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Study: Most Indian Design Houses Compete On Cost

Few of India's VLSI design firms work on end-to-end projects. The cost-based strategy leads to a lower value-add, according to a report by Frost & Sullivan.

K.C. Krishnadas

October 17, 2006

2 Min Read

BANGALORE, India — The majority of India's VLSI design firms compete on cost, while relatively few are mature companies involved in end-to-end projects and even fewer are considered co-innovators, according to a new report by Frost & Sullivan.

The cost-based strategy leads to lower value addition and high investment in the workforce, and is marked by a high rate of staff turnover. The numbers of such firms in India is high, but the value they bring to the business at the end of the day is minimal, according to the report, which details the Indian semiconductor scene.

"Most startups in the VLSI design service market are optimizers, with a business model that supports a specific activity or a defined set of activities across the VLSI design chainbut the value added is minimal," the report said said. The reason for low value addition is that these firms are limited by their customers to task-level definition and relationships that end when the projects are complete, according to the report, which found that the value these firms bring lies merely in the productivity improvements realized over a period of time.

The enablers or mature firms provide customers with the infrastructure need across the VLSI design value chain, develop reference solutions and do chip integration. They work on a push-pull model—their push strategy is based on cost while internal design processes and methodologies are the pull component providing value to clients, the report concluded. They usually follow a fixed price model and work on end-to-end projects, the report said.

The third type of Indian design house, the co-innovators, work based on a pull strategy that provide more value to customers, though costs also play a role and add value to the global design chain, according to the report. These firms—relatively few of which exist in India—work a lot in intellectual property (IP) development and integration, especially with the rise in the number of system-on-chip (SoC) companies globally, according to the report. Their knowledge of final products is very high and they are rewarded with a share in the client's profits or some other means, the report said.

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