Competitive analysis of Indian design service companies Vs multinationals

Abstract

The semiconductor industry has just experienced its most difficult years. However, most forecasts predict that the market will bounce back during 2003. It is expected that semiconductors for communications applications like wireless devices and network processors will lead the recovery. Merrill Lynch defines core technology services as revenues that are derived from R and D budgets of customer and not from IT budgets. The term "Design services companies" typically brings to mind companies such as Synopsys or Cadence and even IBM Global Services. These companies have "Traditionally" been regarded as providing design services not only because of their provision of Design Services, such as systems level design, chip design and verification consulting, but also because a large portion of their revenue, typically over 30%, are derived from offering such services. The services offered by such companies are typically limited to one or two vertical domains and are in some cases even centred on the software tools that these companies provide .However, the fact is that many IT hardware and software companies do offer Design services as well, albeit in smaller proportions when compared to a typical global corporation. The range of design services provided by these firms covers a wide variety of vertical and horizontal domains and is not centered around any proprietary products offered by the company. In fact, most of these companies do not have their own product. In spite of this, the Design services offered by these so-called "services contenders" cannot be underestimated. This is because the latter have lower people costs. Such companies have the advantage that they are able to respond rapidly to changing market conditions and also avoid the high fixed costs of infrastructure for engineering and productization. In this study, we perform an analysis of such "Pure-play" companies. We analyze the competitive advantages that these companies have with respect to the global companies, how the offshore model gives these companies the advantage, whether these advantages are sustainable over a longer period of time, and how the ownership of Intellectual property can tilt the balance.