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R&D: The Global Lab (Dataquest – November 15, 2011)

It is in 80s and 90s that the world woke up to Indias potential as a supplier of global talent pool. Since then, cost and labor arbitrage have remained strong reasons for offshoring to India. The IT and back-office work exposed Indias hidden innovation quotient. That made some to experiment with research and development work. What started as a small experiment is today a phenomenon.

In its latest study, Zinnov estimated that market for R&D offshoring to India is expected to grow from $11.8 bn in 2010 to $13.1 bn in 2011. In its study titled Operations Cost Benchmarking (OCB) 2011, it shared that over 700 MNCs have their R&D centers in India. The numbers clearly indicate a steep curve in the growth. Few innovations like Tata Nano, Adam, and Aakash tablet showcased how strong is our innovation quotient and pressing that we definitely have moved up the value chain, but the real concern isin this globalized scenario, how sustainable is the India story and are we losing out on our edge.

Anis Chakravarty, director and senior economist, Deloitte Haskins & Sells says, There is no doubt that other geographies are emerging with time. India needs to identify its advantages like innovation, scale, skilled labor force, good IP protection, and maintain the momentum. Though companies were finding similar talent and cost arbitrage in other cities, they were not getting the required IP protection in other countries as in India.

But again he adds that the government should also work on a conducive policy like the patent box regime in UK, where it introduced a differential tax rate on income which came from patents in the country.

Apart from the government policies and external factors of skilled labor force, every center head had their own strategy in mind for gaining their positioning and maintaining it. While building for the next billion and scale was the major driver, many centers were leveraging on core competency and achievement.

Xilinx, for example was investing in 4 key technology areas namely 28nm and beyond, stacked silicon interconnect technology (SSIT), extensible processing platforms (EPP), and agile mixed signal integration. Based in Hyderabad, the development center of Xilinx was involved in the development of latest 28nm 7 series FPGA products. The team was instrumental in development of Zynq-7000 extensible processing platform (EPP) based products. A majority of the EPP team is based in India. Some aspects of the EPP are entirely designed and verified in India and the India team is driving the methodology used here.

IBM was another example that defined mobile web as its direction and area of core competency. Manish Gupta, chief technologist, IBM India/South Asia, director, IBM Research, India says, The direction of mobile web space did not come to us in a lacuna. We were constantly building up the capability which IBM saw and declared as biggest bet. One of our global centers is recognized for big bet in healthcare.

Another example is VMware, where India center defined the Chargeback product concept and took ownership in driving the evolution and productizing stages from scratch to product delivery. The product known as VMware vCenter Chargeback was launched in 2009. The teams are also involved in core product development, QE, and continued product development for the ESX, virtual center, and desktop solutions. The other key product areas are virtualization, security in the virtualization layer, infrastructure management, cloud management platform, and end-user computing offerings like Zimbra. The local teams have contributed towards vShield for security, Chargeback, Zimbra, Gemfire (cloud database), and app speedfor cloud management.

Logica has been an exception in all the previous cases as the company ventured into R&D with India innovation center as its headquarters. Since then, the company has introduced many solution namely Logica Hygieia (gives knowledge data to track a patients performance), Logica Meg (provides exact location of fleet/assets any time independently), Logica CiMS (charge point interactive management system), Logica EMO(an award winning driver monitoring and emissions control solution), and Logica Crimson (helps in insurance computation based on real-time data on vehicle usage).

And not to forget the SAP India R&D labs headed by VR Feroz. The team in India has complete responsibility for key SAP products like human capital management, supplier relationship management, and key verticals like oil and gas. SLI has contributed significantly to the recent innovations from SAP such as HANA, Carbon Impact, and Charitra.

With India being a fast-paced emerging economy, MNCs were looking at innovating for the billion, and building products/solutions that remained relevant for not only the local market but also other geographies.

Being a leader in its space, technology remained as one of the core factors for Cisco. Partho Mishra, vice president and general manager, provider access business unit, core technology group at Cisco Systems says that innovation for India and eventually the other developing markets with similar constraints was the ultimate standing. Even at EMC, the company was collaborating with the local market intelligence and sales team for understanding the local needs.

With the example of Adam tablet introduced by Notion Ink, it was evident that entire scenario was building up an ecosystem, where even start-up were participating in the innovation story. Pawaa Software, a Bengaluru based start-up, build its DLP solution and pawaaFILE (.paw) file format from the scratch. According to Prakash Baskaran, CEO, though India had always been a prospective location to start the development, the ecosystem and ease of operations added to the list of factors. Prakash not only patented this file, but also has a handful of patents in his credit.

