R&D: In search of the next big ideas     

They say one man’s trash is another man’s treasure. That may or may not be true given the mountains of garbage dotting Indian cities, but it’s an idea that Royal Dutch Shell, one of the world’s largest energy companies, is trying to realise at its garbage-to-fuel plant on the outskirts of Bengaluru. What it does is quite simple really: It feeds garbage such as plastic, municipal waste or wood into a machine, processes it, and then converts it into clean fuel. It’s an idea whose time has certainly come in India. Fossil fuel reserves are depleting across the world and the amount of garbage people are generating is leaping by the day. “We acknowledge that as the world grows from 6 billion to 9 billion, there will be a place for fossil fuels. It’s not that one comes at the cost of the other. We want to be prepared for both those scenarios,” says Sada Iyer, vice president, project engineering and project services, Shell India.

Shell’s enthusiasm about alternative fuel and its research and development (R&D) centre in India are as cutting-edge as they come. But it isn’t alone. Over the past 10 years, a host of global behemoths from chipmaker Intel and South Korean tech company Samsung to the world’s largest aerospace company Boeing and tech giant Microsoft have stepped up their research and development efforts in India to take advantage of its lower costs and vast army of educated engineers and researchers. As a result, India is finally ready to shrug off its image of being just an offshoring destination to support technology development for global firms and is instead growing into a hub for state-of-the-art R&D with original work in cutting edge technologies such as robotics, data analytics, and artificial intelligence (AI).

A 2017 report by global management consultancy Bain & Company says the Indian global in-house centre (GIC) landscape has evolved significantly over the past 20 years. Originally called captive centres in the early 1990s, they were offshore facilities that performed designated functions for large organisations. However, their role is slowly transforming. Today, India houses some 1,100 such centres that employ more than 800,000 people and generate about $23 billion in revenue, according to Bain. A 2016 report by management consulting firm Accenture says that in the last decade, India has emerged as the location of choice for offshoring engineering, research and design (ER&D) services for global corporations. Today, 46 of the top 50 ER&D spenders and 45% of the top 500 global R&D spenders have their centres in India.

Why are global firms such as Shell turning to India for R&D? Abhoy Ojha, dean, academic programmes at the Indian Institute of Management, Bangalore, says the number of people available to take on R&D roles in their countries has fallen because of a declining population and a drop in the number of people taking up engineering roles. Global firms are also looking at developing countries for R&D because these countries are becoming huge consumers, with India and China at the forefront. A 2017 report by the Boston Consulting Group’s Center for Customer Insight—titled The New Indian: The Many Facets of a Changing Consumer—says consumption in India will triple to $4 trillion by 2025 as rising affluence drives changes in consumer behaviour. “Markets are shifting to what used to be called the developing world or the emerging world. And the development activities require a lot of local content. Sitting in the U.S., Germany or sitting in Japan you cannot develop products that will be used in India or China,” Ojha says.

But multinational companies are using their centres in India not only to develop products that can be sold in India but also be tested in the Indian market and then sold in other countries. Let’s begin by talking about the project at Royal Dutch Shell’s technology centre in Bengaluru, one of three centres the British-Dutch company runs globally; the other two are in Amsterdam in the Netherlands, and Houston, Texas. Shell’s IH2 , as the project is called, is more advanced than other waste-to-fuel projects and the price of this fuel is expected to be quite competitive with oil prices. More importantly, the fuel produced through this process is much cleaner and will meet Bharat VI specifications, the new standards for pollutant emissions to be implemented in India by 2020. The Shell Technology Centre in Bengaluru is developing the IH 2 technology for global deployment. It was invented by the U.S.-based Gas Technology Institute (GTI) in 2009 and has been further refined through joint development with Shell-owned CRI Catalyst Company.

