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India noses ahead as R&D
center
By Indrajit Basu
KOLKATA - If you don't live in India, chances
are that you haven't heard of McWrap and Pizza McPuff.
But don't worry, you soon will, because these are two
new products the world's leading fast-food vendor
McDonald's will shortly be selling at its global
outlets.
Again, have you heard of Profile and
Hotpoint? If you live in United States, it is very
likely that you would have, because these two are
reportedly GE's top-of-the-line washing machines there.
Strange as these questions may sound, the newest
offerings of McDonald's and GE's washing machines have a
common link. McDonald's developed McWrap and Pizza
McPuff at its research and development (R&D) center
in India, while the motors for the two washing-machine
models were also developed in India at GE's technology
center in Bangalore.
GE and McDonald's are not
the only ones. More than 70 multinational companies
(MNCs), including Delphi, Eli Lilly, Hewlett-Packard,
Heinz, Honeywell and DaimlerChrysler, have set up
(R&D) facilities in India in the past five years.
For some, such as the US$12.6 billion Akzo Nobel's
car-refinishes business, the center came even before the
company began selling its products in India. Together
with the laboratories set up before 1997, the total
number of R&D facilities owned by MNCs in India
today is nudging the 100 mark.
The number is
worth chewing over, not just because the world's largest
R&D destination, the United States, is home to the
centers of 375 foreign companies, but also because
India's number is ahead of other more established hubs,
such as Japan, Israel and Western Europe, and, for that
matter, China. India may have lost the race to China in
manufacturing, but it has taken an early lead in
attracting R&D investments. According to a survey by
Tokyo's National Science Foundation, only 33 of the
BusinessWeek 1,000 companies have their R&D centers
in China.
Although India is not yet near the big
league in the United States, it is certainly emerging as
a serious contender as a base for new offshore R&D
centers. Even Jeffrey Immelt, chairman and chief
executive of GE, who during his recent trip to India
lambasted India's poor infrastructure vis-a-vis China's
(see No offense, GE tells India, but China's
better, October 18, 2002), decided to invest
$80 million to set up the John F Welch Technology Center
in this country. Incidentally, GE also has an R&D
center in China that was established a year after the
India center, but employs 100 people compared with
India's 1,600.
A note of caution, though; not
all MNC research labs in India are working at the
cutting edge of technology. Most of them just do
developmental research, which is developing or improving
on existing products. Fundamental research - which
usually leads to paradigm shifts or Nobel prizes - is
still far away. But there are other notable features.
First, most of these centers are big vis-a-vis the MNC's
other global centers, and the jobs that Indian centers
undertake are pretty much critical.
For
instance, GE's R&D center in Bangalore is the
company's largest research outfit outside the United
States. The center also devotes 20 percent of its
resources on five-to-10-year fundamental research in
areas such as nanotechnology, hydrogen energy,
photonics, and advanced propulsion. "These can be
game-changers in the market," said Guillermo Wille, the
German managing director of the center. He said GE
spends another 70 percent of the center's resources on
developmental projects; the balance goes to projects
that require the quick intervention of research teams.
Similarly, 20 percent of the world's largest passive
component manufacturer Tyco Corp's high-precision
tooling is done by its Strategic Tool Shop in India, and
Eli Lilly's research facility in Delhi is its largest in
Asia, and the third-largest in the world (after the US
and Canada).
But when countries such as China,
Israel, Ireland, Singapore, Malaysia and Russia are all
vying for the R&D pie, how has India managed
suddenly to emerge as a preferred destination? The main
motivation, say R&D heads, is the cost of India's
technical workforce. Hans Juffermans, technical director
of R&D operations for Akzo Nobel India, said: "There
is a high potential of very good technical people in
India and the cost to the company is almost a fourth" of
doing it in the home country.
Besides cost,
another big attraction is the pool of technically
qualified people that India offers. "The driving reason
why GE has come to India is not the cost, but the talent
pool," said GE's Wille. GE's 1,600-strong R&D
employees include 1,100 technical experts. Of these, 31
percent are PhDs and 44 percent are specialists with a
master's degree.
With more than 250
universities, 1,500 research institutions and 10,428
higher-education institutes, India churns out 200,000
engineering graduates and another 300,000 technically
trained graduates every year. Besides, another 2 million
other graduates qualify out in India annually. Of
course, China produces even more - 700,000 technical
graduates and 9,000 doctoral degrees every year compared
with India's 5,000, but for the moment, unlike China,
India has an edge because it produces English-speaking
scientists. Thus, for MNCs, integrating Indian engineers
into their global R&D teams is much easier.
Despite these advantages, however, there are
looming threats. Reports suggest that already countries
such as China, Russia and Malaysia, which have at least
one or both of India's strategic advantages - cheaper
workforce and talent pool - are making preemptive bids
to grab a slice of the MNCs' global R&D investments.
And India's advantage of an abundant supply of
English-speaking people may be momentary. China has
already made English mandatory in primary education -
which means that in a few years, China too will start
churning out English-speaking talent, and universities
in the US give out 25,000 PhDs annually, almost 17,000
of which go to non-US nationals. Besides, others such as
Canada and Singapore, through their government-initiated
active programs to invite foreign investment into
R&D, are also emerging as serious competitors to
India.
However, as of now, the balance continues
to tilt toward India as investment continues to pour in
and the list gets longer. Recently, two more
high-profile names were added to the country's MNC
bandwagon: General Motors announced its own R&D
center at Bangalore, and Denmark's Danisco Cultor - the
world's largest producer of food ingredients - announced
the expansion of its technical center for research in
Mumbai.
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