Trends Captive

Engineering Services ER&D Captive Centers Trends in Q3 2017 | 1
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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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, 2018
» Automotive, hi-tech, and ISV are hot verticals for ER&D centers: Among the verticals, the greatest
activity was in the automotive industry (13 centers), followed by the hi-tech industry (11 centers), and
ISV (8 centers) industries, as shown in Exhibit 2 and Exhibit 8. In the automotive vertical, the focus of
the R&D centers is on autonomous driving, electric vehicles, testing labs, and localization of vehicles,
among others. The hi-tech research facilities are established as a part of the adjacent manufacturing
facility and overall global product development. In the Internet/ISV segment, the focus is on digital
technologies such as analytics, machine learning, cyber security, etc.
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%

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» Automotive and hi-tech are hot verticals for ER&D centers in China, India, and the United States:
In China, most of the ER&D centers are announced by automotive and ISV/Internet enterprises. In
India and the United States, hi-tech enterprises have announced the most number of captive ER&D
centers. Overall, among the verticals, the most activity was in the hi-tech industry (8 centers),
followed by the automotive industry (6 centers) in China, India, and the United States, as shown
in Exhibit 3 and Exhibit 8 in these three countries. Siemens has announced three research facilities
in China in the areas of industrial software, intelligent manufacturing, and autonomous robotics.
Exhibit 3: The Distribution of ER&D Center Announcements by Industry in China, India, 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
» China has outperformed India in captive centers announcements: In Q3 2017, China was ahead
of India in terms of the number of captive centers announcements. From Q2 2016 onward, the gap
between the number of captive centers announcements in China and India has reduced, as shown
in Exhibit 4. Traditionally, India has differentiated itself in the ISV vertical by developing capability
in the software domain, whereas China has manufacturing engineering capability.

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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
0
Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
» The pace of total captive centers announcement in India is slowing down: As shown in Exhibit 5,
from Q2 16, the overall percentage of ER&D captive announcements in India is slowing down. Over
the quarters, enterprises have established half of their captive centers in high-cost countries, while
the percentage of low-cost countries has increased significantly. Among the low-cost countries, a
majority of the ER&D captive centers were announced in China, followed by Romania, and Brazil.
Some of the other prominent countries are Thailand, Vietnam, Hungary, and Poland.
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


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» The pace of total captive centers announcement is slowing down: As shown in Exhibit 6 and
Exhibit 8, in Q3 2017, we observed 54 captive ER&D center announcements, including 5 expansions
and the establishment of 49 new R&D centers. Overall, the number of captive center
announcements is the lowest in comparison to the last five quarters. We are anticipating the
number of captive announcements to increase from the next quarter.
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, 2018 New Expansion
» Siemens leads the captive centers chart: In Q3 2017, we identified more than one captive center
announcements from five companies: Siemens, Amazon, Cummins, Foxconn, and ZTE, as shown in
Exhibit 7 and Exhibit 8. The focus areas of these five companies are scattered across ER&D areas,
including machine learning, local and global product development, autonomous driving, robotics,
smart manufacturing, and networking.
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, BMW, Microsoft, and Mercedes-Benz) 1

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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.
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.
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.
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.
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.

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BMW Brilliance Automotive

(BBA) has established a new
R&D center that covers
40,000+ 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. The
center will focus on new
energy technology to
establish a complete R&D
and production chain in
China.
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- R&D center in Sibiu and to
Continental Romania Sibiu New Automotive
17 hire 1,000 people in the
following years.
The R&D center will focus on

Crestron products and
quality engineering, including
IoT. 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, a dedicated lab
for audio device testing,
commercial and residential
lighting.
It will invest INR 1,500 crore

in the new R&D facility for
Aug-
Cummins India Pune New Automotive both India-specific and global
17
products development.