Where Knowledge Meets Money

On the patenting, Chakravarty shares, The typical model which a majority of companies follow is contract research centers provider where strategy and focus is decided from the HQ. From economic perspective, this means the entire research and its findings was owned by the company. And both the aspects of an IP, legal and economical are owned by the parent.

Infosys has an aggregate of 424 patent applications (pending) in India and the US, and has been granted 30 patents by the United States patent and trademark office. Cisco received 200 patents out of 1,000 requisitions of USPTO patents. MSIDC teams claim to have contributed around 270 patents and Yahoo India around 30% of the total IPs filed in a year.

Quite recently, the patent pioneer of India who inspired GE to open its Jack Welch center in India, Dr RA Mashelkar, national research professor and president, global research alliance, National Chemical Laboratory, said that despite broad talent base, India lacks in patents, as majority of times the knowledge is Indian but ownership lies in other hands.

 
Though the pool of knowledge and competency that was building here was giving almost 70-80% of its credits (IP) to its masters, it was getting rewarded in terms of commitment. Over the past 5-6 years, MNCs invested billions for expansion of R&D. In 2005, Intel announced to invest around $800 mn for boosting the R&D activities. In September 2009, EMC announced an additional investment sum of $1.5 bn in its India COE, alike Cisco that invested $1.1 bn in 2005. Almost a year back, VMware announced an investment of $100 mn and 1,000 developers in India by 2010. IBM Inc identified India as big bet and promised investment of $6 bn in 2006.

The Services Aspect Called ER&D

This is quite a fact that while on one side product and semiconductor companies were leveraging on their captives, the benefits were not confined to it. They found the engineering capabilities in various service companies as grist to the mill.

While the fundamental innovation remained the same, be in a captive or a service provider, but learning from Toyotas way, companies started outsourcing a lot of R&D work to the likes of Mahindra Satyam, HCL Tech, Infosys, Patni, TCS, and Wipro. Quite unique in its offering, this engineering R&D became another compelling reason for why India was different and special.

By the sheer nature of the trade, ER&D became the platform to boost their innovating gene since traditional ADM and support lacked in scope. And gradually, the service companies started building what they called non-linear aspects, moving from cost-efficiency center for providing validation, verification of the embedded software to building complete product design.

Nasscom revealed in its latest report that ER&D which comprises of Engineering services and Embedded solutions accounts for around 15% of the $60 bn export industry. This is around 22% of the global ER&D offshoring revenues. India is gaining depth in its ER&D capacities offering end-to-end product development. Indian ER&D services market is expected to exceed initial market projections and is expected to reach $40-45 bn by 2020. Flexible business models, short product life cycles, decreasing time to market, and flexible capacity driving ER&D sourcing are the major drivers, says Nasscom president, Som Mittal. And Mahindra Satyams announcement on setting up an engineering unit in Hyderabad for Saab called Saab India Technology Center (SITC), is the latest validation of this trend. Starting with the primary areas like software engineering, electronic engineering, and mechanical engineering, the center would move up to signal processing and systems engineering.

Way back in 1997, Satyam Computers was among a few companies that tested waters in engineering R&D. One of its customers proposed to outsource a large chunk of product development, though it was more of a challenging task for Satyam, within a few years the company realized the business potential and moved up. Customers from 1999 to 2008 who witnessed doubled growth in their revenues were partners of this ER&D.

Learning from the erstwhile entity, Mahindra Satyam embarked on this journey and has been serving a good number of clients, 15 out of these are captives. They also built a low-cost flight simulator for one of the clients, that can help in providing a majority of training to the pilots. Today, around 80% of its client activities are around product development and generating IPs for them. The company has filed more than 160 patents for the customers, around 10% of which fall in the idea creation, and the rest in the product development.

According to a Forrester report, many companies jumped into ER&D by chance than choice. What started as an unwilling response to the push by a European client, Accentures embedded practice at Bengaluru is now well over 1,200 resources. For 5 years, the group focused on serving this single client, but now it is winning other clients and looking at product design and testing as one of the firms fastest growing business lines, shares Sudin Apte, senior analyst and country head, India, Forrester.

Talking about Infosys, he shares that though it was among the late entrants in the space, the companies gradually building up the strength. Infosys merged its mechanical engineering services practice with its product engineering practice to create an integrated engineering offering suitable to a large.

Akin to MSATs model, HCL Technologies partnered with Xerox Corporation to provide embedded, mechanical, and software engineering services for certain Xerox printer and imaging product lines for around 5 years. On the other hand, Wipro too created a joint initiative with Imec to build applied research in intelligent systems engineering (ARISE).

