R&D in India: The Curtain Rises, The Play Has Begun...
two research and development facilities in India helped produce a
sub-$40 cellular phone for emerging markets. Microsoft in January
launched its third international research center in India. Intel has
800 India-based engineers working on software and hardware designs for
its communication and semiconductor product lines. Other U.S. companies
are designing everything from auto parts to consumer electronics in
India through outsourcing or setting up their own facilities in areas
such as Bangalore, India's Silicon Valley.
these efforts and more represent just the beginning of advanced
research and development in India. If R&D in India were a three-act
play, advanced development for products would be in the first act.
Basic research, the software engineering and development to support
other labs, is probably in the second act, according to experts. "More
than 150 international companies are doing R&D in India," noted
Arun Shourie, a former minister for privatization in the Indian
government at a conference of Indian Institute of Technology alumni
held in Washington, D.C., in May. As the number of companies from the
U.S. and Europe moving R&D operations to India rises, hopes are
high that the third act will be a grand finale that potentially could
turn the country into an R&D powerhouse.
"All the leading pharmaceutical companies have set up research operations in India," notes Harbir Singh,
a management professor at Wharton. "These companies have realized that
India is not just a location where you conduct clinical trials; you can
also do basic research. R&D in India isn't just about low-end
work." Singh believes that the movement of global R&D into India is
still in its early stages, but will expand over time. "Indian firms are
starting to realize that they must become innovators," he says. "Their
capital outlays are lower than those of their counterparts in the U.S.,
but that also makes them more selective about choosing projects."
experts say that much of the R&D in India is geared toward smaller
projects that complement other innovation centers in Silicon Valley and
elsewhere. According to Arindam Bhattacharya, a director for the Boston
Consulting Group, R&D centers in India focus on what he calls
"competencies," or things like two- and three-dimension modeling,
computer-aided drafting and add-ons to existing products.
year ending March 31, revenues from product development and R&D
services in India stood at $3 billion, up from $2.3 billion a year
earlier, according to the National Association of Software and Service
Companies (NASSCOM), India's information technology services trade
association. (Although that $3 billion figure on the surface is
impressive, it is $1.8 billion less than what Intel spends on R&D
in a year.)
it's still relatively early in the movement of R&D to India,
experts predict gains ahead. The upshot: The next big technological
innovations could emerge from India, China or Russia, far away from
Silicon Valley. Rafiq Dossani, a senior research scholar for the
Stanford University Institute for International Studies, says R&D
is simply following the movement of information technology work to
India. "You can see it happening as the U.S. information technology
giants come to India," says Dossani. "Big consulting firms such as
Accenture and IBM seem to be building every other building."
Opportunity or Threat?
fact that U.S. multinationals are moving information technology and now
R&D to India raises a few issues. To some industry veterans such as
Bhattacharya, developing products in emerging markets makes sense. Why?
The future growth markets for global companies are likely to be in
China and India, both of which have different consumer markets than the
U.S. By hiring local engineers and researchers, companies can better
tailor products to those emerging markets. "Some things are
inevitable," says Bhattacharya. "Growth will come from emerging
markets, and in poor countries the products, price and value will
continue to be different than in the U.S. A designer in Virginia will
have limited knowledge of the emerging market. But an Indian designer
will make the same design choices that the market wants because he
comes from the same background as they do." That vision of the future
means that products will be created everywhere and marketed globally.
"Different cultures look at innovation through different lenses," says
Ashok Deo Bardhan, a researcher at the Haas School of Business at the
University of California in Berkeley.
theory, those globally created markets will fuel the profit and sales
results for U.S. companies. For Cadence Design Systems, a San
Jose-based company that makes software and hardware to design
semiconductors, building R&D outposts in India, China and Russia
was primarily a matter of being close to its customers -- chipmakers
that have manufacturing operations in those countries. By putting
development operations near chipmakers' fabrication plants, Cadence can
offer better support. "We're following our customers," says Jaswinder
Ahuja, corporate vice president and managing director of Cadence's
India operations. "It's easier to collaborate with them if we're local."
adds that Cadence's 17-year-old operations in India were built largely
to mimic its U.S. counterpart, creating redundancy for development
work. For other companies, taking R&D to countries like India can
cut costs and bring products to market faster. By playing time zones
between, say India, the U.S., Russia and Singapore, the well
choreographed company can develop new products and plug them into the
U.S.'s infrastructure of lawyers, venture capitalists, accountants and
financial markets to create economic value.
But there may be side
effects to taking R&D to emerging markets such as India and China.
Critics argue that the moves could impact high-paying jobs in the U.S.
