The rise and rise of MNC R&D
The ample availability of strong technical as well as managerial talent has established India as a very attractive R&D destination, with the country being home to about 200 wholly-owned Centre’s of MNCs that deliver pure-play IT and ITeS services. Innovation from India has moved on from Ayurveda and yoga to cool internet products and apps.
It began as a trickle and has now transformed into a steady flow. We are referring to the trend of multinational companies descending on Indian soil to establish their research & development (R&D) facilities for next-gen products and services. Initially cost arbitrage was the major attraction, however over time, the quality of Indian engineers has become very high and their ability to contribute to process improvement and innovation has improved tremendously. This has led to a snowballing effect and many large multinationals are already here in India taking advantage of our talented workforce.
According to Zinnov, India is home to about 200 wholly-owned Centre’s of multinationals that deliver pure-play IT and ITeS services. Ten new Centre’s have been set up over the last two years and by 2015, the market research firm estimates that close to 50% of the Fortune 500 companies will have their facilities in India.
India offers both availability and scalability of talent base for an MNC opting to either offshore or insource their activities, primarily back-office or core engineering, says Pradip Dutta, managing director, Synopsys India. “There are other locations where one can find good talent but the numbers might not allow targeted growth. With a young demography, plethora of technical institutes and the advantage of having a developed ecosystem in high technology, India will continue to be a favored destination for multinationals.”
Synopsys has been in India for almost close to two decades. The company’s engineers deal with almost everything to do with all aspects of electronic design automation (EDA); some of the products and solutions are architected completely out of India, whereas in some cases it is a globally distributed R&D with active role being played by its engineers here.
For those who came in late, the American semiconductor major Texas Instruments (TI) set up a R&D facility in Bangalore in August 1985 and became the first global technology company to establish its presence in India. Ever since, India has been an integral source of intellectual property for big multinationals.
Today the value add in software R&D and services in India is very high and it is certainly well recognised and taken advantage off by corporations around the world.
Three distinct factors are behind India’s growing acceptance as the ideal R&D base, says Murali Subramanian, Group vice-president, Oracle. “Talent pool, domain expertise and leadership. Finding the right talent is a critical success factor for an R&D organisation and India scores high with ample availability of strong technical as well as managerial talent. Furthermore, this talent pool has also built strong domain expertise over the last 20-25 years from its experience of dealing with global customers.
The combination of technical, managerial and domain expertise helps companies establish and run a strong R&D organisation in India.”
“The third dimension is leadership,” says Murali. “For India today offers a very powerful pool of middle and senior-level management with a global experience. All these factors are very conducive for a company to establish an R&D Centre in India.” Starting in May 1994, with a few employees operating from two rented rooms in Bangalore, Oracle today has a full-fledged R&D organisation in India with the presence of large research, development and expertise Centre’s across four major cities—Bangalore, Hyderabad, Noida and Thiruvananthapuram.
Almost every product in the Oracle portfolio has dedicated development teams in India. Each one of these development teams cover the full software development life cycle by having product management, engineering, quality assurance, infrastructure and technical writing functions in India. “We have definitely grown from strength to strength over the last 15-20 years; today we hire some of the best talent from top institutions of the country and are a preferred employer for the best R&D minds of India,” he says.
Let us decipher the Zinnov study further to understand the broad dynamics of the R&D landscape. Banking and financial services companies leverage India the most for their IT and ITeS operations and there are close to about 45 large BFSI MNC Centre’s in India as of 2012. This is an increase of about 10% from 2010. Healthcare and life sciences is emerging as a large category amongst the MNC Centre’s that deliver IT and ITeS services.
Large healthcare/life sciences companies like Royal DSM and Sigma Aldrich have recently opened their shared service Centre’s with intentions to deliver IT services during the course of time. Whereas, some of the existing players like Novartis and Cerner have been growing their capability from India.
