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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

Beyond the cusp of the R&D services wave

Sharad Sharma
Thursday, November 1, 2007
Sharad Sharma
Standing in front of the AT&T R&D center in New Jersey on a bright morning in the early 1990s I thought, ‘Boy! What a façade.’ I had then wished that Bangalore too be home to at least one such building housing an R&D unit, without giving too much of thought to the possibility of the realization of that wish. Looking at India’s Silicon Valley today, I am at times amazed at the way the R&D space, in the form of OPD firms and captive R&D centers, has proliferated here.

In the last 10 years the rise of the Indian IT industry has undoubtedly belonged to the offshored R&D services space. By all counts, this wave has done well, shaping the careers of many among us, as well as the image of Indian IT worldwide.

This success, however, also demands some caution on our part. Look around and you will realize that we are at the top end of this R&D wave. The business riders are changing. Despite having an operating margin of around 30 to 35 percent, most of the R&D units (that is, outsourced product development firms and captive units) face an immense supply pressure. Costs are escalating; there is an intense struggle in hiring and retaining talent, not just within the country, but in other emerging R&D hubs like China as well. Couple this with increasing risks and the Law of Diminishing Returns and it is not difficult to see that we are nearing an epochal change, one that will bring about the best and worst in each of the existing players. Only the fittest will survive the struggle. Before I elucidate, however, let me cite an anecdote from my career.

Riding the crest of the wave
In a seminar I was attending sometime in the 1990s the presenter asked all the participants to stand up. “Those of you who started programming in the Google era, sit down,” he said and a few participants took their seats. “Now, those of you who started programming in the COBOL era, sit down.” The relevant bunch of participants followed suit.

“I’m not worried about the two groups that sat down,” he went on to say. I was among the standees, the group of people who had started programming in the era of C. “The first set has no legacy to worry about. They’ll embrace the new and no doubt do well. The second set has been through a change of the curve earlier,” he stated, “they have survived the onslaught once, done well in the new era, and will no doubt do it again. Then, as if addressing us directly, he said, “But I’m worried about you people. I don’t know whether you will be able to survive in the world of programming, albeit rise to the demands of the imminent epoch.”

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