The Economist writes that there’s a lot more to India than just outsourcing:
A veil of discretion is masking some of India’s R&D achievements. Industry lobbyists are playing down this aspect of India’s success. Some multinationals, such as IBM, are loth to discuss it at all. Others, such as Texas Instruments, boast that they have increased design resources around the world, but make sure to add that this has been accomplished without transferring significant numbers of jobs to India. Indian IT firms are stressing that, great as their contributions are, the real cutting-edge, innovative work is done in their clients’ laboratories in America.
Satyam Cherukuri of Sarnoff, an American R&D firm, argues that, of the three requirements for developing an innovation-driven industry, India has two: the technical skills and access to capital. What is missing is an indigenous business model.
By the crude measure of patents earned by the Indian subsidiaries of multinational firms (see chart), a significant amount of innovation now stems from India. Last year, Intel’s Indian subsidiary filed for 63 patents. Its president, Ketan Sampat, says that the 1,500 IT professionals employed by the firm in R&D in Bangalore are engaged in engineering challenges as complex as any other project on the planet. They use the fastest supercomputer in India (ranked as the 109th-most powerful computer in the world) and are divided into four product-design divisions covering ultra-wideband radio, enterprise processors, mobile and wireless chip-sets, and communications.
Wipro’s boss, Vivek Paul, says that R&D is becoming like the movies. Firms, like film studios, are increasingly unwilling to keep expensive teams together between projects. For Wipro, providing firms with an alternative to doing R&D with permanent in-house teams has become a big business, accounting for one third of its $1 billion in annual revenues, and employing 6,500 people. It is probably the world’s biggest R&D-services firm.
Sarnoff’s Mr Cherukuri calls this the globalisation of innovationcontinuing the erosion in the past 20 years of the old model of corporate R&D, dominated by big firms with big budgets able to erect big barriers to entry to their markets. His firm thrives as an open-source provider of intellectual property to the worldie, in the outsourcing of R&D. This is part of a broader trend, prompted partly by a rising number of entrepreneurial innovators and growing amounts of venture capital to finance them, towards a more dispersed model of R&D. Now, the internet has removed geographic barriers to using far-flung talent, and the popping of the dotcom bubble has spread innovation offshore. The dispersal is becoming global.
What Indian firms needs to do is to start tapping the domestic market. There are plenty of opportunities as India develops. This will help in giving them a large market close to home where they can hone their skills and products, and then take these producs to other markets like India – on the path of “disruptive innovations.”