One day in the not-too-distant future, calls will route to your landline or cell phone, depending on whether you're home or on the road. You'll share an address book between your wired and wireless phones. And you'll be able to use one service to download TV shows to your cable box or mobile device. Very likely, you'll have Motorola researchers in Bangalore, India, to thank. There, a group of 30 engineers and computer scientists are inventing these sorts of networking technologies, along with super-sharp displays that use nanotechnology and new software for business cell phones.

	Wipro technologist demos products at the company's consumer electronics lab. Photo by Mahesh Bhat/Getty Images

Motorola's India lab opened its doors 10 months ago with an $85 million investment from the world's No. 2 cell-phone maker. Its talent-rich surroundings in southern India, proximity to various Motorola product development groups, and access to the country's top research universities make it a prime location, says Ken Zdunek, Motorola's VP of networks research and head of the India lab. In a twist on the familiar outsourcing formula, the lab has partnered with the Indian Institute of Technology and Indian Institute of Science to do research in areas such as fuel cells and nanoemissive displays. "Even in applied research, we're using a combination of internal and outsourced resources," Zdunek says. "We don't really view it as outsourcing applied research. We view it as innovation partnerships."

Already known for providing low-cost engineering services to U.S. and European IT organizations and tech vendors, India is ramping up original research and product development. IBM, Microsoft, and Oracle are developing technologies at their Indian subsidiaries, while at the same time outsourcing the development of ancillary products and features to Infosys Technologies, Tata Consultancy Services, Wipro Technologies, and others. Researchers in Microsoft's Bangalore lab, for example, work on cryptography problems, applying their strong mathematics skills, says Rick Rashid, a Microsoft Research senior VP. Hewlett-Packard, IBM, Microsoft, and others also are developing new technologies that can be sold in India to the country's expanding commercial sector and consumer class. And startups are incorporating Indian development teams into their plans from the outset.

Market Creation
IT plays a major role in India's economy. Technology and business-process outsourcing is expected to bring in $22 billion for the fiscal year ending next month, according to India's National Association of Software and Service Companies and consulting firm McKinsey. Technology developed and sold inside India is roughly a $4 billion market that's expected to grow even faster than its current 20% to 25% rate, reaching $20 billion by 2010. Driving domestic growth, Nasscom president Kiran Karnik says, are near-zero tariffs for imported IT hardware, increasing demand from the middle and upper classes, and falling production costs.

New financial incentives could accelerate the pace of technology invented in India, too. Within the next few months, the Indian government plans to create 42 "special economic zones" that offer tax advantages, reduced duties on certain imports and exports, and exemptions from some legal provisions.

Some of the zones will be in cities that haven't yet drawn much foreign investment, says Siddharth Mehta, an associate at the Silicon Valley law firm Orrick, Herrington & Sutcliffe, who advises companies doing business in India. "It's going to be very lucrative for the country," he says, and could promote manufacturing and other industries in addition to IT. India has been opening its economy since 1991, when it started trying to reattract foreign investment after expelling companies such as IBM and Coca-Cola in the late '70s. But strict labor laws and slow-moving courts have held back industries such as manufacturing, while China has surged ahead.

This month, India's Cabinet approved a measure that will do away with waiting periods of up to four months imposed on manufacturers that want to open warehouses. That could let an IT company like HP ship replacement parts or products to customers in India from a local depot and improve customer service, instead of relying on warehouses elsewhere in Asia. Together, financial incentives and new laws like this one could spur more R&D in India, Mehta says. "Most companies haven't looked at India as a market," he says. "They've looked at it as a place to outsource engineering."

Like Motorola, most tech vendors set up their own operations in India to handle R&D of the most valuable products and technologies and outsource work on less proprietary technology. While India has strong laws protecting patents, trademarks, and trade secrets, litigating intellectual-property cases can be time-consuming given the country's slow-moving courts. "The implementation leaves a lot to be desired," Mehta says.

"If all I want to do is have someone deal with my legacy systems, I'll hire Infosys," says Michael Mensik, a partner at Chicago law firm Baker & McKenzie. "If I'm Bank of America and looking to put sensitive business into a low-cost place where I'm concerned about leakage and confidentiality, I need more control."

Kapil Sibal, India's minister of state for science and tech, at the conference marking Microsoft Research India's first anniversary. Photo by Mahesh Bhat/Getty Images

For Motorola, the build-versus-buy decision turns largely on whether a given technology can differentiate its products. The company will outsource engineering of basic technology infrastructure to Wipro, for example, while holding onto development of higher-level features and functions, VP Zdunek says. "The line between those two areas is somewhat fuzzy," he explains. "But typically, the decision to outsource nearly always starts with platform technology that's essential but doesn't provide competitive differentiation." One notable example that sprang from Motorola's Bangalore lab: the company's SoftSwitch product, a telecommunications switch that uses off-the-shelf software and components to process calls less expensively and more efficiently than specialized gear.

Similarly, Intel outsources the development of improved versions of its semiconductors to Wipro and others but keeps next-generation product development inside its walls, Wipro CTO Divakaran Mangalath says. The Indian services provider is staffing up in utility computing, Web-services software, and wireless data transfer to try to capture more R&D business from Intel and others, he says.

Meanwhile, Intel's 2,700-person development center in Bangalore created key parts of its new dual-core Yonah chip for laptops and complementary Calistoga graphics chipset. Yonah's importance will extend beyond portables--its low-power-consumption design is slated to be the basis for future Intel server chips.