While a number of Indian IT companies are expanding globally, several major U.S. IT firms are increasing their presence in India. Among them is Adobe Systems, which views India as an important development center and a growing market for its products.
Adobe’s president and chief operating officer, Shantanu Narayen, works closely with CEO Bruce Chizen on the company’s global strategy. Narayen grew up in Hyderabad, where his father ran an industrial plastics company and his mother taught American literature at Osmania University. Following the lead of his older brother, Narayen moved to the U.S. in 1984 to pursue a Master’s degree in computer science at Bowling Green State University in Ohio, where he met his wife.
After graduation, Narayen and his wife moved to Silicon Valley where he landed a position at Apple. By studying nights while working at Apple, Narayen earned an MBA from Berkeley’s Haas School of Business in 1993. After leaving Apple, Narayen did a stint at Silicon Graphics and then founded Pictra, an early entrant into the field of online digital photo sharing. Narayen joined Adobe Systems in 1998 and was appointed president and COO in January 2005.
In the second of a two-part interview with Knowledge at Wharton, Narayen discusses Adobe’s strategy regarding India and global expansion. (In the first part, published in Knowledge at Wharton, he discusses Adobe’s product strategy for the emerging trend of rich Internet applications.) An edited version of the conversation follows.
Knowledge at Wharton: Let’s start with a basic question: What is Adobe doing in India, and how does that fit into the company’s global strategy?
Narayen: First, we’re a global company [with regard to] selling and marketing all our products. India is a huge market vis-à-vis ensuring that the publishing industry uses our product. Whether it’s for newspapers or magazines or film, our products are used around the world.
In addition, we have a strong research and development facility there. We have two sites: one in Noida and one in Bangalore. We do advanced research and development — including development of full products — as opposed to traditional software maintenance, which is what a lot of companies do.
Third, given that we’re in the enterprise business, we are increasingly partnering with other Indian companies, helping businesses automate their manual inefficient processes. Partnering with companies like TCS, Wipro and Satyam to be systems integrators for our products is also part of our strategy.
Knowledge at Wharton: What did you initially decide to do in India, and how has your strategy evolved?
Narayen: The origination of the India campus came from Naresh Gupta, our managing director in India. In 1997 he was thinking of going home, and he talked to [Adobe co-founder] John Warnock, who said, “Why don’t you set something up for us in India?”
It’s something we’ve done at other sites. We had an engineer who wanted to go back to Minnesota, so we set up a research and development site there. The original idea [for India] was Naresh saying, “I’m going home.” I came on board in early 1998. There were three people on the India campus at that point. Since I was of Indian origin, I was asked to manage it — because I don’t think anybody else really knew what to make of it at that point.
That’s how it started. [Gupta] always had a very clear vision of what he wanted to do, which was to hire the top talent that existed in India — not set up yet another maintenance center, but to do advanced research and development. He has stuck to his vision. We now have close to 800 or 900 people between our two facilities, and we do great stuff there. We develop components for virtually every one of our products.
Knowledge at Wharton: What are examples of the kind of work that’s being done there?
Narayen: The [Adobe] Reader for mobile devices was completely done in India. We actually now have a full-fledged business unit there.
Maybe I should take a step back and talk about the evolution of the India campus. We first started by doing individual components. It was still research and development, but for individual components. The first component that we built in India in early 1998 was a tagged text filter for InDesign. As InDesign was coming to market, we recognized that we had to import text from other page layout applications. So we built components that allowed various file formats to be imported in a consistent way across our suite of applications.
Then we evolved to do complete products. We have taken some products that were more mature and products that we may not have been able to invest in from the U.S. and completely moved them to India, like PageMaker or FrameMaker.
We’ve started to run a complete business unit out of India — the Print and Classic Publishing Business Unit, which Naresh runs. So, the product strategy [and] the business strategy driving the products happen in India. It’s actually evolved over the last few years.
Knowledge at Wharton: In terms of your total business, how much does India account for?
Narayen: Anytime anybody asks me how we’re doing in India, I ask them, “Do you mean revenue, or do you mean market share?” In [terms of] market share we’re doing great, because everybody uses InDesign, Photoshop, Dreamweaver, Flash or Premiere.
Revenue is terrible because of the amount of piracy that exists in India. We like that people are using our products. The anticipation is that as the indigenous software market evolves, intellectual property will be taken more seriously, and that will drive increased revenue.
Knowledge at Wharton: What are some of the challenges of operating in India, and how have you tackled them?
Narayen: On the sales and marketing side, one of the biggest challenges is piracy. We partner with the BSA, the Business Software Alliance, to try to demonstrate the value of intellectual property and to educate people. Adobe has always been founded on the belief that people are inherently trying to do the right thing. We believe that if we can educate people [about] what they are doing, that will lead them to do the right thing. The government of India has been supportive in our efforts to use them to further this education.
On the research and development side, hiring people poses greater challenges today than it did 10 years ago because there has been a massive explosion of companies doing business in India. Having said that, our attrition rate is pretty low. The India campus has always been rated one of the best places to work in India. While hiring may be a bit difficult, we’re really pleased that once we hire, the attrition rate is much lower than at other companies.
The third thing is that doing software development on a global basis [means that] you have to mature the processes to enable yourself to do that. Adobe is a company that does research and development in San Jose; San Francisco; Seattle; Boston; Minnesota; Hamburg, Germany; Ottawa, Canada; Romania; Noida and Bangalore [in India]; and Japan. The evolution and the maturity of our processes allow us to do research and development around the world. I think we have matured our communication and understanding of best practices quite well.
Knowledge at Wharton: How do you manage that division of labor, especially when you’re doing R&D in knowledge intensive work at different locations?