According to Ron Hira, a professor at the Rochester Institute of
Technology and author of Outsourcing America, the big risk is
that the U.S. could lose its capacity to innovate. "This is an area
where U.S. policymakers and offshoring advocates have been asleep at
the wheel," he says. "Many people inside the Beltway say, 'We'll just
innovate our way out of this.' They haven't recognized that our normal
policy mechanisms for innovation, such as increasing R&D funding
and subsidizing universities, are more geographically leaky than they
moment, though, much of the R&D in India isn't seen as an immediate
threat. And Cadence's Ahuja notes that its R&D work abroad also
happens or originates in the U.S. Cadence has 450 R&D employees in
its India facility, roughly a third of the number the company employs
in the U.S. Its relatively new centers in Russia and China have 110 and
70 R&D employees, respectively. Bottom line: It's too early to
assess the impact as R&D goes global. "Is it a threat?" asks
Bardhan. "It could be a threat and an opportunity; probably a bit of
doubts that all R&D will suddenly flee the U.S. to go to low-cost
countries. After all, the U.S. is still the second most popular
destination for new R&D funding, second only to China, according to
a white paper by the Economist Intelligence Unit. India is third.
Nevertheless, if R&D fails to create a major technological advance
in the next decade -- a prospect that appears unlikely -- companies
will view it as a big cost without much of a payoff in additional
sales, new products and number of patents. That situation would result
in more R&D to low-cost areas just to save money. "If R&D isn't
effective, it will be viewed as a cost center that will increasingly go
to low-cost areas," says Bardhan.
companies are reticent to discuss how much research and development
work resides in India. For instance, General Electric, identified by
experts as an R&D frontrunner in India, declines to comment, though
media reports have pointed out that GE's facility in Bangalore is
working on projects in fields ranging from nanotechnology to photonics.
When Jeff Immelt, GE's CEO, visited India in 2002, he noted that the
company employed 18,000 people in India, including more than 1,000
scientists. "We make some of the most sophisticated medical products
here," said Immelt, according to newspaper reports published at the
companies that have long been established in India don't see a problem
disclosing that R&D resides in India -- along with numerous other
locations around the globe. These companies cite a comfort level
because they have worked in India for several years, attracted
primarily by the country's large talent pool of engineers, designers
Intel, which spent $4.8 billion on R&D globally in 2005 and as of
Dec. 31, 2004, had 25,000 workers devoted to it. The company
established an R&D center in India in 1999 to design everything
from hardware to the software that is used to make its semiconductors
work with other programs. Today, Intel has 800 workers in India working
on R&D out of 2,500 total employees in the country, says Agnes
Kwan, a spokeswoman. "We conduct research around the world. We're in
China, Russia, Israel and Spain too." According to Kwan, the
development team in India primarily works on communications products
that are used worldwide. Teams in India are responsible for their
products from inception to launch.
Motorola has had
facilities in India since 1991, says Mary V. Lamb, director of
corporate communications and public affairs for Motorola Asia Pacific.
The company has two R&D facilities in Bangalore and Hyderabad that
focus on software development for new and existing Motorola products.
"India has emerged as an R&D hub for the company, a position that
is being strengthened constantly," says Lamb, adding that Motorola has
2,000 employees in India, of whom 1,700 are involved in software
announced it will open a lab in India that will cooperate with other
research facilities to advance the technology behind its so-called
seamless mobility initiative, which aims to provide corporate voice and
data communication wherever a worker goes. Lamb says the company has
leveraged its presence in India to become the leading
telecommunications supplier to the country's army, paramilitary
forces/police, and civil authorities. The creation of a sub-$40 phone
is aimed at expanding Motorola's foothold in India's consumer market as
well as other emerging markets and "connecting the unconnected," she
opened its research laboratory in Bangalore in January -- the
third outside the U.S., after Cambridge, England, and Beijing --
is another company that views India as a microcosm of the developing
world. Considering India's diversity in terms of religion, culture,
geography, climate and language, Microsoft believes the country offers
opportunities to develop technology that can rapidly be deployed
elsewhere. "Solutions that work in India are more likely to transfer to
other locations because they will have been tested across these
barriers," says a company spokesperson.
Microsoft plans to
focus on at least four key areas at its India laboratory. These include
multilingual systems, in which researchers will work on areas such as
speech recognition and user interfaces in several languages; India,
with its 22 languages, is considered a good location for such research.
