Spotlight on Germany's evolving ER&D operating model strategy: Tapping into India advantage

This report explores the changing ER&D landscape in Europe and delves deeper into the German market as a forerunner. It aims to provide an overview of the key Engineering, Research, and Development (ER&D) trends impacting Germany and sheds light on top five sectors highlighting the R&D spend priorities and use cases. Covering the key ER&D investment priorities for German-headquartered companies across the themes of digitalization, autonomy, and sustainability, and emerging skills (both core and digital) in demand, the report provides a comprehensive analysis. Priority within the ER&D sector has evolved to prioritizing time-to-value challenging the status quo of the German companies. As German ER&D companies focus on retaining their dominance, capitalizing on the gains from digital engineering, intelligent R&D, and innovation is becoming a key imperative. In this scenario, India has emerged as a key supply market and a leading global hub for engineering services – for both GCC and ESP-led models.

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Key Findings

Europe accounts for ~24% of global R&D spend as of FY 2023, with Engineering, and R&D (ER&D) remaining a cornerstone of innovation and economic growth for the region.
Germany leads the pack in Europe in fostering ER&D excellence, accounting for ~36% of Europe’s spend on R&D.
Automobiles and Parts (Auto), Electronic and Electrical Equipment (EEE), Software & Computer (S&C), Healthcare Equipment & Services (HE&S), and Industrial Engineering (IE) remain the top ER&D spend sectors.

ER&D strategy of successful German and European companies is underpinned by digitalization powered by autonomy (i.e., autonomous systems) to achieve sustainability-centric innovation.
Key Drivers for Germany’s R&D growth – Core engineering talent pool availability, governmental support for R&D ecosystem, strong industry-academia collaboration, and a thriving start-up ecosystem.

With the shift towards digital engineering across sectors and value chain, organizations prefer to use India centers with their tech-savvy talent pool.
India’s sizeable opportunity in German and global ER&D industry is defined by its matured Global Capability Center (GCC) and Engineering Service Provider (ESP) ecosystems that coexist and continue to flourish.
While offshoring to GCCs and outsourcing to ESPs have traditionally been the most preferred models for ER&D organizations, a burgeoning interest in co-creation with start-ups, academia and competitors is redefining the India ER&D industry.

~24 percent of the global top 50 engineering service providers are headquartered in India, that cater to the German and the global market.
India has emerged as the GCC capital of the world with a significant market share.
India’s ER&D segment forms nearly 1/4th share of the total Indian tech industry in terms of revenues.

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