Indian IT: Not just talk, substance
too By Indrajit Basu
KOLKATA
- More than the displeasure over the protectionist
rhetoric that has become an integral part of the United
States election campaign, what perhaps comes as a
greater issue of resentment to Indian information
technology (IT) and its back office sectors is the
insinuation that "cheap labor" and scores of people
willing to work at odd hours are pretty much all that
the country's outsourcing sector has to offer.
But the fact is, says an official of the
software and back office outsourcing industry lobby,
National Association of Software Services Companies
(NASSCOM), "Outsourcing to India is rapidly moving up
the value chain and is not just a matter of
run-of-the-mill call centers chasing credit card
payments or low-end software programmers writing codes
while America sleeps." According to NASSCOM, "The
success of the Indian IT software and services industry
is based on numerous factors, key among them are the
pioneering and innovative nature of the products and
services offered by it to customers across the globe."
Indeed, having fought the global notion in the
past two years that all India's IT does is take away
jobs from rich countries by offering low-cost labor, the
Indian IT industry has now started stressing that the
country is also conducting real cutting-edge, innovative
research work. "Given India's global acceptance in
software services, it is only natural that the next step
would be innovative and high-end products," said Infosys
chairman N R Narayana Murthy recently. "There is real
action here and I see exciting times ahead in IT
innovation."
Actually, cutting-edge research and
development (R&D) has been going on in India for a
while now - Texas Instruments set up its R&D
department in the country way back in 1985 and has over
200 patents to its credit. It is just that few have been
talking loudly about it for fear of the outsourcing
backlash, say software industry experts. They say even
venture funds in Silicon Valley have realized that there
is an innovation shift taking place in India. It's a
necessary condition now for any start-up to have a
development center in India before it receives funding
in Silicon Valley.
However, India's model for
innovation is not driven by venture funds. On the
contrary, according to a report by Ireland-based market
research resource, Research & Markets, which says
innovation in India is being driven by the R&D
budget of tech majors investing in their development
centers here. "The evidence that high-end outsourcing is
hot in India would be found in the large number of
established R&D outsourcing centers in India," says
Research & Markets. For instance, the top 10
infotech companies in the world - including Microsoft,
Intel, Oracle and Texas Instruments - have their second
largest development centers in India. These centers have
reached a critical mass in terms of the number of people
and experience and are now delivering high-end
innovative products, or "solutions" in industry jargon.
According to Research & Markets projections, the
R&D outsourcing market for IT in India will grow
from US$1.3 billion in 2003 to over $8 billion by 2010.
"India is now well on the road to becoming the world's
favorite destination for R&D outsourcing," it adds.
Among the top names in the country's IT R&D
sector is chipmaker Intel, which set up a development
center in India in 1999. Intel India president Ketan
Sampat says the company is engaged in "engineering
challenges as complex as any other project on the
planet", using the fastest supercomputer in India. This
is one of Intel's largest development centers outside
the US. According to Intel India's Strategic Planning
and Initiatives office, the company is developing
hardware designs for Intel microprocessors and chipsets,
design and development of next-generation ethernet
switching silicon and network processors, and enterprise
software. Last year, Intel's Indian subsidiary filed for
63 patents. This year, it is expected to file an equal
number.
Others onboard include Oracle, which
also started its India operations in 1999 and has more
than 6,400 people here. Its Indian R&D centers - one
in Bangalore and another in Hyderabad - work on Oracle's
database, development tools, application servers and
e-business applications. Two years back, the company's
India center had filed 10 patents. Currently, the
patents filed by it totals over 125. Cutting-edge
research in areas of collaboration software is being
done only out of India. Certain modules and even the
E-Business Suite of Oracle 11's next version has been
built in India.
As many as 230 multinationals
have arrived in India since 2001 for R&D work and
NASSCOM projects that IT R&D alone could fetch the
country an additional $1.5 billion in investment over
the next three years. In that same period, the number of
engineers working in Bangalore is expected to more than
double - rising to 65,000 from the current 25,000.
The two latest high profile R&D debutantes
are the US's 3Com Corporation and German industrial
giant Siemens. 3Com has set up a new R&D center in
Bangalore in a strategic partnership with start-up firm
Mars Telecom. The new center will complement 3Com's
R&D facilities in the US, the UK and Taiwan.
Siemens, too, intends to conduct high-end and
"futuristic research" in areas of medical and
information technology as well as security automation.
A significant expansion of R&D departments
is under way as well. French telecom major Alcatel's
local subsidiary plans to double the strength of its
R&D team from 600 to 1,200 or more by next year.
Dutch consumer electronics giant Philips will invest $50
million over the next five years to expand its Philips
Innovation Campus (PIC) in Bangalore. As part of this
expansion, the company will double its headcount at this
facility to 2,600 by 2007. From the last quarter of
2005, PIC will gradually migrate to a new 55,000 sq
meter campus in Bangalore. Similarly, Intel, which now
employs 1,400 people for R&D alone, plans to ramp up
its India headcount to 3,000 by 2005.
But some
IT veterans are skeptical about the potential of Indian
R&D. Lakshmi Narayanan, chief executive of
Cognizant, a New Jersey-based IT services firm, feels
the country does not yet have the capability to develop
its own intellectual property. According to him, IT
R&D's contribution to overall growth is "minuscule"
and in instances when multinationals such as Cisco
Systems (although CISCO, like GE, has about 100-odd
patents filed from its Indian entities) and Nortel have
contracted work out to Indian services firms, they have
merely been upgrading old products, not developing new
lines. Satyam Cherukuri of Sarnoff, an American R&D
firm, says that of the three requirements for developing
an innovation-driven industry, India has two - technical
skills and access to capital. The important third, an
indigenous business model, is missing.
Narayan and
Cherukuri may be right, but according to NASSCOM vice
president Sunil Mehta, "There is an amazing talent
pool here, of which there is a shortage in America. A
lot of intellectual property is being created here. If
this IT boom were just about low-cost arbitrage, it
would have been over by now."
Indrajit
Basu is a Kolkata-based
equity-analyst-turned-journalist with more than 12 years
of experience in business/finance and technology
journalism. Besides writing for Asia Times Online, he
also writes for US-based publications, as well as IT
companies.
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