge with impact: » ThinkTank model to collaborate with enterprise customers and other industry stakeholders » 3000 enterprise customer interviews annually across the Global 2000 » A highly experienced analyst team » Unrivalled industry summits » Comprehensive data products on the future of operations and IT services across industries » A growing readership of over one million annually The "As-a-Service Economy" and "OneOffice™" are revolutionizing the industry.com | www. We focus on the future of operations across key industries.horsesforsources. blockchain. digital business models and smart analytics.com 28564eb0 .