India all set to become R&D hub
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India all set to become R&D hub

By agencies   |   Friday, 26 August 2005, 07:00 Hrs
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WASINGTON: As the United States and Europe are moving research and development (R & D) operations to India, hopes are high that this could turn the country into a virtual R&D powerhouse.

According to ''Knowledge@Wharton'', the influential Wharton Business School publication, which has brought out a special section on India this week, said the country is also emerging as a basic research hub.

Harbir Singh, a management professor at Wharton pointed out that all the leading pharmaceutical companies have set up research operations in India.

"These companies have realized that India is not just a location where clinical trials can be conducted, basic research can also be done there," he added.

Singh believes that the movement of global R&D into India is still in early stages, but it will expand over time. "Indian firms are starting to realize that they must become innovators," he said.

"Their capital outlays are lower than those of their counterparts in the U.S., but that also makes them more selective about choosing projects." Financial experts believe that much of the R&D in India is geared towards smaller projects that complement other innovation centers in Silicon Valley and elsewhere.

According to Arindam Bhattacharya, a director for the Boston Consulting Group, R&D centers in India focus on what he calls "competencies," or things like two-and three-dimension modeling, computer-aided drafting and add-ons to existing products.

For the year ending March 31, revenues from product development and R&D services in India stood at $3 billion, up from $2.3 billion a year earlier, according to the National Association of Software and Service Companies (NASSCOM), India's information technology services trade association. (Although that $3 billion figure on the surface is impressive, it is $1.8 billion less than what Intel spends on R&D in a year).

While it's still relatively early in the movement of R&D to India, experts predict big gains ahead because the next big technological innovations could emerge from India, China or Russia, far away from the Silicon Valley.

Rafiq Dossani, a senior research scholar at the Stanford University Institute for International Studies, said R&D is simply following the movement of information technology work to India. "You can see it happening as the U.S. information technology giants come to India," Dossani said.

"Big consulting firms such as Accenture and IBM seem to be building every other building." Most U.S. companies use R&D in India to create products that are largely exported to the world. A communications chip designed in India can wind up anywhere.

In contrast, R&D in China is primarily designed to create products to sell locally. For instance, Intel's R&D centers in China are focused on speech recognition software and designing hardware that can recognize the characters in the Chinese language.

R&D in India is created for global use. "Much of that R&D is imported into the US," said Ashok Deo Bardhan, a researcher at the Haas School of Business at the University of California in Berkeley.

Still, India faces major challenges as it attempts to grow into an R&D powerhouse. Saikat Chaudhuri, a management professor at Wharton, believes India faces three crucial challenges as it strives to become a global R&D player.

"The first impediment, which is steadily improving, is the intellectual property regime, or perhaps its perception," he says.

The second challenge, according to Chaudhuri, is the brain drain.

"Even though this has come down substantially (only 30 percent of IIT graduates now leave India, Vs 70 percent earlier) and we see many reverse brain-drain cases, the fact remains that the very best people often choose to stay abroad, because they perceive opportunities in India at the highest levels of research not to be on par with the West (for example, being a professor at IIT is still not the same as being one at MIT).

The third obstacle, said Chaudhuri is the lower levels of basic research. "This can be achieved by investing in R&D facilities and improving the research atmosphere in Indian universities," he added.

"While there is a set of top universities that teach and research well, it is not sufficient for a country of India's size. Many other universities teach well, but are not sufficiently motivated to pursue top research. Even the Indian Institutes of Management suffer from this problem today. Funding and policy changes would be required to effect a change here," he said.

Some examples of how research and development facilities in India are being sought after could be gauged by Motorola's two such facilities in India that has helped produce a sub-$40 cellular phone for the emerging markets.

Microsoft in January launched its third international research center in India. Intel has 800 India-based engineers working on software and hardware designs for its communication and semiconductor product lines. Other U.S. companies are designing everything from auto parts to consumer electronics in India through outsourcing or setting up their own facilities in Bangalore.

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