The first multinational to set up an R&D centre in India was U.S. technology firm Texas Instruments (TI) in Bengaluru in 1985. Over the years, U.S. software giant Microsoft, South Korea’s Samsung Electronics, German software maker SAP, energy giant Shell, and German engineering firm Bosch set up centres in India as the country started becoming an important market for them. There is no dearth of examples of products conceptualised and made for India. Let’s take Samsung which has five R&D centres in India, for example. It developed its ActivWash washing machine in India to meet the unique demands of customers. Dipesh Shah, managing director, Samsung R&D centre, Bengaluru, explains that in India people don’t trust an automatic washing machine to do its job, they still prefer to rub collars and cuffs themselves first. “This was strange behaviour, because it’s an automatic washing machine but people still had to do this additional manual job,” says Shah, who has worked at the Samsung R&D centre for more than two decades. “So we provided a sink on top of the washing machine which allows people to do the rubbing. This product is now sold worldwide.”

As someone who has seen the transformation MNCs have gone through in terms of using India as a development centre, Shah has a bird’s eye view of the evolution of the business. He recounts that in the beginning it was lower costs and fluency in English that were an incentive for companies. At Samsung, he explains, in the 1990s, the cost factor was important and second was the availability of talent. He says that in the beginning, Bengaluru helped the company scale up really fast in the fast changing mobile market. “Samsung India R&D contributed to development of 3G and 4G for the global world. 4G was done from Bengaluru. When this kind of jump comes in technology you need a lot of people to scale it, and take it worldwide. Bengaluru really helped in scaling these,” he says.

The second phase for R&D in India, he explains, came when they realised that Indian engineers, owing to their fluency in English, could understand a large set of instructions in English and quickly turn them into code. Apparently, if you were to print all the documents for development of 4G, they would probably fill a room. But that did not baffle Bengaluru engineers. Their coding skills and their comfort with English brought a lot of jobs to Bengaluru. “Those (MNCs) who have spent over five years, they are coming here because they are seeing talent, out-of-the-box thinking, and the ability to use global tools seamlessly,” says Shah. “And, of course, they are here for the growing Indian market.”

The range of research and development in India is wide. IBM’s India R&D centre, which was set up in the 1990s mostly to support its global business, is today working on modern technologies like artificial intelligence and robotics. It is using data analytics to deliver predictive agricultural insights for farmers with low-end smartphones to help boost yields and lower input costs.

Swiss technology giant ABB is another example. Bengaluru houses one of its seven R&D centres in the world. Akilur Rahman, chief technology officer, ABB India, says the company does both research and development for products and solutions, technology, as well as engineering for hardware and software in India. In Bengaluru, the company has a global research centre, a business R&D unit for product development, and a global engineering and services centre in the same building. Rahman explains that even though ABB does a lot of R&D in Europe and the U.S., different functions are either in different countries or different cities. Apart from Bengaluru, in no other centre are different functions from conceptualisation to remote monitoring analytics under the same roof.

Their smart sensor, for example—used to monitor the performance, efficiency, reliability and lifespan of electric motors—was both conceptualised and developed in India. It can be retrofitted to almost any low-voltage motor and connected to the Industrial Internet of Things. With the smart sensor, ABB can monitor the vibrations, and voltage of motors, and using analytics predict ways to improve the efficiency of the motor. It can also help increase the energy-efficiency of motors by 10-15%. ABB invests about $1.5 billion in R&D globally every year and has many products developed in India such as solar pumps for rural areas with no electricity. These products are now sold around the world. “The unique thing about R&D in India is that we are basically covering end to end,” Rahman says. “We started our R&D centre here because of the availability of talent and the availability of business cases and customers in the market, not because of the cost.

The list is long. Boeing has a research and technology centre in Bengaluru which plays a crucial role in areas like materials and processes, flight sciences, and structure and software. Rolls-Royce has R&D centres in Bengaluru and Pune focussing on areas like data analysis, electrical systems, computer-aided design and aerospace projects. It also plans to invest in startups working in areas like AI and analytics. And technology giant Intel is investing Rs 1,100 crore in an R&D centre in Bengaluru which will work in areas like mobile Internet devices, high-density packaging, thermal management, and health platforms.

