These may be dreary times in Silicon Valley. But in Bangalore, India, the technology boom is alive and well. Inside Intel's (INTC
) new $25 million glass-and-chrome complex on Airport Road, 950 young engineers work around the clock designing new chips. Downtown, Sun Microsystems (SUNW
) has added 400 engineers in its gray-marble development center for servers. Texas Instruments (TXN
), Cadence (CDN
), Analog Devices (ADI
), and Cisco (CSCO
) are rapidly expanding design centers for telecom products.
The construction boom in research and development labs under way all over Bangalore represents a new wave of investment that is pushing India sharply higher in the global technology food chain. In the first wave, starting in the 1980s, multinationals like General Electric Co. (GE
) and Citibank (C
) took advantage of India's huge pool of low-cost, well-trained, English-speaking technicians to set up mundane software-code-writing operations. Software services has since grown into an $8 billion annual export industry, and is expected to reach $50 billion by 2008. Then, in the '90s, Bangalore drew a spate of back-office service centers for handling everything from billing queries from U.S. PC buyers to credit-card applications.
Now, U.S. companies are turning Bangalore into a strategic base for genuine R&D, not just grunt work. The Indian staff of TI already has designed sophisticated chips for global markets and boasts some 200 patents. Intel Corp. says it will have 3,000 R&D staff in Bangalore by 2005; Cadence says it will double its engineering team in four years. In software, Germany's SAP (SAP
) has developed new applications for notebook PCs at its 500-engineer Bangalore facility, and is plowing in an additional $100 million to boost space and staff. Oracle Corp.'s (ORCL
) 2,400-strong center has generated such hot products as Oracle Student System, which helps colleges process admissions, housing, and graduation records. Cisco Systems Inc. and Intel are expanding research teams devoted to telecom networking equipment.
As a research hub, Bangalore is approaching the scale of many U.S. centers. Since the beginning of 2001, 230 multinationals have piled into the city's industrial parks. Already, some 25,000 engineers work in Bangalore labs. In three years, predicts Nasscom, the Indian software association, that number should swell to 65,000, thanks to an additional $1.5 billion in investment. When Intel CEO Craig Barrett visited Bangalore in August, he noted that a "whole ecosystem for IT is being built in India."
Bangalore still has shortcomings to address before it can rank as a first-class tech hub. The biggest is infrastructure: Like much of India, it's short of electricity. So most big complexes require their own power generators, hiking costs by 10%. The city lacks an international airport and good highways, hurting its value as an electronics manufacturing base. There also are India's inconsistent policies toward foreign investment and its tense relations with neighboring Pakistan.
But Bangalore's strengths offset many of these weaknesses. The biggest is India's huge supply of high-quality, low-cost engineers. Each year, India graduates 220,000 software and computer science engineers. Bangalore alone produces 25,000--almost as many as the entire U.S. The average wage is $12,000, with a PhD commanding up to $30,000 a year. That's about one-fifth the price in the U.S. Cisco, SAP, and other companies that have shifted research work to India report savings of up to 60%.
What's more, Bangalore is awash with veterans with global experience. For decades, U.S. chipmakers have relied heavily on Indian-born engineers to develop breakthrough devices in Silicon Valley. Now, Indian engineers are returning home to manage R&D teams in Bangalore. Many other engineers cut their teeth at local IT giants like Infosys Technologies Ltd. (INFY
) and Wipro Ltd. (WIT
), known for delivering high-end software and consulting tasks for multinationals.
These are among the reasons Intel is pushing more work to Bangalore, the site of its biggest design facility outside Portland, Ore. So far, Intel's three-year-old campus has produced 62 patents for semiconductors, telecom switching equipment, and routers. In September, Intel set up a new 40-engineer lab to help work on its next generation of microprocessors. After manufacturing shifted overseas in previous decades, the focus of globalization is now research and design, says Intel India R&D director Manni Kantipudi, "and here India excels."
Texas Instruments has been mining Bangalore's brainpower since 1985, when it set up a small software service center. It now employs 850 on a 3-hectare facility that accounts for 30% of TI's global R&D work. Among other devices, Bangalore was responsible for Ankoor, a digital signal processor used in disk drives that has generated $400 million in revenue since 1997. Other designers are working on multimedia devices for Eastman Kodak Co. (EK
) and JVC. They also are playing a big role in TI's drive to produce a chip for cell phones that combines all functions on a single device.
Bangalore also is reaching new levels in software. For decades, multinationals' operations in India focused on tedious work such as writing code or trouble-shooting. Now, Bangalore is originating software products sold globally. SAP developed a fast-selling program enabling clients such as Nestle (NSRGY
) and Philip Morris (MO
) to use its complex business software systems on notebook PCs. Now the company, which next year will move into a new 6-hectare development center, is assigning its Bangalore team to the job of compressing its software to fit on hand-held computers and even cell phones.
Even so, Bangalore has its work cut out for it to overcome infrastructure bottlenecks. That's one reason why, despite abundant cheap labor, it still plays a marginal role in manufacturing--especially compared with China and Southeast Asia. Municipal and Karnataka state officials are upgrading highways around the city, and plan to open an international airport by 2005--making it easier for executives to get in and out and to ship electronics to foreign markets. Karnataka officials vow to upgrade electrical power and to open the sector to private investors. Officials also hope to win permission from New Delhi to open industrial parks where multinationals can manufacture without paying tariffs on imported materials and equipment. "We cannot afford to fail," says Vivek Kulkarni, Bangalore's IT secretary.
For now, though, there is plenty of growth ahead even if the city sticks to information industries, which mainly need reliable telecom connections. Indeed, Bangalore's economy is growing at a torrid 10% annual clip--twice the national average. By 2010, Kulkarni predicts, its gross domestic product will reach $15 billion, enabling it to pass Bombay as India's wealthiest city. Indian-American Hans Taparia, 29, a Massachusetts Institute of Technology graduate who runs a tech consulting business in Bangalore, says he sees old classmates arrive monthly. "Every day, it feels more like Silicon Valley to me," he says. Before long, that may be no exaggeration.
By Manjeet Kripalani in Bangalore, India
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