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The R&D center will support

all of Cummins' aftermarket
business throughout the
Aug-
Cummins Mexico New Automotive world. The facility will include
17
technologically-advanced
labs and office spaces for
about 30 employees.
The company plans to

transform its current
Aug- Warwickshire engineering
Detroit Electric UK Warwickshire New Automotive
17 and manufacturing center
into a fully-fledged R&D
center.
It plans to establish an R&D

center at the Mohammad Bin
Rashid Al Maktoum Solar
Park, with a total investment
of Dh500 million up to 2020.
Dewa UAE Dubai New Jul-17 Utility The facility will work on four
main areas of operations,
including the production of
electricity from solar energy,
smart grid integration,
energy efficiency, and water.
The company has invested

nearly 590 million yuan
Dongfeng ($89.4 million) into the entire
China Wuhan New Sep-17 Automotive
Renault R&D center, consisting of a
prototype shop, test lab, and
test track.
The company will invest

about $100 million for the
Aug- innovation center that is
Dow Chemical US Midland New Chemicals
17 expected to accommodate
about 200 employees.

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The company plans to open

its second R&D center in
Aug- India to provide customer-
Dunnhumby India New Internet/ISV
17 centric services and data-
driven solutions to its global
clients.
According to reports, the

availability of world-class
talent, advanced
infrastructure, and proximity
Dynacommerce India Bengaluru New Sep-17 Internet/ISV
to other fast- growing
emerging markets are the
key reasons for its first
offshore facility in Bengaluru.
The company plans to invest

150 million pounds (INR
Consumer 1,250 crore) over five years
Dyson India New Jul-17
Electronics in India, including an R&D
facility and manufacturing
plant.
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.
It plans to invest $2.2 million

Sterling Aug- in the research facility that
Flex-N-Gate US New Automotive
Heights 17 will create about 50 jobs.

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company plans to invest 4.58
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.
According to reports,
Foxconn is planning to build a
Aug- "multi-billion dollar" R&D
Foxconn US Michigan New Hi-Tech
17 facility to develop self-driving
cars.
The company plans to set up

a USD 29 million (EUR 25.5m)
research facility to test
prototype bearing designs for
GE Renewable onshore wind turbines. The
UK Clinton New Jul-17 Utility
Energy R&D center will evaluate next
generation bearing
technology for GE’s own
onshore wind business.
The R&D facility will consist

of three main sections:
training and education base
Consumer for 3D printing, 3D printing
HeyGears China Foshan New Jul-17
Electronics research and development
center, and 3D printing
production service center.
The company is planning to

Consumer open an R&D center for
Hisense South Africa New Jul-17
Electronics smartphones-related
research.

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Honda R&D Asia Pacific

invested 1.7 billion Thai baht
(Php 2.578 billion) on an
800,000 square-meter
property in Prachinburi,
Honda Thailand Prachinburi New Jul-17 Automotive
Thailand for vehicle testing,
making it the automaker’s
third test course in the world
after Japan and the United
States.
The company is investing

USD $25 million in the R&D
facility that will provide
increased capacity for
engineering, product testing,
Aug-
Host Analytics India Hyderabad Expansion Internet/ISV and research and
17
development. The expansion
will also support the
company’s growing portfolio
of partners and customers in
the region.

company has reached an
agreement with Capital OIZ
administration for an
integrated domestic solar
Aug- panel production facility and
Kalyon Energy Turkey Ankara New Utility
17 research and development
(R&D) center with an
estimated investment of
$450 million.
The center will work on

electronics development in
KTM Germany Rosenheim New Jul-17 Automotive the motorcycle segment.

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The R&D center includes

state-of-the-art engineering
and design facilities,
sophisticated testing labs for
quality assurance, an
Laird US Grand Blanc New Sep-17 Hi Tech
outdoor testing range, and
other facilities. The center
replaces a smaller Laird
facility in nearby Holly,
Michigan.
The company is establishing a

factory for advanced electric
Aug- Consumer
LG Electronics US Troy Expansion vehicle (EV) components in
17 Electronics
Michigan and is also
expanding the R&D center.
The research center is a part

Aug-
Lite-On China Tianjin New Semiconductor of the company's efforts to
17
develop smart cars.
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.
The new R&D center will

Mavenir Israel Ra'anana New Jul-17 Telecom focus on 5G Network and
Services solutions.
According to reports, it will

Aug-
Mercedes-Benz Portugal Lisbon New Automotive open an advanced R&D
17
center in Lisbon.

