India – The Emerging Innovation Hub

In the last couple of decades India has become the most favoured R&D destination of MNEs and is in competition with other emerging economies in Eastern Europe and countries like Russia, Brazil for R&D FDI and R&D outsourcing contracts. The combination of comparative advantages like market size, the large low cost talent pool, English communication skills, very large highly qualified diasporas and reasonably developed R&D ecosystems is a difficult match for competing emerging markets. Most companies in India, domestic as well as multinational corporations (MNCs), are focusing on driving innovation for global and local markets. This is obvious from the fact that over last two decades there have been around 750 R&D centers established by MNCs in India, employing more than 400,000 professionals. A recent survey of senior business innovation strategists by the General Electric Corporation ranks India higher than the United States on their interest in innovation. There are several structural and historical reasons for this enthusiasm and we explore a few here.

The National Imperative

Governments of most emerging countries, including India, realize that innovation is the key to sustained growth and national prosperity. With this view in mind, the Indian government has introduced serveral measures to create a supporting ecosystem. In 2010, the Prime Minister of India, Dr. Manmohan Singh, declared this decade as the Decade of Innovation. Towards this, the National Innovation Council has been established with an initial capacity of 500 crores to bring about a socio-economic transformation driven by innovation. The science budget has grown at 25% annually for the past five years and while the current R&D expediture is less than 1 per cent of GDP, it is expected to double over the next five years. While unveiling the 2013 budget, Finance Minister, Hon. P. Chidambram, announced setting up a new fund to support organizations that bring key innovations from the lab to the market and tax benefits for companies that invest in setting up technology incubators in higher educational institutions. The India Innovation Growth Programme has been set up to provide funding, training and access to global markets for top innovators. All this infrastructural support sets the stage for supercharging Indian innovation on a global scale.

Frugal Innovation

Indians have always been very enterprising. A historical scarcity of resources coupled with environmental constraints (climate, water, energy) has resulted in an innate focus on frugal innovation. This frugal mindset has created innovations such as affordable heart surgery (Narayana Hrudalaya), palliative care for end of life (Kerela Neighborhood Network), efficient cataract surgery (Aravnid Eye Care), refrigeration without electricity (Mitticool) etc. The Indian consumer is very price sensitive but is also very willing to experiment if the value is appealing. This opens up a lot of opportunities for agile innovators. In a 2012 speech to the National Science Council, Dr. Manmohan Singh said “Research should be providing ‘frugal’ solutions to our chronic problems.” In this vein, Xerox Corporation’s Research Centre in India has developed a portable banking solution that can be set up quickly and cheaply for enabling greater financial inclusion in India. With this, opening a new bank account is as simple as touch-and-go, and can be a boon for rural areas. These frugal innovations though motivated by the constraints in India are still relevant for the global markets. The start-up, entrepreneurial environment is also promising in India

Innovating for the Global Market

Tata Nano is a product intended to provide the comfort and luxury of travel to the lower middle-class Indian population. However, an upscale version of the car, with a better engine and power steering, to better suit the requirements of the Western market, is also being planned. Cisco’s ASR 901 is an environmentally hardened, high-speed,low-power-consumption router optimized for managing 2G, 3G and 4G traffic in Indian conditions, but is also seeing great success globally. Xerox’s portable banking solution is attracting a lot of interest in the Middle East and South America. All these are examples of how Indians in local as well as multinational organizations are developing new and innovative products and services in an increasingly competitive global environment.

Global corporations increasingly regard competing successfully in emerging markets like India, as key to their corporate strategy. There is little doubt that emerging markets present a tremendous opportunity for global manufacturers. Not only do countries such as Brazil, Russia, China and India (BRIC) offer lower operating costs, but they are also home to rapidly growing middle classes that are potentially huge markets for their products and services.

The services sector has grown faster than the industrial sector. It has leveraged a strong resource base to exploit a major market opportunity, and in the process created a number of organizational capabilities that can be used in other service businesses. However, the nature of the capabilities built seems applicable to a range of services in the lower and middle ranges of the value ladder. Drawn by the strong talent pool, several MNCs have either set up their R&D centers or renewed their focus on innovation from India. At Xerox’s Research Center in Bangalore, we have been focusing on building innovative solutions that address the unique needs of emerging markets in sectors such as banking, transportation and healthcare while creating a global impact.

With millions of underserved consumers in India, innovation has the potential and imperative to bring about reforms in all walks of life, especially in the areas of education, healthcare, banking and environmental sustainability. The time is ripe and the opportunity is big. This is an exciting time to be an innovator (and consumer) in India.