Bangalore home to highest average pay scale: Report

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Bangalore (312), Pune (96) and NCR (87) are home to more than half of the estimated 594 captive R&D centers located in India. Chennai (39) and Hyderabad (55) also have a large number of R&D centers.

However, increase in operating costs of captive R&D centers in India by more than 10 percent over the last one year has forced MNCs to restructure their human resource functions and policies that includes implementing measures to improve productivity of engineers (88 percent), hire more junior talent (63 percent), adopt stringent performance appraisal (38 percent) and reduce travel of executives.

While hike in salary (55-80 percent) has contributed the most to increase in operating costs of captive R&D centers, facility cost (15-20 percent), travel cost (2-12 percent) and communication cost (2-12 percent) are the other major factors.

"To reduce facility costs, companies are planning to sub-lease their vacant space and taking up space outside central business districts," Economic Times cited Pari Natarajan, CEO, Zinnov, as saying.

"For companies who have set up research facilities in India for cost saving, the rise in operating cost has become a cause of concern. As a result, there is a focus on fresher since the salary of a fresh graduate is 50-60 percent less than someone with three years experience," Natarajan was cited as saying.

Consequently, almost 67 percent of companies have seen a fall in the attrition rate in the last six months, he said.

"Operating cost escalation has become a serious constraint to the growth of R&D centers in India. We estimate the cost per employee to grow at CAGR of 14.3 percent over the period of next five years," Natarajan said, adding that the cost rise has been primarily due to rise in salaries and the steep appreciation of the Indian rupee against the dollar.

Not surprisingly, companies like Dell Inc., Bose Corp. India Pvt. Ltd, Kana Software, Pervasive Software Technologies and Riya Inc have shut their R&D units in India and relocated elsewhere.

Operating costs and salary inflation will also stabilize after 2009, Zinnov said, as companies will increasingly tap tier-II cities to hire fresh talent and cut down on costs.

While small companies are expected to use third party services and temporary contractors to keep a check on costs, mid-sized firms, who followed the collaborative model, may move into own captive centers, it said.

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