Business Transformation

through Globalization

Globalization: An Innovation Imperative

Pari Natarajan
CEO
Zinnov

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 The current wave of globalization started in the 1980s and rapidly evolved
over the last 10 years
The Rapid Growth of the MNC R&D Centers in India & China

RedHat

Honeywell
Toyota
Volvo

Cisco
BenQ
Samsung
Sanyo Hyundai
Motorola LG
Lockheed
Hitachi Freescale Pace
Microsoft Nvidia Micro
EmersonIntelAlcatel Google
Pou Chen Lucent RockwellEMC
SAP IntelAutomation
Microsoft
Cisco China
Oracle India
MotorolaCadence
Texas
Instruments
1980s 1990s 2000s
Adventurous Early adopters The rest
Note:
Source: NASSCOM Strategic Review, FY 2009/ 2010; Zinnov India R&D Database Telecom Regulatory Authority of India (TRAI); Manufacturers Association of Information Technology (MAIT); Zinnov Analysis 1
 The presence of global 100 R&D spenders significantly increased between
2002 and 2007
India/ China R&D Center Evolution Pattern of Top 100 R&D Spenders

100%

90%

80%

70%

60%

50%

40%
84%
30% 68%

20%
33%
10%
15%
0% 3%
Till 1990 Till 1995 Till 2000 Till 2005 Till 2008

Note:
Source: European Union Industrial R&D Score Card; NASSCOM; Zinnov India R&D Database; Zinnov Analysis 2
 Most global centers are optimized mainly for cost savings and access to
relevant talent
R&D Globalization Driver Priority as Perceived by US Stakeholders (Percentage of
Respondents)
100%
8% 10%
17%
8%
23% 42%
75%

15%
8% 58%
50% 64%
17%

25% 54%
33%
25%
18%
0%
Cost Talent Market Access Innovation

Very High High Medium Low

Note:
Source: Data aggregated based on Zinnov Survey of 100+ US R&D Stakeholders in Nov 2009; Zinnov Analysis 3
 This has resulted in product teams of the MNCs operating at a sub-optimal
level of maturity and with low level of innovation capability
“Product team maturity vs. Time since product was transitioned to India”
Engineering Support Module Leadership Engineering Leadership Product Leadership

52% 24% 19% 4%

Time since the Product was moved to India

15

Sub-Optimal
7 (26%)

Highest
Progressive Value
3 (15%) (4%)

0
Levels of Maturity

Note:
Source: Data aggregated based on the analysis of more than 200 product teams across multiple MNC R&D centers in India; Zinnov Analysis 4
Different functions of shared services are at different maturity levels. They
are optimized for cost savings and for supporting local operations
Globalization Maturity of Support
Functions
High

Customer IT*
Globalization Rate

F&A
Support

Human
Resources

Procurement
Inside
Sales & Sales
Marketing

Low
Laggards Rapidly Mature
Growing
Maturity

5
 While companies have been setting up their operations in emerging
locations, the market in these locations has seen rapid growth (1/2)
Split of top 1000 Global Split of Small & Mid- Annual Per Capita
Companies by HQ Location sized Businesses by Disposable Income (in USD
Location (in Millions) Thousands)
100% 120 $6

75% 90
$4

50% 60

$2
221
25% 30

58
12
0% 0 $0
2000 2009 2015E 2000 2009 2015E 2000 2009 2015E
India & China Others India & China US India China Developed Economies

Note:
Source: Euro monitor International; Zinnov Syndicated Study on SMB Landscape in India; NASSCOM Strategic Review FY 2009/10; Forbes.com; FICCI; Zinnov Analysis 6
 While companies have been setting up their operations in emerging
locations, the market in these locations has seen rapid growth (2/2)
Expected YoY IT Spend Growth, 2010

16%
13.5%
11.5% 12.0%
12%
9.0%

8%
6.0%
5.0%

4%

0.0% 0.0%
0% -1.0%

-4%
India China Asia Western Central/ Middle Latin North Canada
Pacific Europe Eastern East & America America
Europe Africa

Note:
Source: Telecom Regulatory Authority of India (TRAI); Zinnov Syndicated Study on SMB Landscape in India; NASSCOM Strategic Review FY 2009/10; Forbes.com; FICCI; Zinnov Analysis 7
 The innovation ecosystem has also evolved and will continue to strengthen
in the next five years (1/2)
Growth of MNC R&D Talent Number of Patents
Pool in Thousands, 2000- filed (1990 to 2015E)
2009 50,000
560 549

480 40,000
230
400
30,000
320 310

240 130 20,000

160 319
10,000
180
80
32
0 0
2000 2009 2015E 1990 2000 2009 2015E
India China
India China