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.

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It will build an innovation

Aug-
Microsoft Israel New Internet/ISV center as a part of its new
17
campus in Israel.
According to reports, it is
planning to set up a research
center in Philippines. The
Mitsubishi Aug-
Philippines New Automotive company wants to establish
Motors 17
R&D facility in the countries
where it has a manufacturing
plant.
The company will establish

the world's largest nanotube
production facility and a R&D
OCSiAI Luxembourg Differdange New Jul-17 Hi Tech
center. It is expected to
generate 200 jobs, of which
up to 50 will be in R&D.
The company will establish a

R&D center in addition to the
Okinawa Aug- new manufacturing facility at
India Bhiwadi New Automotive
Scooters 17 Bhiwadi in 2018.
The expansion is targeted to

the future development of
traditional LED-related
technology, and cooperation
Oxford Aug- Industrial in emerging technologies and
Taiwan Taipei Expansion
Instruments 17 Equipment applications in the fields of
micro-LED and silicon
photonics.

Physik Industrial
Germany Karlsruhe New Jul-17 future precision engineering
Instrumente Equipment
innovations.

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The center will be located in

the Zambrów administrative
Zambrów Aug- Consumer
Pylon Audio Poland New district and is being partially
County 17 Electronics
financed by the European
Regional Development Fund.

Aerospace &
Rafael Israel Beersheva New Sep-17 different areas of research in
Defense
aerospace and defense.

facility will be a global
Siemens China New Sep-17 Hi-Tech
research center in
autonomous robotics.
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.
The company will build its

industrial software global
Aug- R&D center in the Chengdu
Siemens China Chengdu New Hi-Tech
17 high-tech development zone.
Siemens will develop an

Intelligent Manufacturing
Innovation Center in
Chengdu. Both the industrial
Aug- software global R&D center
Siemens China Chengdu New Hi-Tech
17 and this center will cost one
billion yuan (about 147
million U.S. dollars).

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The facility will support

Meritor to cater to the
The Kalyani growing technological
India Mysuru New Sep-17 Automotive
Group, Meritor demands of both Indian
customers and those in Asia-
Pacific.
The R&D facility will build on

the work being done in Japan
by Toray’s parent company,
Czech supporting its strategy to be
Toray Graphics New Sep-17 Chemicals
Republic a full-service partner to
waterless offset printing
operations. It is expected to
open in 2018.
It plans to hire 10 software

engineers for the R&D center
Aug- in the technology areas of
Tremend Romania Brasov New Internet/ISV
17 PSP (Drupal and Magento),
Java, JavaScript, C++,
Android, Front End, and QA.
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.
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.
Source: News reports and company websites. Note: Actual timing of the location moves may differ, but media
announcements or news appeared in Q3 2017.

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About the Authors

Pareekh Jain
Pareekh Jain is a Senior Vice President at HfS Research. He established the
global engineering services practice at HfS Research which covers
mechanical engineering services, embedded engineering services,
software product engineering services, PLM services, and Industry 4.0. He
also tracks telecom and manufacturing vertical along with outsourcing
deals and runs India operations for HfS Research. He authored various
industry leading engineering services research reports including HfS
engineering services blueprints, HfS engineering services top 20, HfS
engineering services quarterly trends, etc. He is regularly quoted in media
on engineering services and outsourcing trends.
A seasoned outsourcing consultant, Pareekh has seen the engineering services outsourcing industry from
three perspectives: service provider, advisor and buyer. He started his career as a software engineer with
Geometric, which gave him the service provider perspective. He was then with neoIT, an outsourcing
advisory firm. At neoIT, he was a key contributor on a number of engagements with leading US and
European clients, which spanned across the outsourcing lifecycle. He also produced neoIT’s seminal report
on city competitiveness for outsourcing. In his last assignment he gained the perspective of an outsourcing
buyer as he led strategic planning, sales planning, 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, Malaysia.
Pareekh is a thought leader, having authored a variety of publications on topics related to outsourcing,
engineering services, technology and regional competitiveness in outsourcing. He loves business fiction
writing in his free time and his first novel "Who is that lady?" was published recently.
Pareekh received his MBA from the Indian Institute of Management (IIM), Bangalore and a Bachelor of
Technology from the Indian Institute of Technology (IIT) Delhi.
Pareekh can be reached at pareekh.jain@hfsresearch.com. Follow him on Twitter @pareekhjain.