Some of the large corporations, traditionally known for outsourcing multi-year, multi-million dollar contracts are also setting up their Centre’s in India. Allstate recently set up its own Centre in Bangalore and so did Wal-Mart, British Telecom, FICO, State Street etc. Amongst the Indian cities, Bangalore garnered the lion’s share in terms of new center set ups.
According to Sundararaman Viswanathan, manager—consulting, Zinnov, there are two primary reasons for the uptick in insourcing through the MNC Centre’s. First, the CIOs are refurbishing their entire IT with modern IT and hence want to do it themselves. Second, the CIOs want to re-imagine some of the legacy business IT systems which they had historically outsourced so that the legacy systems can regain their competitive edge. It is interesting to note that the reason for setting up new Centre’s is far more strategic in nature than the tactical reasons of cost arbitrage and scalability.”
According to Synopsys’ Dutta, cost arbitrage is a collateral benefit, never the prime reason why a company chooses to go to another location. “Scalability in my opinion is not so tactical. Sometimes the very existence of a business may depend on how fast it can add resources and talent and hence it becomes a salient factor in determining its success.”
The other very important aspect of India is its growing domestic market. This is allowing multinationals to innovate products based on this market, which is extremely cost conscious, and then take it out to the rest of the developed world having leveraged the frugal engineering aspects. Another non-trivial advantage of setting up a Centre in India is its adherence to IP laws compared to some other countries in the region. Finally, what attracts companies to come to India is the proximity of having the customers also in the same location, the Synopsys MD says.
India has strengths that promise to make it a leading Centre of technological innovation of the 21st century and Yahoo! was one of the first few companies to realize this potential, stresses Hari Vasudev, vice-president and head, Yahoo! India R&D. “Given the strategic location advantage, optimised cost structure, access to a large talent pool and a strong ecosystem, India is clearly burgeoning with cutting edge talent that makes it a dream R&D destination. And this is only the tip of the iceberg, we are going to see a lot of innovations going out to developed markets from India,” he says.
Yahoo! set up a full-fledged R&D Centre in Bangalore in 2002. Since then, Yahoo! has made significant investments both in terms of technology and talent, thus making the Bangalore facility Yahoo!’s second-largest R&D Centre in the world. Over the years, the Centre has leapt up the value chain, transforming itself from an engineering Centre to a customer-centric innovation hub that’s making a strategic impact globally. Yahoo! India R&D has delivered end-to-end development of over 20 products for global and emerging markets of Yahoo!. One of the solid proof of innovations happening at the Centre is that idea submissions for patent review at the Centre have seen an average rise of 40% in last three years.
According to Vivek Sharma, regional vice-president, Greater China and South Asia region—India operations, director India design Centre’s, STMicroelectronics, India has been a huge potential market and now this potential is steadily getting realised. For example, electronics industry is envisioned to grow to $400 billion from around $70 billion currently in about a decade’s time by various stakeholders. Therefore, it makes complete business sense for the technology companies to understand this market well and build R&D capabilities locally in order to serve the domestic markets strongly with suitable products and solutions.
The second important factor is steady emergence of the overall ecosystem. Beginning with the presence of large number of technical universities and talent that comes out of these colleges, there is growing expertise in the engineering base in the country. The technology brain-drain which was prevalent earlier is no more an issue. This has helped to retain the experienced talent within the country, which is getting capitalised by this growth. STMicroelectronics started its design operations way back in 1987 and now has employee strength of around 1,600 people.
Successful R&D only happens where talent is available—India’s population is today among the top three scientific manpower of the world and globally the experience of last 20-25 years has proven that right talent must be tapped closer to where it is found. It is therefore strategically critical for global organisations to leverage this talent pool—simply because they need to hire the top talent that can drive ongoing innovation.
The ability to get this done out of India for a global market is ample simply because of the scale and availability of right talent in India. “In fact, India is the ideal place because you can find the ideal mix of top talent and leadership at a scale that you want to drive R&D,” says Murali of Oracle.