Note:
Source: Zinnov India/ China R&D Database; Primary Interviews with Key Stakeholders; World Intellectual Property Organization; US Patents and Trade Office, Zinnov Analysis 8
 The innovation ecosystem has also evolved and will continue to strengthen
in the next five years (2/2)
Research Scenario in Tier-1 and Number of Software Product
Tier-2 Universities in India in 2010 Start-ups in India (2000 to
2015E)
1,500
400 Average # of 1,200
1,061 Strategic 1,329
Research
Projects 1,000
300 Average # of

Number of PhD Scholars

Number of Projects

Consulting
800 1,000
Projects

200 Average # of 600

359 Doctorate
518
Scholars
400 500
100
148 161
200 126
63
0 36 0 0
Tier - 1
Tier-1 Tier-2
Tier - 2 2000 2009 2015E
Universities Universities

Note:
Source: Zinnov India/ China R&D Database; Primary Interviews with Key Stakeholders; World Intellectual Property Organization; US Patents and Trade Office, Zinnov Analysis 9
 The service providers also play an important role in the maturing R&D
ecosystem in emerging locations

a
Capabilities
across Various
Emerging
Locations

GTM Partners IP Led

with Focus on Evolving Service Solutions/ b
e
Emerging Focus on
Providers
Markets Products
Ecosystem

Reduce Cost
Revenue Share
Pressure on
d Models for c
Product
Sunset Products
Companies

Note:
Source: Zinnov Analysis 10
 Local companies in emerging locations are leveraging the innovation
ecosystem to compete in both global and local markets

a
MNCs from Emerging
locations
• Asian companies are increasing their R&D investments to
come up with products that compete against global MNCs

b
Leveraging emerging
market linkages

• Companies in India are increasingly leveraging the

manufacturing ecosystem of China and Chinese companies are
looking to leverage the mature R&D talent pool in India

c Global start ups

• Disruptive technology and business models such as

Cloud/SaaS is allowing start up companies to leverage the
emerging market ecosystem

Note:
Source: Zinnov Syndicated Study on SMB Landscape in India 11
Global MNCs should rapidly evolve and transform their emerging location
centers to increase their innovation capability

Global Strategic
Strategic Partnership
Independence
Operational
Cost Savings
Operational Independence
Support Cost Savings Talent Access

Cost Savings Talent Access Innovation

Talent Access Access to New

Cost Savings Innovation
Markets
Innovation Access to New
Talent Access Markets
Access to New
Innovation Markets

Access to New
Markets

12
 Companies face a number of key challenges in this transformation. Some
are real and some are perceived challenges
• Middle management
• Global teams do not
teams in the US tend
have deep domain
to micromanage the
expertise
global teams 1 2

Micro- Lack of domain

management expertise

• Emerging location
teams do not have Lack of • Productivity at India
6
Lower 3
access to customers centre is perceived to
customer Productivity
at developed be lower than US
access
locations

Cost escalation High attrition

5 4
• Costs in emerging • Attrition at global
locations continue to centres is very high
increase at 15% to and could result in
20% a year business continuity
risks
Note:
Source: Zinnov Analysis 13
Companies should focus on the key enablers to improve the innovation
capability of their centers

Global Strategic
Strategic Partnership
Independence
Operational
Independence Global Leadership
Operational Engineering
Support Leadership Global Innovation
Groups
Delivery Leadership Business Leadership
Global Visibility
Engineering Talent
Focused Ecosystem
Process Leadership Linkage Global HR
Process Management HR as a Change
Advanced
Infrastructure Agent
Basic Infrastructure
HR as a Growth
Agent
HR as Support

Key Enablers
14
 Organizations that moved to higher level of maturity have similar
characteristics in their approach
1
Technical Leadership

2
Product management

3
Customer engagement

4
Ecosystem connect

5
Global roles

6
Organization structure

Note:
Source: Zinnov Analysis 15
 If the Roman empire could figure this out 2000 years ago, we can as well…

Globalization Footprint of the Roman Empire

Drank wine
from Spain
or France
Ate fish from Silk from
Gibraltar China
Diamonds/
Dressed in Pearls from
Ate bread garments of
India
baked with Linen from
Furniture in
wheat grown Egypt
Indian Ebony/
in North
Teak
Africa or
Egypt

Based on a 2008 article by Peter Jones and Lionel Casson in the Spectator
Note:
Source: Based on a 2008 article by Peter Jones and Lionel Casson in the Spectator; “Globalization Is Great!” by Tom G. Palmer, Senior Fellow, Cato Institute; Zinnov Analysis 16
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