And now, research

Weekend Ruminations

"You have lost the manufacturing game, there is no way in which you can catch up against the Chinese, or do what they have done." The man delivering that emphatic (and to his Indian audience, unpalatable) judgement was a German businessman who has overseen steel and engineering factories around the world.

He is known to be favourably disposed to India, but that didn't prevent him from delivering his tough verdict. Shortly afterwards, in the same Indo-German conclave, the head of SAP (the German software firm) in India made a detailed presentation on the company's research facilities in India, Germany, the US and other countries.

Many parameters were outlined, and the story these told was remarkable: SAP's Indian engineers are the cheapest, by far; and their productivity matches that of SAP's engineers in Silicon Valley (who are the most expensive, by far). The combination of top quality and least cost is lethal, and explains why the Indian software story has just begun.

That story is graphically told in BusinessWeek's cover story on India in its latest issue. The eye-popping fact reported there is that Bangalore now has more software engineers (150,000) than Silicon Valley (120,000).

The other revelation is how far the Indian software story has gone beyond TCS, Wipro and Infosys. In engineering research, General Electric's research engineers in Bangalore, for instance, have already filed for 95 patents in the four years since the research facility was set up, while the older Texas Instruments' Bangalore office has filed for 225 patents.

In financial analysis, Morgan Stanley, Goldman Sachs and the like have taken nothing less than three million square feet of office space in Mumbai to do work in India that till now has been done mostly in the US.

The story extends from old economy companies like Cummins hosting research work in Pune to electronic hardware firms like Intel doing high-end chip design in Bangalore and describing their Indian operations as part of the company's "crown jewels".

And the New York Times reported recently how radiologists in the US (who typically earn in excess of $ 250,000 annually, or Rs 1.15 crore) are protesting furiously against the outsourcing of their work to counterparts in India who work for less than a tenth of the cost, and who are said to deliver results that are at least as good.

All this might seem like labouring what is now a familiar point, but the nuances are important. Because while the headlines overseas focus on Indiana and the growing to-do over job losses because of business process outsourcing, and while domestic attention is focused on the big-ticket Indian companies and how they are continuing to grow, the story that is even more important in some ways is that global giants are locating their research facilities in India, not just because of the cost advantages but also because of the quality of work that is done here.

In other words, this is the services equivalent of what China achieved in manufacturing: the global giants moved in to create the Chinese manufacturing story, it wasn't just local Chinese enterprise; and now the global giants are moving into India to take advantage of research capabilities.

Even the international pharmaceutical companies are now talking of moving their research work to India, to exploit the same advantages that Ranbaxy and Dr Reddy's have so far been doing. And why not?

The German businessman who didn't think India had a future in manufacturing, had completed his point by saying exactly this: that India could become in the field of global research (note: not the broader category of services) what China has become in global manufacturing.

In other words, this goes beyond call-centres and medical transcription, it goes beyond payroll accounting, it goes beyond the banking software products developed by I-flex and Infosys; it is high-end work that no one would have thought of locating in Bangalore five years ago.

Back then, Daimler Chrysler was one of the early birds which located in Bangalore a small research set-up that began work on the future of the automobile.

And what you see Mercedes Benz advertising today as some of their cars' intelligent features, is in part the result of work done in India. So, not just the future of the automobile, the future of much of research itself is developing an India angle.