February 15, 2003
The biggest and best names in the software business worldwide are looking at ways to transfer research and development to Indian shores
Bipin Chandran in New Delhi Published : February 15, 2003
It has already spent $10 million to build a state-of-the-art research facility in Noida. But that's only the first phase of Adobe's giant plans for India. In the next five years Adobe, the world's leading publishing software company will pour about $50 million into its Indian operations. Why is Adobe pouring resources into India at a time when cash is tight? That 's because the results are already showing from its Indian operations. Take, for example, the Adobe Acrobat Reader designed for pocket PCs that has received rave reviews from the infotech fraternity. The product was developed by an eight-member team in Noida.
That isn't all. Another Adobe team in Noida is working on a futuristic technology called epaper. And a 15-member team is racing against the clock to turn out new products for the media and video editing. "This team is another important addition to our operations in India. They are working on cutting edge technologies in these fields," says Naresh Chand Gupta, managing director, Adobe India.
Once upon a time Indian software companies performed the grunt work for companies around the world. But now the biggest and best names in the software business worldwide are turning their eyes towards India. What's more, they are looking at ways to transfer research and development - both the high end stuff and the easier low-end work - to Indian shores. "Virtually every single global IT major is rapidly expanding its footprint into India," says Sunil Mehta, vice president, Nasscom.
Take Synopsys, an American company which undertakes research for scores of giant chip and semiconductor corporations. Synopsys was quick to figure out that it could get a number of its R&D jobs done in India for a fraction of the cost and moved to Bangalore in 1995.
To start out, it spent $4 million on an offshore research developmental centre which handled a lot of the company's easier jobs. But the centre has grown and has now turned into a $25 million corporate research and development centre which does work for every major Synopsys business unit. "We expect to generate more work for the Indian centre as companies globally are keen to move work to India," says Pradip K Dutta, managing director, Synopsys India.
For many companies like Baan, the world's leading ERP company, India has been a way to cut costs during an era when it was being forced to tighten its belt because of the technology slump. Baan has invested around $75 million in India during the last two years. Bear in mind that Baan has been against the ropes and been cost-cutting drastically in other parts of the world during this same period.
Like many others Baan is still on a hiring spree in this country. Currently, it has about 600 people in its centres in Hyderabad and Mumbai and it is likely to add another 200 in the next 12 months. Baan, which came to this country in 1988, was one of the pioneering companies to use India for its R&D efforts. "Some of the leading US customers are handled from here as we have high quality talent in India," says Gopal Madnani, CEO, Baan India.
If companies like Baan and Synopsys were quick to spot the opportunities in India, they weren't the only ones. According to a recent survey by Nasscom about 82 per cent of US companies ranked India as their first choice for outsourcing R&D and software services. Besides, the country has also caught the eye of global software majors. About 75 per cent of the to 40 global IT services companies consider India as a country where they can shift R&D. Many of the biggest are already here and expanding swiftly. Sample this. IBM Global Services has already said it will increase the number of software professionals in India from 2,200 to 6,500 by 2004. IBM Global Services is also building its own facility in Bangalore.
Similarly, EDS is planing to increase the number of people in its software development centres in India to 5,000 by 2004 from the present 600 people. Then, there's Computer Associates which has its third largest software development centre in India. And Microsoft's largest centre outside the US is in India. The Microsoft India Development Centre (MIDC) works as an extension to the company's R&D team in Redmond.
Microsoft will spend about $100 million and plans to have about 500 software professionals working at MIDC by 2005 which will be up from the current 200. More importantly, Microsoft will be moving strategic product related work to India to utilise the country's vast army of software developers.
Or, look at another giant Cisco. The global networking major had put hiring on hold after it was hit badly by the Internet meltdown. But it is following a slightly different strategy in India. It is outsourcing key product development work to Indian software companies.
Besides that it also has its own in-house R&D centre in India. "The cost of outsourcing and doing it ourselves in India works out to be almost same. But we make substantial savings in the areas of setting up our own infrastructure and hiring people," says S Devarajan, vice president, Cisco Systems India.
Cisco now has outsourcing relationship with Infosys Technologies, Wipro and HCL Technologies and have mandated them to hire more for its development work. Totally it is reckoned that Cisco has about 2,300 people working on its projects in India. That's about 1,600 who are employed by its partners and the rest are its own employees. "Our Indian partnersadded about 500 people last year for Cisco related jobs," says Devarajan.
It's important to note that Cisco has filed about 50 patents from India and that gives some indication of how important India is to its operations. The fact is that most of these global majors are also expanding their operations in India at phenomenal speed. Take Computer Services Corporation (CSC). The company has grown at about 70 per cent per year in the last two years and expects to grow at the same speed or even faster in the current year.
As a result CSC has outgrown its centre in Indore, and has now opened another centre in Noida. The company which employs 64,000 people worldwide, has about 750 software people in India. That's about 350 in Indore and another 400 in Noida. "We are happy with the quality and cost of work produced in India and is committed to using CSC India wherever possible. We expect India's contribution to CSC to increase over time," says Arun Maheshwari, president, managing director and chief executive officer of the Indian arm of the $11.3 billion software company.
CSC is also following the example of Cisco and tying up with Indian companies for its research. CSC has a joint venture with Satyam. Once upon a time it would have been true to say that all the low end work was sent to India.
Today, however, that would be far from the truth. Cisco develops the operating system software for the company's blockbusterrouters in India. Besides that the company is developing software products and new technologies completely out of India.
Similarly, Baan uses India to develop key components of its ERP software. In addition, Baan's India centre works as a part of its global technology development team and is involved in all development work. Adobe is moving larger chunks of its key work here all the time as is Quark Express which is based in Chandigarh.
Can India achieve more? Most of the global consultants and analysts reckon that the rush to India is only just beginning. Merrill Lynch estimated in 2002 that 67 per cent of major US companies aren't getting R&D or software services outsourced in India. But even that is expected to fall to 56 per cent in 2003.
According to the Nasscom-McKinsey Report 2002, leading companies like IBM Global Systems, EDS, Accenture and consulting majors like PriceWaterhouse Coopers, Cap Gemini Ernst and Young have decided to hire more professionals in India and transfer more work to India.
Totally it is reckoned that these global giants have committed about $1 billion to R&D investments in India? What are the benefits for them? The answer is simple: Outsourcing to India has meant 40 per cent to 60 per cent cost savings for the global majors. That's a huge saving considering the resource crunch that most of the companies are facing these days.
It is reckoned that India offers the most cost efficient labour in the software R&D outsourcing business. That's because average monthly wages in India are as low as $400 per month per person compared to $500 in China or $700 per in Philippines. To top it up, India offers the best software engineers in the world.
But that isn't all. An equally powerful attraction is the fact that companies can scale up operations easily in India. Nowhere in the world that companies can hire more than 1,000 professionals in one year or even less. Warren Gallant, president and vice chairman, Technology Partners International (TPI), the world's leading outsourcing advisory firm, points out: "US companies want to come to India because of the quality of the work. In India the time to market is low and you have the flexibility to scale up the high quality resources as per your requirements."
But, how long will India be able to stay in front? According toPriceWaterHouse Coopers (PWC), India's is in front in the global softwareR&D sector and the two rivals which could challenge it, Israel and Ireland, have their own problems.
Many companies have been forced to look at India in a bid to cut costs during troubled times. But it looks as if they'll be doing R&D from this country even when the good times return.
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