The popular press is currently touting a pending slowdown among Indian providers as they become victims of their own success, but the truth is that Indian firms will continue to grow and not just because they are a lower-cost option. These players will continue their growth path because they have caused a fundamental and structural change in the service provider/client relationship. Offshore providers have taught clients to expect transparency, efficiency and accountability in service delivery,” writes Stephanie Moore, an analyst at Forrester Research Inc.

This is a clear example of how Indian firms need to move up the value chain and create fundamental differentiators rather than focus exclusively on lower costs. The cost arbitrage gives us a window to build other durable differentiators for long-term success.

In this article I ponder the scenario for R&D in India. Today, there are significant investments in high tech R&D pouring into India. Note the recent pronouncements by leaders at Cisco, SAP, Microsoft and others talking about substantial R&D investments in their captive centers and vendors. Lower costs and a large labor pool have been two reasons cited for the significant expansion of product R&D in India. It is imperative that the R&D industry takes a similar approach to what the IT Services industry has done and build durable differentiators. Success in product R&D is based on three key elements:
1. Innovation
2. Time to market
3. Anticipating market trends

Most of the IT R&D work in India is done typically by extension teams that augment teams in HQ in completing the implementation of specific product releases to fulfill product roadmap commitments. R&D organizations typically use their teams in India to “stretch” their R&D dollars. The teams in India are therefore fairly junior (they cost less and talent is readily available) and work under the direction of their HQ leadership. Given that the ramp up on a product charter is significantly longer than “IT projects done to spec” at the services vendors and the fact that the extension teams are usually relatively junior, this model works well for the first few years. In this model, the teams focus more on evolutionary innovations that are very specific and fit within existing product requirements. The role of disruptive innovation, meeting market trends and meeting time to market needs are handled by product management teams and R&D teams