[Photograph by Alexander Dummer under Creative Commons]
It is no surprise that GE wants to set up its largest digital hub in India. This hub will most likely work on Predix, GE’s flagship industrial internet platform. Or that Apple is opening an R&D centre here that will focus on maps. Google too has a maps and navigation R&D team in India.
After all, India has a pool of highly qualified technical talent, many with advanced engineering degrees. And India is becoming one of the fastest growing large markets. For example, by 2020, the demand for electronic products and systems in the country is estimated to reach $400 billion, the e-commerce market is likely to be $100 billion, and the number of smartphones is likely to increase to 450 million. In many segments India’s potential market size is next only to China.
There are several others who are keen on R&D in India: Mercedes Benz’s India R&D centre is setting up a centre of excellence for digital transformation. Walmart’s India R&D centre also set up a centre of excellence to focus on digital transformation in retail—Walmart Pay, its in-store mobile payment platform, is a product developed here. (Though some like Twitter, eBay and Yahoo are withdrawing or ramping down their R&D activity in India, this is mostly because the parent company is facing challenges.) Various estimates including that of Nasscom peg the number of R&D centres in India to over 1,000. (See 'Tech MNCs come to India'.)
Most of these R&D centres operate to leverage the attractive resources in India—and are very successful in doing so. Some have even taken engineering ownership of entire products, usually those that are mature. In the past couple of years, many of the technology MNCs’ India R&D centres have become integral to provide capabilities in emerging areas like artificial intelligence and machine learning, big data, mobile, etc. to the parent MNC.
But how do you make inroads into the India opportunity? Future growth is likely to come from India and India-like markets. The emerging paradigm is R&D in developed countries will focus on 1 billion of the world’s population while R&D in countries like India should focus on the rest of the 6 billion. While India and similar markets are reasonably large and expected to grow, MNCs are facing increased competition from large Indian companies, and the nimbler startups in India and elsewhere.
A handful of tech MNCs have started to design for India and leverage India’s attractive market. They are seeing success. Their R&D in India is focused on modifying their existing products (including services) or developing new products for the domestic market in India. In many cases, they then take these to other markets too, including developed ones.
Aiming at the 6 billion
In 2008, GE Healthcare took a step in leveraging India’s huge market when it launched the MAC 400 electrocardiogram (ECG) machine. This was a “designed and made in India” product for the Indian market. The use case for the MAC 400 was simple. Existing ECG machines from GE were priced at around $15,000. That made it out of reach for many small Indian clinics and hospitals. And these ECG machines were not built to operate in Indian conditions of fluctuating power supply, high dust, and humidity.
The India R&D centre of GE Healthcare took on the challenge to solve this problem, and build a product for the Indian market. This involved an entire gamut of R&D activities—applied research, exploratory development, and advanced development. Use of general purpose chips was an important element to reduce cost, which moved away from the norm of using special purpose chips in medical equipment like ECG.
Innovative solutions were used to make the product robust. Existing printing solutions did not work well in Indian conditions. The research team had to modify a printer that was used to dispense bus tickets in India for use in the MAC 400.
In fact, the MAC 400 took the attractive host market model a step further when it was sold first in Germany and soon in the rest of the world. This is the reverse innovation model—developing products for emerging nations and selling them in developed markets. The success of the MAC 400 did not go unnoticed by other tech MNCs having an R&D centre in India.
What we are witnessing for the past few years are more green shoots—technology MNCs’ India R&D centres leveraging the attractive host market.
In 2011, Cisco’s India R&D centre developed the ASR 901 mobile back haul router that serves as the entry point for consumer voice and data into the mobile telecommunication network and sits in what is referred to as the “last mile” of the network. It was successfully sold to telecom operators in India and other developing and developed markets.
The new wave
More recently, Uber realised that expanding in India would need tweaks to its operating model. For example, accepting cash as mode of payment was essential to grow in non-metro cities and towns in India and compete with local startups. Uber’s India R&D team modified the app to include cash as a mode of payment. The pay by cash feature was later taken to other Asian countries like Vietnam and Indonesia.
