Yet others, such as India-based Satyam Computer Services, have scrapped the traditional isolated R&D model and established a new business model encouraging innovation that’s distributed across numerous divisions.
Employers in India are finding ways to meet the growing demand for highly skilled engineers who are helping make India a worldwide leader in innovation.
"India not only works out cheaper, but also offers high-quality R&D," says Vamsee Tirukkala, managing principal of Zinnov, a consulting firm that helps multinationals craft global product development strategies.
Indian firms have developed strategies to respond to the explosion of India-based R&D work. In the last eight years, the number of R&D companies launching in India has quadrupled—from 180 in 2000 to 650 in 2006 and about 800 in 2008, according to data from Nasscom, India’s software trade association, and the chamber of commerce of the country’s information technology-business process outsourcing industry.
Unlike Silicon Valley, where many executives have a doctorate, Indian employers cannot rely on research universities to supply highly skilled engineers. India produces more than 360,000 engineering graduates each year, including 150,000 computer engineers. But just 30 to 35 computer engineers in India annually go on to get a doctorate. In fact, only 1 percent of engineering graduates in India attain a doctorate, as opposed to 7 to 9 percent in most developed economies.
Cost, of course, has driven R&D to India. A recent study undertaken by Zinnov shows the cost of employing a full-time Indian engineer—including wages and benefits—ranges from $35,000 to $55,000. The U.S. average is at least three times that, according to Zinnov.
"There has been a severe talent crunch for the last few years," says Vivek Wadhwa, executive in residence at the Pratt School of Engineering at Duke University and author of a recent study, "How the Disciple Became the Guru."
"But companies have learned to deal with this by providing extensive training to their workforce."
In recent years, highly skilled immigrant Indians have supplied employers with the ability to meet India’s growing supply of R&D work. According to Nasscom, in 2005 and 2006 the software industry benefited from the return of 30,000 expatriate professionals. The number of immigrant Indians and expatriates continues to climb.
"Immigrant Indians have brought high-end talent. They now account for 10 to 15 percent of the staff in offshore R&D centers," Tirukkala says.
Satyam has 100 people in countries outside India working on new projects, says Venky Rao, senior vice president and head of innovation and leadership for the Hyderabad-based company.
"Just walk into any café in Bangalore and you will find people of different nationalities taking a coffee break," says Rajdeep Sahrawat, vice president at Nasscom. "At most R&D captives, the culture is very cosmopolitan."
But companies believe they cannot rely on expatriates as a long-term strategy. More than counting on immigrant Indians and expatriates, companies are focusing on training. Most IT firms have tie-ins with universities to encourage innovation.
Tata Consultancy Services has long-term research relationships with renowned institutes in India and overseas through its Co-Innovation Network.
"This ensures that we get access to some of the best talent in R&D to meet our research needs," says Ajoy Mukherjee, vice president and head of global HR at Tata.
Tata gives employees the opportunity to take sabbaticals and work on advanced research at renowned institutes worldwide. It even offers employees reverse sabbaticals in which researchers from leading institutes like Stanford University, MIT, the Indian Institute of Technology Kanpur and the Indian Institute of Technology Bombay collaborate with its R&D team.
"This allows employees the opportunity to work with some of the best researchers from leading universities worldwide in a collaborative mode," Mukherjee says.
IBM is working with top universities to develop a new academic discipline called Services Science, Management and Engineering.
"SSME is aimed at studying, improving and teaching services innovation," says Gurudath Banavar of IBM’s India research lab.
The IBM India lab is working closely on the program with institutes such as the Indian School of Business, the Indian Institute of Management Bangalore, the Indian Institutes of Technology and the National Institute of Design.
Each company has created ways to train high-level employees. Cisco Systems’ R&D operation, Cisco Development Organization, India, uses an online education management system that features courseware on technical/engineering, management and leadership and is open to all employees.
The key attraction of the education management system is that it allows employees to know their options, says Aravind Sitaraman, Cisco Development’s vice president and managing director.
"They can plan and pace their learning as per their choice. Information is available on various career path options," Sitaraman says.
Cisco’s India operation has added 600 engineers in the past year, bringing its employee base to 4,000—with plans to increase staffing to 6,000 in the next couple of years. Cisco also has alliances with leading universities internationally for broad-based and custom-designed courses.
The company uses video on demand, Web-based training, online virtual lab programs and virtual classrooms to train employees.
"All Cisco India employees are entitled to a certain amount of sponsored external training every year," Sitaraman says.
Satyam changed its business model to make innovation a key to the way it does business. Two-and-a-half years ago, Satyam had about 30 engineers involved in traditional isolated R&D, rather than working companywide.
"We needed a distributed approach to innovation since people working in the R&D department were not clued in to the specifics of each industry for which Satyam was creating solutions," Rao says.
The company created the Satyam Way, dividing its business into separate divisions, which the company calls fractals. These fractals, which manage client relationships or perform functions like campus recruiting, vary in size but must be large enough to stand alone as individual business units. Satyam has about 2,000 fractals, each headed by its own CEO.
Satyam’s iDNA program is a blueprint for encouraging innovation within each fractal. The program, whose name reflects the company’s desire to make innovation a part of Satyam’s core values, is composed of three strategies. Among them is Thinking Clubs, which create social networks of 10 to 12 employees focused on major innovations. A number of techniques—Six Thinking Hats, Lateral Thinking, Theory of Constraint and TRIZ (the Russian-language acronym stands for "Theory of Inventive Problem Solving" in English)—are used to generate ideas within these networks.
Eventually, Satyam wants all 53,000 employees to be part of the Thinking Clubs, envisioning a time when its supply of highly skilled, innovative employees will be completely home-grown.