As the country’s R&D grows, a Silicon Valley-like culture will help the nation produce the next big bang innovation.
BANGALORE – If Indians are so smart, then why weren’t we the first to come up with the iPod, Google or Viagra?
Nirmalya Kumar and Phanish Puranam, co-directors of the Aditya Birla India Centre at the London Business School disagree with the question. After all doesn’t innovation amount to different things in different businesses? Often, a product may be designed by a company in the Western world but manufactured in Asia. What happens to all the process innovation in manufacturing? And lastly, remember that Toyota and Samsung, two companies seen as innovation powerhouses today, started off as makers of cheap knock-offs.
The duo spent four years meeting companies across India to understand what innovation in their areas of operation amounts to. At the end of this exercise, they argue that while the big bang innovation, i.e. a home-grown iPod, may be at least a decade away, Indian companies have been at the forefront of a number of innovative business ideas. “Unlike Intel, these ideas are not branded ‘India Inside’ like Intel does with the ‘Intel Inside’ logo,” says Nirmalya Kumar, who is Number 26 on the Thinkers50 list. “A lot of this innovation is invisible, but innovation nevertheless.” And it is this ‘invisible’ innovation that is helping India.
To start with, globally segmented innovation is now the norm. India is home to a dozen multinational R&D facilities where small armies of scientists work on global products. The way the work is divided, it becomes impossible to tell where the product was created. “Yet global consumers rarely recognize India as the country of innovation because most of the innovation takes place in the B2B context.” Case in point: The number of patents filed by Indian subsidiaries of U.S. multinationals rose from 35 in 2001 to 800 in 2007.
As Indians spend time working in these facilities, the country will inevitably begin to notice the benefits of a ‘sinking skill ladder’. What does this mean? Initially, MNCs were comfortable outsourcing only the most basic of research. But after a few years, they reach a point where they either move higher end work to India or take it to their higher cost home country. Most inevitably move work to India helping Indians climb up the skill ladder. Kumar and Puranam accept that for now it is bottom end work that is coming to India, but are confident that in time this will change.
Other examples abound. Take the much touted global delivery model that IT companies pioneered in the wake of the Y2K scare. Companies like TCS, Wipro and Infosys used this opportunity to build their reputations and have since taken on more tasks that are integral to the business process of their clients. As India gets more important for global companies, there will inevitably be more Indians reaching the top of global corporations that would lead to more work being sent to India.
Then there is outsourced work for global companies on a contract basis. Dr. Reddy’s Laboratories is a clear winner here. It set up Aurigene Discovery Technologies with offices in Boston to take advantage of outsourced work from Western pharma companies.
And lastly, there is process innovation where companies like 24/7 Customer have blazed the trail. Its journey is particularly inspiring for call centers caught in the rut of a business with declining margins and increasing staff attrition. 24/7 Customer went from taking calls to reading minds. The company mined customer data to understand customer preferences.
Soon it could tell that “a man visiting a Web site on a Wednesday afternoon between 3 and 5 p.m., through a cable connection in San Jose… is more likely to buy product X than a woman visiting on Thursday between 10 and 11 a.m. through a dial up connection in San Antonio” even though both spent five minutes browsing the jewelry section. That helps its agents make contact with the most promising clients. The authors term this ‘the injection of intelligence’. When you have millions of intelligent and overqualified people working at call centers, innovations like this are bound to happen.
So what can cause a stutter in India’s evolving innovation trajectory? For one, Indian companies have been loath to allocate more money to R&D. At present, they spend 0.6% on research compared with 3% in the West. Technology companies in the U.S. usually spend 5-6% on R&D and the number rises to 15% for pharma companies.
Still, it’s not all gloom and doom. Two trends point to a bright innovation future for Indian companies. As they build their own research facilities, they’re bound to raid trained manpower from India development centers of the multinationals. When people working in these development centers set up their own firms, India will have a Silicon Valley-like culture of innovation. And that’s when India should get its own iPod, Google and Viagra.
Courtesy Forbes India