IT service providers go long on R&D

Research and development (R&D) has become a critical part of the operations of information technology (IT) service provider firms in India. Companies such as AT&T Bell Labs to those with less than $50 million revenues have set up their own R&D facility in the country recently.

Sudin Apte, country manager and senior analyst, India Operations, Forrester, said, "In the last two months, 250-300 captives had set up their own facility for R&D here and another 100 captives will be set up in 12-18 months."

The trend is also reflected in the R&D expenditures of IT firms. For instance, Tata Consultancy Services (TCS) spends 0.26 per cent of its overall revenues on core R&D and 4.5 per cent of its overall revenues on enterprise-wide innovation programme.

Service lines such as engineering services and products and assets services account for 10 per cent of its overall business and have been developed as a result of its R&D practice.

Patni has a team of 250 people for R&D and it has increased R&D expenditure by 20 per cent in the last three years. Its product engineering services line was developed as a result of its R&D practice and now contributes to 15 per cent of its overall revenues.

Accenture has a team of 180 people globally and R&D budgets of $300 million for FY07. It recently opened its fourth R&D centre in India.

R&D is important for the company to get an edge over its competition and to move up the value chain.

At TCS, R&D is an enterprise involving its arm Tata Research Development & Design Centre (TRDDC), the employees, customers, academia and is headed by its Ananth Krishnan, chief technology officer.

Mathai Joseph, executive director, TRDDC, says, "This enables R&D discussions both ways as it helps the business."

Similarly, in Patni, product engineering services contributes to 15-20 per cent of its overall revenues. The company's R&D team looks at upcoming trends and services. "New trends need a window of 4-5 years before they metamorphosed into steady revenue streams," says Satish Joshi, chief technology officer, Patni.

Every six months, Patni's R&D team investigates new technologies for commercialisation and decides whether to continue with its old initiatives.

Currently, it is upbeat about service oriented architecture (SOA), usage of devices such as mobile phones for enterprise automation and usability, which will start picking up in the next one year.

"The R&D culture has always been there in India. Motorola, HP, and IBM have had their R&D centres here for over a decade. But after the sudden acceleration of IT in the 1990s, people from all branches of engineering and science got absorbed into IT and not many pursued research, as it was a long haul," said Mathai.

"We will substantially increase the number of employees from the current 350-400 this year. The company is actively looking for PhDs and will recruit even 20 if we could lay our hands on them," added Mathai. "For the last 2-3 years, we have been consistently increasing our R&D expenses by 20 per cent and will continue it this year as well," said Joshi.