Other areas include the development of technologies for emerging
markets; geographical information systems; and sensors and sensor
network applications. Daniel T. Ling, vice president of research at
Microsoft, told the IIT alumni conference in Washington D.C. that one
of Microsoft's major goals in setting up the Bangalore lab is to access
India's talent pool through collaborative projects with institutions
such as IIT. "Our lab doesn't do any product development, just basic
research," he said. "There's a drop in students in computer science in
the U.S., so a worldwide pool [of researchers] is very important to
India: R&D Exporter
U.S. companies use R&D in India to create products that are largely
exported to the world. A communications chip designed in India can wind
up anywhere. In contrast, R&D in China is primarily designed to
create products to sell locally. For instance, Intel's R&D centers
in China are focused on speech recognition software and designing
hardware that can recognize the characters in the Chinese language.
Kwan says the speech recognition software could be exported in products
elsewhere, but the first target is the market in China. Bardhan says
companies are conducting R&D in China to gain market expertise.
R&D in India is created for global use. "Much of that R&D is
imported into the U.S.," says Bardhan.
India faces major challenges as it attempts to grow into an R&D
powerhouse. According to Singh, the first is managing the transition
from product development to research. "India has a pool of scientific
talent that traditionally has been under-funded," he notes. "India is
now trying to release its untapped potential as a result of linkages
between global firms and Indian educational institutions." Singh
believes it will take time and effort for Indian firms to learn how to
operate in the global context. "They have to grasp the dimensions of
scale -- and recognize that they are competing on a global stage.
Many firms will measure up, but many others will not. The barrier is to
understand what it means to be world class. Indian companies are being
invited to play on the world stage; they now have to learn what it
means to play to win."
a management professor at Wharton, believes India faces three crucial
challenges as it strives to become a global R&D player. "The first
impediment, which is steadily improving, is the intellectual property
regime, or perhaps its perception," he says. "If this is perceived as
solid, then more mass-scale investments by global multinational firms
in India will blossom (for instance, pharmaceutical majors
simultaneously developing future blockbuster drugs in India along with
the U.S.), producing cutting-edge technologies and products, and
thereby creating strong agglomeration effects."
second challenge, according to Chaudhuri, is the brain drain. "Even
though this has come down substantially (only 30% of IIT graduates now
leave India, vs. 70% earlier) and we see many reverse brain-drain
cases, the fact remains that the very best people often choose to stay
abroad, because they perceive opportunities in India at the highest
levels of research not to be on par with the West (for example, being
a professor at IIT is still not the same as being one at MIT). Luckily,
the overall brain drain trend has reversed, so I see the trajectory as
positive and it will only be a matter of time where we see more
high-profile moves." By way of an example, Chaudhuri mentions Rono
Dutta, former president of United Airlines between 1999 and 2002, who
moved from the U.S. to India to become the CEO of Air Sahara.
notes that India can accelerate this positive development, as well as
the growth in indigenous R&D by aiming to remove the third
obstacle -- lower levels of basic research. "This can be achieved
by investing in R&D facilities and improving the research
atmosphere at Indian universities," he says. "While there is a set of
top universities that teach and research well, it is not sufficient for
a country of India's size; many other universities teach well, but are
not sufficiently motivated to pursue top research. Even the Indian
Institutes of Management suffer from this problem today. Funding and
policy changes would be required to effect a change here. High
standards and levels of basic research will feed directly into
top-notch applied research and product development, both in content and
mindset. On all these fronts, I believe India is making good progress
and the momentum is in a positive direction. Some policy changes,
perhaps through public-private partnerships where possible, could
quicken the pace of this evolution."
the movement of R&D to India is likely to continue, experts say
growth is likely to be gradual. Why? Companies have to overcome
internal resistance to moving work offshore and become better managers.
"There is huge internal resistance within organizations," says BCG's
Bhattacharya. "A lot of designers in India for GM have to work with
engineers in Flint, Michigan. That can be difficult with different
cultures and weak project management. Companies are grappling with a
lot of internal issues."
The major questions companies must answer include:
or outsource? Bhattacharya says one of the biggest decisions revolves
around creating a R&D center or outsourcing to a services company
such as Wipro. Bhattacharya adds that it may be more structured to
create R&D centers and hire the workers directly.
returns are expected? According to Bhattacharya, R&D isn't
something that will deliver an immediate return even if companies save
on costs. "R&D takes time and you need to build knowledge over a
series of projects," he says. "The projects have to then be linked with
these issues will take time to resolve, it's clear that U.S. companies
will increasingly be managing R&D operations all over the globe,
and that India will be a key outpost. That could well be the third act
in India's R&D drama. Until then, please hold the applause and the
will work be managed? R&D teams need to be integrated no matter
where they are located across the globe. Sophisticated project
management and processes to handle changes are required to nip problems
in the bud before they become thorny. "You have to create a community,"
says Bhattacharya. "Engineers need to talk and throw ideas around."