Narayen: Every year we have a fairly rigorous strategic planning process, and as part of that and the operating plan, we first look at the portfolio of all our products and try to understand what the core strategy of the company is. Once the strategy is determined, and as we translate that into an operating plan, each business unit looks at it from the perspective of: Where am I building centers of excellence?
Given that most business units have a presence in multiple engineering locations, they also build a location-by-location strategy. Naresh takes the lead in trying to drive a holistic look at the India strategy in terms of where the skill sets exist and what we should do. And then the senior management team sits down and makes decisions vis-à-vis what areas of competency are we going to invest in and in which research center.
Knowledge at Wharton: As a market for Adobe’s products, how does India compare with China, Eastern Europe or other emerging markets?
Narayen: The volume of publishing that happens in India is tremendous. It’s a publishing powerhouse, and virtually every [publisher] uses Adobe products. When I travel to India, Adobe is a household name for people. Photoshop is well understood; PDF is well understood. That’s very gratifying. But the revenue is minuscule, frankly.
The other thing that’s exciting is that I think India can be one of the places, [like] China, with a number of people who will access the Internet using a non-PC device rather than a PC. There’s going to be new market development that happens in some of these emerging markets. I think you’re going to see a lot more innovation emerge in those countries, whether it’s the telephone network [or just that] people can’t afford a PC and therefore are going to use an alternate device to access the Internet.
I’m particularly excited about what we are seeing in a number of these emerging markets like China, Korea, and India — where, I think, you’re going to see more innovation associated with software evolution on these devices.
Another trend that I think is going to impact our industry in a very significant way is hosted services, where software is going to be increasingly delivered through a server, and what we’re doing with Apollo [a forthcoming Adobe platform that combines HTML, Flash and PDF to take web technologies outside the confines of the browser].
Since every individual in India may not own a PC, [such technologies would offer] the ability to store your data on a “cloud” and get your environment and access to all these applications irrespective of where you are. We believe that emerging markets are going to drive some of that trend.
Knowledge at Wharton: How do you solve the revenue challenge?
Narayen: We’re there for the long haul. We do expect aggressive revenue growth rates. I think we will continue to invest in making sure that as the Indian economy explodes — and it is certainly exploding — that will drive more revenue.
Knowledge at Wharton: You mentioned that more R&D projects are moving to India. What’s the response to this among people who work for Adobe in the U.S.? Is there an anxiety that high-intellectual content work is being off-shored?
Narayen: Adobe is really focused on growth. And as long as the company is growing well, we are investing across each of our campuses. We just recently acquired a new piece of land here in San Jose. As long as we are continuing to grow across each of our campuses, and as long as we are continuing to invest in innovative products, the folks in the company are motivated. I think if the U.S. economy goes through a downturn and there’s growth in one location at the expense of other locations, then that’s when people tend to get anxious.
Knowledge at Wharton: But right now it’s not a zero-sum game?
Narayen: We’ve been growing across each of our campuses. We have tremendous opportunities available to us as a company. When you look at our creative community and what’s happening with the video explosion; when you look at the enterprise and the fact that we’re at the nascent stages of a business opportunity; when you look at mobile; when you look at knowledge workers and the need to collaborate; [when you look at] Apollo, which we believe will enable us to deliver a brand new paradigm for our applications — we’re really investing in the future.
Knowledge at Wharton: Is there a difference between your India strategy and your China strategy?
Narayen: In terms of our own presence there, I would say China is a little bit behind India. That’s just a time issue. But whether it’s China or Romania, where we recently bought a company, the reality is that it’s a global economy. The world is flat, and you’re finding tremendous talent everywhere. It behooves us as a company to tap into this talent.
I think the other thing that is happening is a number of these engineers who traditionally may have immigrated to the U.S. are choosing to stay in their countries. So, we want our products to be more appropriate for these local [geographies], and yet we want to tap into that talent for building products for the global market.
Knowledge at Wharton: You mentioned that your colleague Naresh wanted to go back to India. Do you see a lot of people at Adobe who are moving back?
Narayen: Five years ago in the India center a big question was, “What is the criteria for me to move to the U.S.?” There were a number of engineers who were wondering what they could do to move to the U.S. [Now] the desire for Indian engineers to move to the U.S. has slowed down to a trickle.
We are seeing more senior engineers who have had experience in the U.S. go back to India. But I wouldn’t say it’s been a huge amount of our hiring. We are still hiring. We hire very aggressively out of school. We believe that’s a great talent pool. We target the top 10 or 15 institutions in India [for this purpose].
Knowledge at Wharton: Would you personally consider moving back to India?
Narayen: I’m a U.S. citizen; I’m well ensconced in Palo Alto, [California]. This is my home now.
Knowledge at Wharton: What do you do for fun?
Narayen: In addition to my family, two of my passions are golf and tennis. I have always been very passionate about tennis. Golf is a new passion. It’s a humbling game.
Knowledge at Wharton: In talking about Adobe’s product strategy, we asked you to look into the future. What will Adobe be doing in India in the next two to five years?
Narayen: What we do — whether it’s in research or development or marketing or giving back to the community — is really part of a global strategy. We’re certainly giving back in terms of community. We’ve adopted schools in India to work with and to provide them our software. Given how passionate we feel as a company about education and equipping the next generation of children to be exposed to technology, you’ll see us do that, both in India and elsewhere.
Knowledge at Wharton: Overall, how would you summarize Adobe’s strategy in India?
Narayen: The explosion of the Indian economy is going to offer a myriad of opportunities for us, both in terms of the talent and in terms of the market. And it’s not just India. It’s China, it’s Eastern Europe — we’ve invested a lot in Eastern Europe. So, while India is a little bit ahead by virtue of the fact that we started there first, the way we look at it is: How do we expand globally?