Google’s India R&D was part of the YouTube Go project that makes it possible for users to watch videos on slow networks and offline. This feature is important to increase YouTube usage in a slow bandwidth country like India, and where cost of bandwidth is expensive for a large percentage of the population.
Microsoft R&D has embedded Aadhaar (Indian unique identification number with biometric identification) to Skype. This will enable Indian organisations to activate presence-less identity confirmation via Skype.
While Samsung started its R&D centre in the mid-90s to leverage the technical talent in India, the focus today also seems to be on R&D for India. In 2016, the new My Galaxy app developed by a Samsung R&D team in India is part of mobile phones like the Samsung Z3 launched in India.
The focus of many of these India R&D centres leveraging the attractive host market is applied research, exploratory development, and advanced development.
Making the switch
While it is easy for technology MNCs to continue with the attractive host resources model in operating their India R&D centres, it is not always easy to make the switch or add on the ability to leverage the attractive host market.
The critical aspect to make the attractive host market model successful is to understand that the capabilities required are different from the attractive host resources model. The current teams in the Indian R&D centre may be excellent in executing the attractive host resources model, but may be inadequate in operationalising the attractive host market model. Lack of hands-on product management and applied research expertise is often the reason.
Having a significant business presence in the host country—like Samsung has in the Indian mobile phone market—provides the India R&D centre a better context and proximity to work on India-specific products. A large country business also provides easier access to complementary product management and marketing expertise.
Sometimes it is easier if the MNC is young and nimble, like Uber, where organisation routines like R&D to business transfer are probably not yet bureaucratic like in larger MNCs. In such contexts it is easy to transfer R&D to business. It may also be easier in such contexts to transfer R&D to business across geographies without getting stonewalled by the “not invented here” syndrome.
It is imperative for the MNCs to invest in building these capabilities or allocate budgets to recruit those with these capabilities. It is even more difficult to experiment with reverse innovation, especially if it disrupts existing operating models, and cannibalises current products. Often, reverse innovation requires a strong senior executive sponsor from the headquarters.
For example, in GE the executive leadership including the CEO have bought into the concept of reverse innovation. On the ground level, GE has local growth teams that are self-contained with representation from product development, manufacturing, sales, etc. These local growth teams are the engines for reverse innovation. They are plugged into R&D in the host country and across the different organisations and geographies. It is not that every local growth team will be successful in reverse innovation, but what it provides is the organisational scaffolding for successful reverse innovation.
Notwithstanding these challenges, this is a time for technology MNCs to proactively experiment with leveraging the attractive host market model with their India R&D centres. This is invaluable in multiple contexts where future growth is likely to come from India and India-like markets, reverse innovation is important to disrupt existing markets, and competing with startups across the world becomes the norm.
Tech MNCs come to India
India started importing computers from late 1955. The first few were installed in the research institutions. The first tech MNC to set up an office in India was IBM in 1959. It was a sales and services operation, and later a facility to manufacture key punch machines in India.
Though tech MNCs were selling computers and other related electronic equipment from the 1960s, none had an R&D centre in India. The earliest to set up an R&D centre in India was Texas Instruments (TI) in 1985. This was a classic model of leveraging the host country resources. TI chose India among other competing Asian countries since the technical talent in computer science and electronics was of a high quality.
The initial projects in the India research centre were to enhance TI’s Electronic Design Automation (EDA) tools—the tools used by TI internally to design chips. While the initial work was advanced development for EDA, TI’s India research centre ramped up its capabilities to exploratory development and applied research within a decade. The centre designed and launched C2700, the first Digital Signal Processor (DSP) in the world that combined signal processing and control functions in a single chip.
The interesting point to note is that the C2700 was not a product specifically meant for India, and the model was still leveraging attractive host country resources, and not the attractive host country market.
Today, TI’s India research has over 600 US patents to its credit in its 30 years of existence—that averages to about 20 a year from inception.
The TI R&D centre was the pioneer that paved the way for many more technology MNCs to set up R&D centres in India, and leverage the attractive host resources model. Various estimates peg the number of R&D centres in India to over 1,000. And all in a short span of 30 years.