Till late, the customers were looking at service partners for outsourcing the bits and pieces, but today they ask for end-to-end product development and going forward, the service providers will handhold their clients in the entire journey from idea creation to final product manufacturing. And the industry would see 3 facets of R&D namely product side, software side, and plant building, says Karthikeyan Natarajan, SVP and head, Integrated Engineering Solutions.

 Another aspect of innovation in the services industry was offshore product development (OPD), where companies like Symphony Services, Calsoft Labs were playing a major role. At Symphony, our engineers have generated over 7,000 innovative ideas for clients, and currently have over 30 patents filed for the custom development tools and technologies. It moved from traditional OPD to product conceptualizing, designing the product go-to-market strategy, technology architecture design, and the delivery of the finished product.

R&D Stalwarts

A journey that started around 80s with the early movers like TI, Cadence, IBM, Intel, Cisco, MS, and many more helped India shape up to what it is today. And their positing, individual contribution to their HQ and global markets makes them confident.

Cadence Design Systems India

Being one of the earliest entrants in India after Texas Instrument, around 1987, Cadence India that started with logic design, formal verification, and printed circuit boards (PCB), the India center contributed in developing design automation solutions for latest technology chips (65/45 nm). The team has been credited for many patents and also introducing advanced methods for verifying the chip design functionality, where they mathematically prove the correctness of design and on front-end PCB design front.

Cisco India

Cisco entered India in 1995 for sales presence and soon spread its domain. It is one of the examples of the MNC operating in a hybrid model (captives and with partners). It built a joint development centers with Wipro Technologies and Infosys Technologies in Bengaluru, HCL Technologies, and Zensar Technologies in Chennai.

Few of its latest innovations are ASR 903 router, an aggregation platform designed for the cost-effective delivery of converged mobile and business services and ME 3600X Series of Ethernet Access Switches. This is Ciscos first series of switches built specifically for the convergence of wireless and wire-line services.

IBM Research India

One of the major innovations were the Spoken web, which won National award in the category of best applied research/technical innovation aimed at improving the life of persons with disabilities in 2009, and finding traction in many governmental projects. Another example of innovation is voice of the customer analytics (VOCA). Though developed for strengthening IBMs position among telecom customers, the technology collects data on customers satisfaction levels with our clients from contact center interactions. Over past couple of years, the research center has built CaaTS, a data cleansing solution, Score, Erocs, resiliency maturity index, customer satisfaction analysis tool, natural responsive disaster management tool and many other solutions. Looking at the innovations from the India centers, around 2008, IBM global identified India center as one of the big bets and choose mobile web as its next direction of innovation.

Intel India R&D

The Indias team made significant contributions in silicon design, validation, and systems software. IT played dominating role in the development of Intel Xeon server products (Tigerton, Dunnington, Nehalem-EX, and Westmere-EX ) and many client, graphics (Intel Core) products.

Dr Praveen Vishakantaiah, president, Intel India shares, We recently announced the availability of Intel Xeon processor E7 family. The Intel India team jointly led the design of the Intel Xeon processor E7 family, in collaboration with other teams in the US, Malaysia, Mexico, and Costa Rica. Intels Bengaluru campus received the major credit for the development that was done under a project codenamed Eagleton.

While collaborating with the global teams on a uniform Intel strategy, the India centers also looked at building a local market innovation model, wherein it established a dedicated team named Ideas to Reality Group (I2R), focusing on developing Intel Architecture (IA) based solutions for the emerging markets. It recently came up with universal handheld device. This project was commenced in partnership with the GOI for reach to the next billion.

Microsoft India Development Center (MSIDC)

Not to forget MSIDC, that was set up by Microsoft India at Hyderabad way back in 1998. It has earned credit for contributing heavily in development of majority of products ranging from Windows 7 operating system, Dynamics CRM, Bing, BizTalk Server, Windows Phone 7 OS, Windows Office, SQL & Live.

Yahoo India Research & Development

Though the actual numbers are not shared, but the company claimed that the patents were increasing by 50% y-o-y since last 4 years. The local team has developed around 20 products like the famous Yahoo Cricket. A few recent examples are OMG, Vertex, Predictopus for Cricket, NGD marketplace. It recently launched Predict tool for the Ads exchange, a technology platforms that identifies the ad patterns and helps in buying and selling online ad impressions. It was also instrumental in building up a whole new technology CORE (content optimization and relevance engine) infrastructure.