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China and other factors threaten India’s R&D prowess

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After several outsourcing initiatives like the IT, business process, knowledge and legal outsourcing, comes a new outsourcing. It is difficult to label it as an outsourcing but Research & Development (R&D) outsourcing is the latest addition.

Research and Development is the last thing any company would outsource. But, companies tried outsourcing it and found it very successful. R&D outsourcing is an estimated $9.35 billion annual business and is growing at 23%. It would touch $21.4 billion in 2012 as per estimates. Companies can do 3 times more research than in the US.

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Companies like Cisco, Motorola and HP are preferring India for their R&D operations. The number of companies outsourcing R&D rose from 180 in 2000 to 594 in 2008. R&D ranges from new chips, software packages to telecom devices.

The average cost per employee rose 16.2% in the past 3 years. Still India is one of the preferred destination for R&D. Why?

  1. In spite of rising wages, it is still cheaper to hire an engineer in India vs US.
  2. Growing quality and experience of the workforce which is not available elsewhere in the world.
  3. The wage inflation is going to plateau.

But, R&D outsourcing in India is plagued by a few factors. This is what Vivek Paul had to say about R&D in India :

There’s a big difference between discovering something, versus discovering something that you know somebody else says can be done. That difference is the difference between the service business and the products business

India brings its strong services background into R&D framework. Unfortunately that is not how R&D works. Innovation does not come by following directions. It comes by leading.

That ‘following someone’ factor coupled with a Chinese threat is threatening India’s R&D prowess. As with many other things Chinese threat is real in R&D too. India and China are competing fiercely in the services business, foreign investments and natural resources. Is there something where India and China doesn’t compete? There is one. Its Olympics.

India has filed 766 patents for the year of 2008. China has filed a whopping 6089 patents for the same period. Advanced countries like the US and Germany has filed more patents but the difference between China’s patents and India’s patents is glaring.

Chinese threat and being told what to do are the two biggest threats to R&D outsourcing in India. For India to move up the ladder, R&D and innovation should come within. India should lead instead of following someone else’s lead.

*Image source : IRRI images

  1. Sri says

    India is emerging to be the Leader.OK agreed.
    The recent olympics was a real show to prove that China’s power..China has literally threatened US and other countries…if India developing where are we in Sports? Infrastructure? …is it only in Business not in Sports?

  2. Jiang says

    Unfortunately, China is a much bigger market and has much higher domestic demand than India. India is burdened by democracy and too much freedom at this stage of human development. If you give a child too much freedom, he will be spoiled. Resources are wasted; time is wasted.

    Multinationals have legitimate reasons to outsource to China because outsourcing is not just a way of cutting cost; it’s a way of gaining market share; and Chinese government is doing its part demanding technology transfer in many of their dealings with the West.

    I have encountered many cases where India companies are not allowed to bid on projects; those are solely allocated for Chinese companies.

  3. Ankit says

    @sriram Completely agree with you.Infact,i did clarify that i am not trying to crticise.Jus that being a regualr here i was trying to figure out the tone of writing.Prepartion of GMAT is probably doing that for me.

    I have no doubt that India has the potential to lead.Infact,i mentioned the same thing in another article of “renewable sources of energy” where i seconded ur opinion of “leadership coming thrgh US when it comes to promoting Renewable sources of energy”.The fact is India is and can always lead no matter what the domain is.May be tht’s blind optimisim but i prefer it that way.

  4. Sriram Vadlamani says

    @Ankit : The critique you are seeing should be attributed to Indian democracy and the freedom of speech. However, this is not a critique. It is constructive criticism. I don’t see a reason why India cannot lead.

  5. Ankit says

    The timing of the post couldn have been more interesting.Only yesterday i wrote an article on India being more insulated than China when it comes to economic slowdown.And i get to read a totally new article involving the same actors.
    I am not sure if its intended but i have found the posts here with a India crtique flavour:-).I do understand it is for the better since we shouldn be sitting on our glory.
    Infact,China domination is well talked about in thomas friedman’s book “the World is Flat”.He is warning the americans to be threatened from the chienese.
    After reading this article,i am sure India better pull its pants up and go through a paradigm shift from a follower to a leader

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