India isn't just for outsourcing. It's fast becoming a center of strategic R&D and a growing market for tech products. Third of three parts in the Inside India series.

Aaron Ricadela, Contributor

February 11, 2006

5 Min Read

Global View
To be sure, the vast majority of Indian tech companies' business comes from the United States and Europe, not India. Infosys Consulting generates just 5% of its revenue from India, CEO Steve Pratt says. "It's not our major focus right now," he says.

At Wipro, revenue for the third quarter ended Dec. 31 was $479 million from global IT services and products versus $86 million from India and the rest of Asia. One Asian example: Wipro's Bangalore telecom group is designing a multimedia stack for cell phones to be sold in Asia using NEC's Renaissance chip. The software includes a browser, an MP3 player, and a video player, and Wipro plans to market the software to Asian handset vendors for sale in China and India to compete with Motorola in the market for $100 video-capable cell phones.

Developing technologies that succeed in India can position companies well in markets elsewhere. IBM Research's Delhi lab helped develop a system for an Indian customer that uses text-mining software to route E-mails to the right people in a client's customer-service department based on how satisfied the software infers the customer to be. That can remove 30% of processing costs. IBM is looking for applications of that system in other emerging markets. The Delhi lab also is looking at how operations-management techniques can be applied to services such as call centers or retail distribution, as well as their traditional domain of manufacturing.

Made In India

Hewlett-Packard is exploring how printers and televisions can interact to disseminate public-service information in India.

IBM's Bangalore software lab, managed by VP Harish Grama, is working on products such as WebSphere middleware, DB2 database, and Rational development tools.

Microsoft research senior VP Rick Rashid last month unveiled Virtual India, a Web site that generates maps of India using satellite imagery.

Motorola is working on seamless roaming between landlines and cell phones, nanoemissive displays, and mobile apps.

Wipro is designing a lightweight software stack to add audio and video features to Asian cell phones.

Photos by Mahesh Bhat/Getty Images

Another benefit of developing technology in India, for India, is that companies can gain intellectual property that has value in other markets characterized by small, fast-growing customer segments and ultra-low prices, IBM's Gopalakrishnan says. One example: India's 75 million cell-phone customers could multiply to 300 million within four years. IBM customer Bharti Tele-Ventures, India's No. 1 telecom company, owns intellectual property that lets it profit in a market where the average monthly revenue per subscriber is about one-eighth of that in the United States. As Bharti learns how to scale its business model up, it can take that intellectual property and apply it to the rest of the world, Gopalakrishnan says.

IT vendors also are acquiring companies focused on India in order to bring products to other emerging markets. Oracle last year paid $316 million for a majority stake in Indian banking software maker i-flex Solutions, formerly owned by Citibank Venture Capital, and plans to market i-flex's products to banks in other developing countries. So far, there have been few business software products designed specifically for India--Infosys' Finacle banking package is another example--but more branded products are emerging (see "India's Next Step," Aug. 8, p. 34).

Venture investors, too, are betting on technology incubated in India for broader distribution in developing countries. WestBridge Capital Partners, a Silicon Valley VC, has earmarked about half of its $200 million WestBridge Ventures II fund, launched in September, for stakes in companies developing intellectual property for consumption in India and eventually other emerging markets, senior managing director Sumir Chadha says.

In December, WestBridge invested $8 million in Bharti Telesoft, which makes software for sending instant messages, refilling allotments for prepaid minutes, and downloading videos to mobile phones. Half of Telesoft's revenue comes from India; the other half from Russia, parts of Africa, and the Middle East, Chadha says, and sales are doubling every year. Also in December, WestBridge bought a $7 million stake in Times Internet, a consumer Web-portal site in India. "A lot of markets in India have just hit the scale where you can make a venture return and build real businesses around them," Chadha says. "It's going to be a big bet for us."

But WestBridge's enterprise-software investments in India turned out to be duds. In the complex business-technology market, Indian IT companies "often miss the customer intimacy of not being located in the United States," Chadha says. "If you're not close to the customer, you're missing a lot of the feedback that's so crucial to developing a new product."

Some American business-software companies are turning the tables. They're hiring Indian engineering teams from the outset and building outsourcing into their initial business plans. SpikeSource, a Kleiner Perkins Caufield & Byers-funded company that tests open-source software components for compatibility in business situations, has been using an staff development team in India and outsourcing other work to Indian IT company Cognizant Technology Solutions, CEO Kim Polese says. That approach is key to SpikeSource's strategy. "We're sourcing our software from all over the world and selling it all over the world, so we want to make sure we have a presence where open-source is growing," Polese says. "We're viewing the resources in India as critical parts of our engineering."

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