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January 2025 Table of contents Foreword4Executive summary6Guide to the report101. Introduction: Europe ER&D overview122. Spotlight Germany: Themes and spend trendsacross focus sectors193. Strategies for future-proofing Germany’sER&D landscape404. Spotlight India: ER&D for the world445. Epilogue: Charting the course ahead64Glossary70Connect with us78 Foreword Both as Deloitte and Nasscom, we are, as aresult, seeing a massive surge in interest fromEuropean companies (especially Germany-basedheadquartered ones) seeking to understandbetter how they can tap into the talent diversity,scalability and cost-effectiveness of servicedelivery destinations such as India to make theirsourcing strategy more versatile and resilient toglobal disruptions. While some German companieshave become pioneers in this regard with theirstrong globalised ER&D model, many otherEuropean companies are just beginning to exploreopportunities and venture into the Indian market. Engineering Research and Development (ER&D) isundoubtedly now a pivotal area of attention forevery organisation globally in the rapidly evolvingbusiness landscape. A strong ER&D strategy hasbecome paramount for companies in their effortsto drive innovation, foster competitiveness andbolster economic prospects. A robust innovationroadmap sets apart leading organisations acrossall sectors, and investors often view a strongproduct pipeline as an indicator of a company'slong-term success. Engineering Service Providers or ESPs), start-upsor other players of the ER&D ecosystem to addressassociated asks and challenges to deliver value forthe company and its customers. We have aimed to ensure this report hassomething for every reader—Europe C-suiteexecutives, R&D heads, GCC leadership, ESPs,start-ups, academia and its researchers,government officials and industry associations.We sincerely hope you find this report insightfuland instructive. Companies are increasingly focusing on enhancingtheir ER&D approach and ensuring their sourcingmodel is not just sustainable but poised for thelong run. Today, ER&D activities are increasinglybeing carried out globally, often becoming a coremandate of Global Capability Centres (GCCs) fromwhere work is delivered. There are also numerousexamples of open innovation efforts that engagestart-ups, third-party providers, academiaand competitors to create mutually beneficialpropositions for involved parties. The consensus, therefore, was that now is theright time to publish a study to understand howthe global and Germany-specific market trendsare changing the nature of ER&D function withinorganisations. This report attempts to specificallystudy one of the most mature markets in Europe,mainly focusing on Germany. The intention isto use it as a case study to understand whatworks best for Europe and what we can expectin the future. Additionally, we aim to explorehow well-established hubs such as India aretaking on strategic roles in ER&D functions forcompanies. We will also examine select examplesof how various companies have worked withtheir in-house centres (also known as GlobalCapability Centres or GCCs), engineering third-party providers (more commonly referred to as The confluence of rapidly evolving customerpreferences, accelerated innovation cycles andunprecedented demand for talent skilled inemerging technologies is compelling companiesto critically examine their R&D functions, exploreoptimal strategies to navigate the evolvinglandscape and bring products to markets withagility. Siva PolimetlaHead – Engineering R&D,NASSCOM Deepak MowdhgalyaPartner, Technology & TransformationDeloitte Executive summary R&D remains a cornerstone of economic growth in Europe, and strong spend trendscontinue to be observed as more companies focus on ER&D. Electronic & Electrical Equipment: Germany’s R&D spend as a percentage of GDPfor this sector is nearly three times that of Europe. Core skills in demand aremathematical modelling, PLM systems, CAD and electrical/mechanical engineering.Digital skills in demand are SQL queries, data cloud and mining, Python, Java, C++,RPA, AI (ML, NLP, conversational) and API integration. About 428 of 2,000 of the largest R&D spenders are headquartered in Europe European companies account for over 24 percent of the total global R&D spend by the top 2,000companies. Among the top 2,000 R&D spenders, there was a ~4 percent higher growth in R&D spend byEuropean companies compared with global growth. S&C services: Germany’s R&D spend as a percentage of GDP for the sector is nearly2.5 times that of Europe. Core skills in demand are software development, modernJava and Spring Boot, web-based tech, OpenAPI, JWT, FAAS, software testing tools andMDM solutions. Digital skills in demand are database management, cloud tech, SQLqueries, Python, Java, C++, tensor algebra and DevOps tech. A significant share of this spend is directed towards digitalisation, autonomy and sustainability. Germany has proven itself to be an idea