India: R&D Stronghold

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An influx of returnees from the U.S., Britain, and Australia, many boasting years of managerial and R&D experience at Western corporations, is supplementing India's technical workforce. Expatriate Indians now account for 10% to 15% of the staff in offshore R&D centers, Zinnov estimates. The software industry alone has benefited from the return of 30,000 expatriate professionals, according to Nasscom, India's information technology trade association. "The immigrants have brought the high-end talent that India needs," says Tirukkala.

Up the Innovation Ladder

This greater experience is enabling India to move up the innovation ladder, Tirukkala argues. More companies are making India the main R&D base for certain products because they are finding it harder than expected to control offshore engineers out of the U.S. "Chief technology officers are finding that globally distributed innovation is not working," he says. Some companies have decided to move engineering back to the U.S. But others have shifted top managers to India to run development work entirely from there. The India country head of software giant Adobe Systems (ADBE), for example, is also senior vice-president for its global printing and publishing system product business.

Not all analysts are convinced Indian R&D operations are ready to assume the lead in innovation, however. Martin Kenney, a University of California at Davis economist who has studied offshore R&D in India and China, agrees the trend is still growing in India and that its workforce is becoming more experienced and innovative. Since 2000, he notes, U.S. patents awarded to inventors filing from India rose more than fivefold, to around 550 a year.

But the number of India patents remains very small in the scheme of things: Last year the U.S. issued nearly 94,000 patents. And Kenney suspects the vast bulk of India's engineering hordes still is far too green to do complex design and innovation work. "Bangalore is not like Silicon Valley, where in a couple of weeks you can round up 10 people who have already designed chips at three different startups," he says. "We don't really yet know much about the true quality of the work done there. There are company anecdotes going both ways. Some of it may not be what it is cracked up to be."

Kenney believes low cost is still the primary reason U.S. companies are shifting work to India. "My guess is that if the Indian engineer cost the same as our engineer, nobody would go to India," he says.

Kenney does agree, however, that India's R&D workforce is steadily gaining the experience to produce innovation. The debate is whether that time is another five years away—or has already arrived.

Engardio is an international senior writer for BusinessWeek .