Innovation from India: The Next Big Wave

Innovative companies the world over are discovering the research and development advantages to be found in India

By Gunjan Bagla and Atul Goel

A new portable electrocardiogram machine, the MAC 400, can take 100 EKGs on a single battery charge and weighs less than three pounds. This is appropriate for rural areas in emerging markets where electricity is not always readily available and where patients cannot easily travel to urban diagnostic centers. The product's roots are as remarkable as its capabilities: The MAC 400 was designed at General Electric's (GE) John F. Welch Technology Center in Bangalore by a team of Indian engineers. Most of the early growth at this research and development center, GE's largest outside the U.S., took place during the 2001-02 recession. Today, the 50-acre campus employs 3,500 scientists and engineers; they've created patents on aircraft engines and locomotives in addition to medical devices.

Many other companies are, like GE, turning to Indian talent for new product development. Technological innovation has powered the rise and the economic domination of the West for two centuries. With scientific research, technology development, and product innovations from the steam engine to the World Wide Web, the West has led the world in wealth creation. A vibrant and structured educational system coupled with a strong intellectual property regime has enabled the creators and owners of ideas to profit handsomely.

But the balance of power has begun to shift. Despite the current economic problems both countries face, we will soon witness a dramatic rise in the participation of India and China in global R&D. The first reason for this is the diminished role of corporate laboratories that were the birthplace of many of the ideas of the 20th century. Bell Labs, Xerox Palo Alto Research Center, and IBM TJ Watson Center no longer enjoy the same preeminence that produced ideas such as the transistor and the mouse. Today's nimble companies rely on ecosystems of external innovation to drive new products to market; venture capital and private equity investors are eager to fund collaborative innovation for quick wins but have little appetite for long gestations for science.

"Distributed Development"

In the drive to seek the best return on invested capital, important components of these ecosystems have moved offshore and away from the West, creating specialization and disaggregation. Collaboration tools and disciplined design techniques make it conceivable for people who are not in the same building to work together as if they are neighbors. The difference between being one building apart and two continents apart becomes less significant. Once this "distributed development" becomes a reality, it is natural for portions of such work to migrate to locations where large numbers of talented scientists and engineers are more readily available. India, for example, graduates more than 100,000 English-speaking engineers each year, so Western companies find it particularly attractive as a destination for this work. On the other hand, first-world countries have declining populations and a lower percentage of students choosing technical careers. Distributed development is the second inexorable reason for the forthcoming rise of emerging company R&D.

Third, in many industries, increased competition has pressured companies to speed products to market as never before. Because profits from new technologies are highest before the technologies become commoditized, if a new product has a four-year life and you are one year late to market, you may lose not one quarter but rather half of the potential profit from the product. Leaders in R&D, unable to hire enough qualified engineers in the West, turn to Asian resources to keep up with this faster pace of development. Time-to-market pressure continues to drive new product initiatives to leverage talent in India.