While automotive, consumer electronics and telecoms continue to lead ER&D spend, emerging sectors include computing systems, medical devices, energy and infrastructure.
“Many corporations are seeing the recent economic downturn as not a threat but an opportunity to earmark ER&D budgets for innovation to drive growth in times of economic recovery,” said Vikas Sehgal, partner at Booz.
A major driver, the report says, is the search for alternate fuel sources and greater fuel efficiency, and the convergence of technologies that enable a single device to perform multiple functions.
Providers in emerging economies, led by India, are poised to gain share as multinational corporations seek to invest in innovation and drive future growth. India remains a dominant player in the global ER&D services market, with revenue growth of more than 40% over the past three years to $8.3bn in 2009 and expectations of reaching $40 to $45bn by 2020.
“Companies are no longer offshoring simply for cost benefits, but are seeking flexible resource capacity, reduced time to market and localised products for emerging markets,” said Sehgal.
Other locations that are building up their ER&D capabilities include China – which has a large presence of captives driven by its manufacturing capabilities – followed by Central and Eastern Europe, south-east Asia, Brazil, South Africa and North Africa.