India continues to be by far the most preferred destination in the world for Information Technology (IT), Information Technology enabled Services (ITeS), engineering and research & development (R&D) services delivery. In 2018, of the 307 new centres that were set up for such services, India accounted for 23 per cent of them, as per consulting firm Everest Group’s Global Locations Annual Report 2019. Singapore followed at about 8 per cent whereas Ireland, China and Mexico accounted for 5 per cent each.
The primary reason for companies moving their core R&D operations to India is no longer just cost. Many Multi-National Corporations (MNCs) are now increasingly outsourcing their corporate R&D efforts by investing in India’s local start-up ecosystem – to create breakthroughs in innovations that could help the parent companies.
Global giants such as Google, Microsoft, SAP, and IBM have come forward with strategies to invest as well as incubate start-ups, or collaborate with small early stage service providers in the form of venture funds, evangelism programs, and partnerships with a focus on solving problems faster for customers.
These companies have realized that the start-ups are the quickest way to develop a product and make it ready for the market. India’s start-up ecosystem is third only to the US and the UK. According to industry reports, the number of start-ups in India has gone up from 7,000 in 2008 to 50,000 in 2018.
More than 150 international companies are doing R&D in India. However, while MNC’s are turning to India for setting up their R&D Centres, the Indian corporates have failed to keep pace and step up their R&D activities. Multinationals are investing millions to do R&D in a country where its own R&D spending remains abysmally low at less than 1 per cent of Gross Domestic Product (GDP).
The fact that foreign multinationals are setting up global innovation centres to tap India’s low-cost, English-speaking engineers and technicians shows there is no shortage of talent in India. However, in a trend that picked up over the years, India bought its technology or licensed it from other countries.
It spent just 0.6 per cent of its GDP on R&D in 2014-2015 while countries like Brazil, Russia, China, and South Africa – spent 1.24 per cent, 1.19 per cent, 2.05 per cent and 0.73 per cent, of their GDP’s on R&D during the same period.