[ppi] [ppiindia] Indian IT: Not Just Talk

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http://www.atimes.com     
  
South Asia  

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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