R&D gives India its big boost in the tech world
- 7 June 2012
- From the section Business
"We are a software dhaaba," says Ashwin Kandoi, describing his technology company.
A dhaaba is a roadside eatery that can pretty much make anything a customer wants.
That's the idea behind Winjit Technologies, started eight years ago by Mr Kandoi and his partner Abhijit Junagade.
Located in Nashik in India's western state of Maharashtra, it began with a budget of less than US$200 - but now employs over 100 people and exports to 40 countries.
The core of their organisation is a tiny research and development (R&D) lab. Here they make everything from simple products - like games - to custom-made programs for multinational clients.
One of their biggest successes has been an e-management tool.
It was made for employees of a inter-governmental organisation to efficiently spend donor funding during disaster relief work.
Made at one-tenth of the cost of similar programs, it is now used in eight regions across the globe.
The United Nations Office for Disaster Risk Reduction used the same technology for its One Million Safe Schools and Hospitals Campaign - a global advocacy initiative to make schools and hospitals safer in disasters.
They recently filed their first patent application for a product called 'I-Winjit' - a technology that lets tablet computers recognise objects - for example a toy elephant - placed on the screen.
When it identifies an object it delivers information, sounds and images related to it - in this case pictures and sounds from an Asian jungle.
Big R&D spenders
This firm represents the big shift happening in India at the moment.
Small garage-sized outfits across the country are working on cutting-edge research and exciting new product development.
But the key driver of R&D activity in the country is large multinationals. Offshoring has grown into an industry worth US$9.3bn a year that is growing by 23% annually.
According to a Zinnov Management Consulting study, nearly half of the world's largest R&D spenders have centres in India, where researchers and scientists collaborate to produce innovative new products.
Business software specialists SAP Labs were among the first multinational companies to use India as a location.
They set up in Bangalore in 1998 after deciding to extend their labs beyond Germany and the US west coast.
The company wanted a centre based in the Asia-Pacific region to make it easier to create products more suited to the area. India was chosen because there was a ready supply of qualified engineers, according to Clas Neumann, Global Head of the SAP Labs network.
But things have moved on from there.
"SAP is using India as an incubation engine of innovation for the entire company," says Mr Neumann.
The centre does both research work and software development.
Now, the India operation is one of the fastest growing subsidiaries within SAP worldwide. Compared to 11% globally, SAP in India registered over 60% revenue growth in the first quarter of 2012.
They're not alone; global multinationals such as Microsoft, IBM, Cisco, Oracle, Adobe and Intel all have centres in India.
Another big innovator, Xerox, has a lab in India. Through a concept called Open Innovation, the company not only employs researchers but works with scientists and researchers from top Indian academic institutions.
Chinese telecom company Huawei has invested $400m over the past 10 years in India, and is planning to invest an additional $150m in a new R&D campus in Bangalore.
Zynga, makers of hugely popular online games like Farmville and Mafia Wars, have opened an office in Bangalore with over 200 employees.
And Google's engineering teams in Bangalore and Hyderabad were responsible for some key features of Google Drive, the search giant's recently-launched cloud storage service.
In retail too global companies are looking to India for their R&D facilities.
Tesco Hindustan Service Centre is a unique facility where thousands of Indian engineers, architects and other graduates work together on key business services for Tesco operations globally.
This includes everything from property design, business and financial operations, and mobility solutions.
Pharmaceuticals is the other big sector where global R&D is moving to India.
In April, India's largest drug maker Ranbaxy Laboratories launched Synriam, a treatment for Malaria. They claim this is India's first new drug.
Dr Sudershan Arora, president of R&D at Ranbaxy says: "The country ... has a large pool of treatment-naive population with diverse disease patterns, [which make it easy for] recruitment [for research]."
"These are some of the inherent strengths that have made global pharmaceutical companies view India as a preferred destination for activities associated with R&D, drug research, clinical trials etc."
But new drug discoveries are very rare and some critics say the bulk of the research done in India is low-end testing work.
One reason is that public funding for research is still very poor.
India spends around $15bn (£10bn) annually on civilian research programs - less than that of several smaller Asian countries. Singapore spends over 2% of its gross domestic product and South Korea 3% on R&D.
Yet R&D in the private sector is thriving. The Indian market is being looked at as a global laboratory to develop and test products that can be replicated across other regions.
"Today, India is a key market for emerging market innovations," says Chandramouli C S from Zinnov Management Consulting.
"The uniqueness of our market, like price sensitivity, needs a new solution-oriented approach, which engineers in India are well-positioned to solve."
Examples are the under-$40 mobile phone that Motorola has developed, or the MAC 400 - an electro-cardiography device "designed, sourced and manufactured in India" by GE Healthcare.
The device took 18 months and only half-a-million dollars to develop.
This shift towards being a global laboratory gives India a huge advantage in attracting more R&D centres.
Added to this, labour in India is cheap. An engineer here can be hired for as little as US$5000 a year. A team leader or a lead engineer would make an average of US$30,000 annually.
Some estimates suggest that there are over 250,000 Indian engineers working on global R&D.
Developing complex products needs technical staff, engineers, scientists and designers - and India produces millions of them. Companies looking to produce products faster also find they can do this working in India.
And in the aerospace and defence industries, the Indian government often requires that products are made here, which in turn brings in more R&D.
But working in India is not without its challenges.
Wages have been going up in recent years, inflation is a big worry and operational costs, at least in the big cities like Bangalore and Delhi, are high.