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Tanmoy Mondal
Tanmoy Mondal is a Senior Research Analyst at HfS Research, identifying
global trends in engineering services from both industry & technology
perspectives, tracking global outsourcing deals & investments including
partnership agreements & R&D announcements in the sector and
supporting the domain leads in secondary research, data analysis, PoV’s
and research writing. His coverage areas include mechanical engineering
services, embedded engineering services, software product engineering
services, PLM services, and Industry 4.0.
Tanmoy has over 4 years of research, pre-sales and market intelligence experience in TCS, HCL and Tracxn.
At his TCS & HCL role, he has worked on preparing RFP responses including solution construct and
commercial proposition. 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, increasing IT integration among client business verticals, improving
productivity & reducing business incidents. In Tracxn, he was part of the emerging technology team that
helps finding companies (Start-ups) specializing in upcoming technologies (virtual/augmented reality,
drone etc.) for acquisition & portfolio investments for PE and VC firms.
Tanmoy holds Master’s in Business Administration from IIFT (Indian Institute of Foreign Trade), and
Bachelor of Engineering from Jadavpur University, Kolkata.
Tanmoy is passionate about football and loves to read economics related books & articles.
Tanmoy can be reached at tanmoy.mondal@hfsresearch.com. Follow him on twitter @17_mondal.

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About HfS
HfS’ mission is to provide visionary insight into the major innovations impacting business operations:
automation, artificial intelligence, blockchain, digital business models and smart analytics.
We focus on the future of operations across key industries. We influence the strategies of enterprise
customers to develop operational backbones to stay competitive and partner with capable services
providers, technology suppliers, and third party advisors.
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
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The "As-a-Service Economy" and "OneOffice™" are revolutionizing the industry.
Read more about HfS and our initiatives on our website.

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

China Pips India in ER&D Captive Centers

The Services Research Company™

Exhibit 1: The Percentage of ER&D Center Announcements by Country in Q3 2017

Source: HfS Research, 2018

Exhibit 2: The Percentage of ER&D Center Announcements by Industry in Q3 2017

Source: HfS Research, 2018

The Services Research Company™

Automotive Chemicals Consumer Electronics Hi Tech Internet/ISV Semiconductor

Source: HfS Research, 2018

The Services Research Company™

Number of captive centers announcements in China

Source: HfS Research, 2018

19% 16% 15%

56% 54% 60%

High-Cost Countries Low-Cost Countries India

The Services Research Company™

Exhibit 6: Comparison of Number of Captive Centers Announcements over the Quarters

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017

Source: HfS Research, 2018 New Expansion

Exhibit 7: Number of ER&D Captive Center Announcements by Enterprises in Q3 2017

Company Name Number of Captive Centers

Others (42 companies including ABB, BMW, Microsoft, and Mercedes-Benz) 1

Source: HfS Research, 2018

The Services Research Company™

Enterprise Country City/State Expansion/ Month ER&D Vertical Details

ABB has completed its

The research center will

The company aims to make

Amazon is expanding the size

It plans to establish a new

The Services Research Company™

BMW Brilliance Automotive

It has opened a storage and

It plans to open a second

The R&D center will focus on

It will invest INR 1,500 crore

The Services Research Company™

The R&D center will support

The company plans to

It plans to establish an R&D

The company has invested

The company will invest

The Services Research Company™

The company plans to open

According to reports, the

The company plans to invest

The R&D facility aims to

The center will cater to rapid

It plans to invest $2.2 million

The Services Research Company™

According to reports, the

The company plans to set up

The R&D facility will consist

The company is planning to

The Services Research Company™

Honda R&D Asia Pacific

The company is investing

According to reports, the

The center will work on

The Services Research Company™

The R&D center includes

The company is establishing a

The research center is a part