What’s Driving India’s Rise as an R&D Hub?
India has long enjoyed a reputation as a destination for IT and business process outsourcing. Now, the country is fast emerging as a major center for cutting-edge research and development (R&D) projects for global multinationals such as Microsoft and Motorola as well as Indian firms. More and more companies in industries ranging from IT and telecommunications through pharmaceuticals and biotech are setting up ambitious R&D projects, in part to serve the Indian market, but also with an eye to delivering new generations of products faster to the global market.
What forces are shaping these trends? What does the future hold? To answer these questions and more, Knowledge at Wharton collaborated with The Economic Times Intelligence Group in Mumbai, India, on this special report on R&D in India. The articles below explore the factors driving global R&D toward India, the opportunities and challenges of contract research, and the human capital challenge that India faces, among several others.
Motorola, Microsoft, Intel and other high-tech firms are launching ambitious R&D programs in India. Many of these projects complement research being conducted in other parts of the world and deal with products meant for the world market. What forces are driving the migration of high-tech R&D into India? Experts say it has a lot to do with the fact that companies expect some of the fastest growth in the future to come from the Asian giants — India and China.
Indian companies have long been criticized for their low level of investment in R&D, both in India and other parts of the world. This fact has prevented them from becoming serious players in global markets. India has often been regarded as a third-world country that stumbles along by copying western products, aided by lax patent policies. Today, however, the situation looks different: A few sectors like pharmaceuticals and automobiles are leading the charge in the R&D field, according to the Economic Times Intelligence Group.
When the going gets tough, the tough get creative. Dr. Reddy’s Laboratories, a leading pharmaceutical company that has faced rough weather since mid-2004, earlier this year struck a $56 million deal with ICICI Venture Funds to fund some of its R&D efforts. For now, the arrangement with the venture fund will make it possible for the pharma firm to file abbreviated new drug applications, or ANDAs, and serve the lucrative U.S. generics market. According to the Economic Times Intelligence Group, more such deals could be on the way.
Early efforts by multinational companies to set up R&D operations in India were prompted by the need to “localize” products. Now, however, encouraged by India’s success at business process outsourcing, or BPO, some companies are starting to explore research process outsourcing, or RPO. Experts interviewed by the Economic Times Intelligence Group believe that India is moving rapidly towards becoming a major R&D hub for these firms.
Ramesh Emani, president of Wipro Technologies’ Product Engineering Services business unit in Bangalore, has seen India become an information technology powerhouse in nearly two decades at Wipro. Now the country is moving up the value chain toward research and development services to create new products that will be launched globally. Although it’s early in the race, Emani and Wipro Technologies, a unit of Wipro, one of India’s top IT services companies, are likely to play a big role as global companies move R&D to India. Knowledge at Wharton spoke with Emani about trends in R&D, competition from China and the management of offshore research facilities.
Companies in the U.S. and Europe are increasingly willing to conduct sophisticated research projects in India, especially in industries such as pharmaceuticals. While India has large numbers of educated workers — including 22 million graduates — does the country have the knowledge base needed to sustain research? Experts at Wharton and elsewhere point out that Indian firms are investing in human capital and building skills to close the knowledge gaps that may exist.
In 1999, when Vivek Paul left his job as the global head of GE Medical Systems to join Wipro, the Bangalore-based IT services firm had about $150 million in revenues. By the time he stepped down last month as Wipro’s CEO and vice chairman, the company’s revenues had increased to $1.4 billion. Now Paul is changing gears to become a partner with the San Francisco-based investment firm Texas Pacific Group. Paul, who will specialize in IT and life sciences at TPG, spoke with Ravi Aron, a professor of operations and information management at Wharton, and to Knowledge at Wharton about what it takes to succeed in the fast-changing pharmaceuticals market, and why he thinks India lags behind when it comes to innovation despite the country’s proliferation of PhDs.