China and India: New Innovation and Talent Forces

China and India are catching up quickly with Western nations in providing homegrown talent as well as heavy investment in R&D

By Arindam Bhattacharya

Most people in the U.S. and elsewhere in the West think of China and India largely as sources for inexpensive products and services. Few know that China, India, and other developing countries are taking center stage in the global war for innovation and talent.

Consider some important benchmarks: Scientists and engineers in China, India, and Russia are now producing an estimated 150,000 scientific and technical papers annually, more than many Western European nations. According to a Thomson Reuters review of 8,700 research journals worldwide, U.S. scientists led all others with slightly more than 25% of the total. Japan and Germany were next, with about 6.5% each, followed by France, Britain, and China, at 6% each. Brazil, Russia, India, and China, the so-called BRIC countries, produced more than 10% of the total—a number that is growing. If current trends continue, the developing countries could reach U.S. levels in fewer than 10 years.

The rapidly developing economies also now claim an estimated two-thirds of all engineers, a vital talent pool, while many Western countries face talent scarcities. Asian scientists and students are returning home from the West in record numbers—with those numbers increasing at approximately 13% per year. China and India are investing heavily in research and development, with China alone spending $136 billion on R&D in 2007, second only to the U.S. and ahead of Japan.

China and India also now boast some of the world's top science and research universities, including the seven-campus Indian Institutes of Technology as well as Beijing's Tsinghua University, which has more than 2,400 alumni in Silicon Valley alone. These trends have helped many Chinese and Indian companies aggregate a critical mass of talent, which is having a profound impact on their ability to innovate and compete in the global economy.

The All-Indian Nano

Tata Motors (TTM), for example, designed its new, low-priced Nano automobile almost entirely with Indian talent. Building a new plant to produce the $2,500 Nano has been more complicated than the company anticipated. Because of local protests over land purchases (BusinessWeek.com, 8/29/2008,), Tata has had to shift production to temporary assembly lines in existing plants, and the Nano is now expected to hit the market in the first half of next year. Still, Tata has managed to push the boundaries of the 21st century automotive industry to a new frontier. While some Western suppliers were involved in the process, Tata engineers and designers translated their knowledge of their targeted customers—low-income individuals and families ready to move up from motor bikes and three-wheelers—into a uniquely Indian vehicle designed to hold down costs. The Nano's electronic control unit (ECU), the computer brain of the car, for example, has just 300 functions vs. 1,000 for the typical Western car. And the Nano has simple drum brakes instead of disk brakes.

Some Western companies are keenly aware of China's and India's mounting innovative capabilities and have seized upon the opportunity to capitalize on the new reality. Some 70% of the employees in General Electric's (GE) Bangalore Global Research Center, for example, hold masters degrees or PhDs. The 680 patents GE's Bangalore team has filed since 2000 are critical to the company's global innovation efforts.

Despite such votes of confidence, many multinationals still appear somewhat gun shy, worried about intellectual property theft, runaway wage growth, and high attrition rates among engineers.