The global service delivery model established India as the world’s favourite offshoring destination. But it’s much more than a winning business model, say London Business School professors Nirmalya Kumar and Phanish Puranam. It is ‘invisible innovation’. Innovation, argue Kumar and Puranam, can be in B2B products, in offshoring of R&D services and in management styles. India excels in all these unseen innovations, they tell Meenakshi Radhakrishnan-Swami. And it’s time the rest of the world—and India itself—acknowledged that.
The popular perception is that creative work can’t be done out of India. That India is good for grunt work, but nothing beyond. Clearly, you don’t agree.
Nirmalya: Our book [India Inside, Harvard Business Review Press, 2011]aims to kill this myth. A lot of technically complex and creative work underlies various products, management and process innovations in India today. Yet, because these are embedded deep within value chains and not seen by the end consumer, the perception is that they don’t exist.
Still, one would conclude that innovation in India is in less glamorous industries and in processes, rather than products. Is there a reason for this? Does it make a difference to how the rest of the world and India itself looks at its achievements in innovation?
Phanish: To be clear, there is no dearth of product innovation in India for Indians. Yes, there aren’t that many products developed in India for the world yet. But, as our book explains, this is not because of a lack of competence or talent, but has more to do with a lack of incentives. Why should a company with a highly profitable, services-based model enter risky product development? We argue that pursuing globally branded products as an end in itself may not be wise. While the demonstration and inspiration effect of a successful “Made in India” brand can be large, “India Inside” can build India’s brand as an innovation hub just as much.
You’ve used two particularly intriguing phrases in the book: “sinking skill ladder” and the “mirage of mighty labour pools”. Could you elaborate?
Nirmalya: The sinking skill ladder refers to the idea that even if only low-end work in a domain is offshored, because the next level of skill is often built only after working at the lower level, eventually the next level too is offshored. The mirage of mighty labour pools refers to the fact that, on paper, our technically trained, English-speaking resources look impressive but the quality of education varies. This matters less in the world of BPO or even software, but as we move towards innovation this is going to matter a lot more.
Will we ever see a Google, Viagra or iPod from India?
Phanish: The risk and deferred returns from a Viagra (and, to a lesser extent, an iPod)-like project make it hard to see one of these popping up in India in the short term. But a Google or a Facebook is another story altogether—we already have the critical mass of technical skills and corporate exposure in these areas today to make it quite likely that one of these may be lurking around the corner.
So, is the Indian approach to innovation very different from the West?
Nirmalya: When it comes to innovation for global markets we don’t think there is a difference. The way product development is segmented today and split across, say, California, Germany, Japan, Israel and India, makes it essential for the Indian parts of these segmented innovation systems to be comparable and compatible with their counterparts around the world.
However, if we talk about innovation in India for Indians, then two features do seem unique—the availability of budget-conserving talent, and the presence of demanding but budget-constrained consumers. The interaction of these two factors may shape a uniquely Indian ethos towards product development and innovation—perhaps we see a foreshadowing of this in frugal engineering practices.
And is there a difference in the approach to innovation between MNC R&D centres in India and Indian companies’ R&D centres?
Phanish: The work in the captive units in India should be closer to the core competence of the firm than in a third-party vendor. We learnt from our interviews that in many R&D captives, the possibility of staying with the same product/ technology for longer periods exists, whereas in the Indian third-party outsourcers like Wipro, employees might need to be more flexible and move from project to project.
You also mentioned that there was a difference between the MNC captive R&D centres in India and China. Tell me more.
Nirmalya: We have not studied the Chinese R&D units but from the analysis of the patenting data, it does appear as if the Chinese R&D units of MNCs are focusing more on localising products for the domestic market and their patents seem to receive fewer forward citations. This may be due to a larger domestic market in China.
How is China’s track record on innovation? How does it compare with India?
Nirmalya: China has an incredible push for basic science as compared to India. It’s attempting to compete with the USA and devoting a lot of resources to research by developing the best research and development facilities and bringing Chinese scholars back to China. There is little doubt that China is developing a long term research capability with a focus on patents and publications in international journals.
Is there a risk that focusing on innovation will lose India its low-cost advantage? And does it really matter?
Phanish: Not really. Innovation may be the best response to the inevitability of losing our cost advantage as other sources of low-cost labour become integrated into the global value chain—from countries like the Philippines, Egypt and Eastern Europe.
What is the future of innovation in India?
Nirmalya: There will be increasing innovation. How much depends on whether India can ramp up education infrastructure to make itself a global hub of innovation.
Given the level of “invisible innovation” in India, what should be the agenda? Should it be played up or should it continue as it is?
Phanish: The most important thing is to make sure the educational infrastructure, the IP regime and the VC funding regime are in shape.