Beefing up Product Development

Beefing up Product Development Looking Beyond IT Services

ndia IT's established legacy as a high-quality, low-cost services powerhouse is fuelling ambitions of a handful of players to capitalise on the sector's unshakable brand equity to foray into product development. In an unprecedented move Wipro Technologies, India's second largest exporter of software services, recently inked a letter of intent with Ericsson to take over taking over the giant's three R & D units in Hyderabad, New Delhi and Bangalore. Wipro, which already partners with Ericsson for product development, will also take over the product development life cycle that is done at the three Ericsson centers. Other India service companies such as Sasken, Hughes Software Systems and HCL are also eyeing the space.

As a hub for product development, Bangalore is approaching the scale of many US centers. Since the beginning of 2001, 230 multinationals have opened office in India. Nasscom studies state that 25,000 engineers are working in Bangalore and in three years their ranks would swell to 65,000. The R&D segment in India is currently estimated at $1 billion in India and would soon touch $4 billion. To large extent, the optimism is being fuelled by US companies who are leveraging India's cost advantage to turn it into a strategic base for genuine R&D, not just low-end sweat work. Traditionally many top ISVs have only been using India for lower value added services such as software and maintenance of products or for localisation related inputs to the concept. According to Mckinsey report "India offshore development centers play a lead role in defining the engineering specification and are rethinking the product development process from defining the concept to the launch, support and maintenance of the product. " Consider this:.

• Texas Instruments, the first MNC to move to India, has designed sophisticated chips for global markets and boasts some 200 patents.
• The Palm Pilot version of Adobe acrobat was entirely conceived and delivered out of Adobe's development center in India.
• Intel's three year old campus has produced 62 patents for semiconductors, telecom switching, equipment and routers.
• Novell India has 17 patents to its credit. Coming September, engineers working in Bangalore office will roll out Border Manager version 3.8, Novell's fourth largest selling product and completely owned by Novell Bangalore.
• Cisco India filed 9 patents in just one year of R&D Operations in India in the areas of Aggregation (Service Selection Gateway), SNMP, Frame Relay ELMI Address Registration/ATM ILMI Address Registration.
• Germany's SAP developed new applications for notebook PCs at its 500-engineer Bangalore facility
• Oracle Corporation has generated such hot products as Oracle Student System, which helps colleges process admissions, housing, and graduation records.
• The IBM India office has 85 patents to its credit. Microsoft and Cadence have set up largest development centers outside the US in India.

According to a recent Nasscom study, significant opportunities exist in the areas of embedded software components and services. "As software is becoming pervasive in all devices and OEMs and suppliers especially in "smoke stack" industries are struggling to build software competencies, there is a real opportunity for Indian companies to step in and fill the void." There are 1,000 companies in India working in the areas of silicon design and embedded software.

Yet India has only been able to capture 0.2 per cent of the US $180 billion market. Speaking at the IT.com Dr Biswadeep Mitra Managing Director Texas Instruments said, "India has done a poor job of positioning itself in the product development space. We need to showcase our achievements." The heady success of service companies and the emphasis on quarter to quarter profits is ironically hindering growth of product development in India".

There are other problems. India, lacks an eco-system for full-fledged product development ecosystem. Focussed product shops that specialise in offshore product development and have a product mindset do not yet exist in large numbers in India. Most product domain companies, in addition, are very experience intensive and India faces a shortage of trained pool of silicon design and embedded software architects. " We need experienced personnel not graduates for a product development company. How many universities in India have micro-electronics as a course objects asks Dr Mitra." Product play, in addition, requires companies to have a presence in local markets to identify right product features understand and capture customer requirements and establish channels for distribution and sales. The geographical distance from markets and lack of a local market are other factors that are hindering product development. "India needs to look at the Asian market as a customer base. It should not be too much of a problem if the customer is four hours away rather than forty-five minutes away, suggests Dr. Mitra.

Says Samir Kumar, VP of Investments Acer Technology Ventures says, Indian companies need to make a start by developing components for OEMS and move up the value chain. Marketing components does not demand a presence in local markets. Offshore development centers of ISVs will however provide a flip to product development in India. Tightening R&D budgets and India's significant cost advantages will accelerate product development to India. Many of these companies are looking to outsource part of product development to India. For instance Sap has outsourced part of product development to Infosys. Cisco has cut a deal with Wipro for some of its products. However India's chief advantage could rest in customization and localisation of products for low-end consumer base and Asian markets. That could provide the right differentiation and branding for Product development in India says Dr Dr. Mitra.

India Inc has proved that it knows better than others in providing high quality low cost services. The slowdown now provides India the chance to prove it can craft low cost high value products. Clearly, India cannot afford to fritter away the advantage to move up the value chain.

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