The Hindu Business Line : India can be innovation hub for products

Bangalore, Aug. 7 The emergence of a strong domestic market in India and the return of expatriates from the US could lead to product innovation at the India captive centres of major multinational IT companies.

Companies might use India as an innovation hub for products for the emerging markets because the Indian domestic market can help them to understand the emerging market mindset, said Zinnov Management Consulting Pvt Ltd.

In recent years, many expatriates who have the experience of handling large product development projects in the US are returning to India. They could take charge of product innovation in India, said Mr Pari Natarajan, Chief Executive, Zinnov.

Zinnov is beginning to see weak signals that more MNCs are looking to build complete products at their India centres, said Mr Natarajan. He said unless the India centres focus on product innovation, percentage of work coming into India might reduce.

Mr Natarajan said India is still perceived as a low-cost destination as far as R&D services is concerned. But talent and cost arbitrage is no longer unique to India, and India is facing stiff competition, he said. For R&D service, Vietnam and Eastern Europe are important destinations, he said.

Drop in numbers

The number of MNC captive centres launched in India has dropped from about 50 in 2006 to about 24 in 2007, Mr Natarajan said. The rate of decline is 40 per cent per year in the last couple of year, he added.

The India centres would have to overcome problems like escalating costs, higher attrition rates, availability of talent, and management problems. It would also have to create a perception that product innovation can happen in India, Mr Natarajan said.

He said engineering talent is over-paid and a strong performance management system is needed. Only the right set of talent needs to be paid well, he said. The companies should also look to hire from tier II colleges. These measures would help to lower expenses, he said. There should also be better training facility, he added.

Revenue-sharing

To improve productivity and encourage innovation, R&D services companies would have to switch to revenue sharing types of contracts, he said. In the last six months, 5 such contracts have been signed, he added.

However, captive centres with smaller teams, where the number of members range between 20 and 40, is no longer viable, Mr Natarajan said. To be successful, the teams would have to have more than 100 member, he added.

Zinnov said it launched its R&D Innovation Council that would provide a platform for R&D companies in India to discuss various challenges and exchange best practices.