Critics say MNCs are bringing only their development to India and not research, which is still kept within their home countries. But that perception might be changing as well. Software giant Microsoft, for example, has been running its research lab in India since 2005. The lab employs a large number of PhD scholars conducting research on theory and algorithms, machine learning and artificial intelligence, systems including cloud, security and privacy, programming languages, and networking, and technologies for emerging markets. “We only do the fundamental research part here. One way to describe the output of the lab is basically scientific advances and research papers, which are published in open forums. We don’t do the development bit here at all,” says Sriram Rajamani, managing director, Microsoft Research India Lab. “The kind of work that is done here has produced significant breakthroughs in research acknowledged by the scientific community and some of the works have been picked up by product groups.”

Multinational companies are also looking at collaboration with domestic firms and universities for research and development. Shell’s Iyer says that companies are realising that both from a cost point of view and an intellectual point of view, they cannot do everything alone, and need to collaborate. “We are all coming to the realisation that the next set of problems will be solved with collaboration with not only with other industrial folks but also universities. That’s what has changed over the past 10 years,” he says.

The other way that MNCs are collaborating to facilitate R&D is by funding startups that can plug the gaps in their systems or bring them the latest technologies and products. Therefore, they are not just putting their money in their own R&D operations but are also incubating startups with newer ideas. SAP is one example. Its global venture fund, Sapphire Ventures, invests in startups in the U.S. market, but has also invested in some tech-focussed Indian startups to help them. The fund has $2.5 billion in total assets under management and has invested in various Indian companies like Just Dial, iYogi, Newgen Software, and Paytm’s parent company, One97 Communications.

SAP’S own R&D centre in Bengaluru, meanwhile, will complete 20 years in India this November. It employs about 8,000 people and is already the second biggest R&D location for SAP globally after the headquarters in Germany. “As a global software company, initially when it [SAP Labs] was started, the target was to meet local requirements, specifically catering to the localised software required, and legal requirements that need to be met,” says Dilipkumar Khandelwal, managing director, SAP Labs India.

Over the last 20 years the focus has changed. More products have been conceptualised and developed in India for use both domestically and globally. SAP Fashion Management solution, for instance, is completely conceived, designed, and developed out of SAP Labs India. The product— which enables fashion companies to manage their business processes across one large data system—was built in collaboration with global labels Giorgio Armani, Adidas, Luxottica, and Tommy Hilfiger using the design thinking methodology. The solution brings together wholesale, retail and fashion specific processes in one back-end system and is now being licensed by more than 125 customers across the globe.

“Today there is no software or product development or (strategic initiatives for SAP in the next five years) that’s not been developed out of India,” says Khandelwal. “Today there is not a single thing which goes out of SAP, which doesn’t have a significant India footprint. A large part of the work for building a global software meeting the global requirements is done out of India”.

The question is: Are MNCs helping India become more than just a low-cost R&D centre? Probably not. At least not yet. While the MNCs are getting their fill of India-specific products from their R&D centres, they have yet to come up with something absolutely disruptive, a game changer.

Shell’s IH2 and some others could change that. The IH2 project has the potential to be a game changer: It is in the final stages of being commercialised and the company says both private and public energy companies have shown interest. Its success depends on whether it can overcome challenges that face all waste-to-fuel companies such as lack of feedstock in the absence of a proper collection system for municipal waste.

Either way, multinationals are investing millions in a country where R&D spending remains abysmal at less than 1% of GDP. India has traditionally always bought its technology or licensed it from the developed world. It spent just 0.6% of GDP on research and development in 2014-2015 while other BRICS countries—Brazil, Russia, China, and South Africa—spent a higher 1.24%, 1.19%, 2.05% and 0.73%, respectively.

The efforts of these firms might not make India the next frontier for research on cutting-edge technologies, but it will definitely push it in that direction. One thing is certain: MNCs are not only looking at India for incremental developments and cost is not the only factor drawing them here. “These companies are concerned about the race to adapt to new technologies and put new technologies like machine learning, analytics, and AI in what they are doing. The trend of frugal innovation, the trend of looking at India as a low-cost hub is passe,” says Rishikesha Krishnan, director, IIM Indore.

(The story was originally published in the August issue of the magazine)