Innovation and Research & Development Activities of ...

STUDY REPORT Innovation and Research & Development Activities of European Companies in India 2012

Who We Are The European Business Group (EBG) established in 1997 was a joint initiative of the European Commission and the European Business Community in India and has since been recognised by the Government of India and the European Commission as the industry lobby representing the interest of European companies in India. The EBG is supported by the European Union and represents the 27 Member States of the European Union as well as accession countries and its partners in European Economic Area (EEA). As of today, EBG has Chapters in Bengaluru, New Delhi and Mumbai with 300 companies as members. Plans to open additional Chapters in Ahmedabad and Hyderabad are in full swing. Every year the EBG publishes an influential “Position Paper” which highlights the group’s views on policy. This aims at strengthening India’s position in the World Bank’s global “Ease of Doing Business” index and as a result promoting trade, investment and employment creation on the subcontinent. The Position Paper is distributed to key decision-makers in the Indian government, the European Commission, diplomatic missions of the EU countries in India and the media. The EBG works through its Sector Committees. Their outputs are reflected in the policy proposals outlined in the Position Paper. Presently the EBG has the following pan-India sector committees: Alcoholic Beverages, Automobiles, Banking & Finance, Civil Aviation, Energy/Environment, Healthcare, ICT, Infrastructure, Innovation, Law and Regulation, Logistics, Taxation and Telecommunication. The EBG sees its contribution as providing first-hand information on the ground realities of doing business in India to the Indian Government, the Delegation of the European Union to India and Embassies of EU member states. Our work is supportive of and complementary to that of other EU-India bilateral chambers. The EBG seeks to represent the views of the entire Europe’s business community and thus carries considerable weight with the Indian government. The EBG organises interactive meetings with Indian Industry, policy makers and others in the area of business and culture in order to facilitate greater understanding, dialogue and cooperation between all stakeholders. The EBG India works in close coordination with the Delegation of the European Commission in India. It interacts with visiting EU representatives and provides policy inputs to both EU institutions and the Government of India in order to promote and facilitate business relations between the EU and India. EBGI is also an active member of the European Business Organization’s Worldwide network.

Innovation and R&D Activities of European Companies in India: A Study Report

European Business Group India, Bangalore Chapter 901 & 902, Prestige Meridian II Towers, No. 30, M.G. Road, Bangalore 560001 India


Table of Content Foreword by Ambassador EU .................................................................................................................. 3 Foreword by EBGI Chairman ................................................................................................................. 4 Foreword by Chairperson EBG Bangalore .............................................................................................. 5 Introduction............................................................................................................................................. 6 Structure of the Study .............................................................................................................................. 7 Methodology ........................................................................................................................................... 7 Section I: Survey findings........................................................................................................................ 9 1.

Primary purpose of entering India ................................................................................................ 9

2.

Key objectives of Indian R&D/ innovation operations .................................................................. 9

3.

Orientation of innovation activities to India specific needs ......................................................... 10

4.

Nature of existing collaboration and partnerships ....................................................................... 10

5.

Importance of India in innovation value chain ............................................................................ 11

6.

Innovation related challenges faced in India ............................................................................... 12

Section II: Key innovation trends........................................................................................................... 14 1.

India as a strategic R&D location for global product development .............................................. 14

2.

Honing a culture of innovation in Indian operations ................................................................... 15

3.

India pioneering frugal innovation for emerging markets ............................................................ 16

4.

Innovation through collaboration................................................................................................ 17

5.

India’s savvy customers pushing the technology frontier ............................................................ 18

6.

Worrying false starts by European MNCs in Indian R&D arena ................................................. 19

7.

Innovation and R&D is not limited to Bangalore! ....................................................................... 19

8.

Large firms are still missing out on Advantage- India ................................................................. 20

Section III: Recommendations ............................................................................................................... 22 1.

MNCs to have a India- centric approach to innovation................................................................ 22

2.

Reducing barriers for talent flow and knowledge sharing............................................................ 22

3.

Cultivating independent thinking among Indians ........................................................................ 22

4.

Strengthening the IPR regime..................................................................................................... 23

5.

Encouraging academia collaboration on R&D ............................................................................ 23

6.

Showcasing success ................................................................................................................... 23

7.

Grants for industry from the Indian Government ........................................................................ 24

8.

Focussed seminars/ conferences on innovation and R&D ........................................................... 24

European Business Group India, Bangalore Chapter

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Foreword What will be the basis for Europe's and India's future competitiveness? Where will new growth and job creation come from? How will we find solutions to growing societal challenges such as climate change, increasingly scarce water resources, raw materials, health and combating diseases, etc? The answer is evident - research and innovation. And it is the same answer in Europe with the "Europe 2020" strategy and the recently launched "Innovation Union" as it is in India with the "Decade of Innovation".

H.E. Mr. João Cravinho Ambassador of the European Union (EU)

But research and innovation are not only a strategic theme of importance for each side independently. Globalisation and internationalisation of research and innovation have made international cooperation a core component of the European and India strategies. It is clearer than ever that the EU and its Member States can only achieve their objectives at home by being active and united on the global stage. The European Research and Innovation area is increasingly a cornerstone for a European knowledge society. International cooperation is essential to the well-functioning "knowledge triangle" of research, education and innovation. In this spirit, India and the EU have come together to declare their resolve to moving up a gear in their research and innovation cooperation, fully exploiting its potential towards finding solutions to common societal challenges, and mobilising Indian and European stakeholders to define a strategic "Indo-European Research and Innovation Partnership" with (i) larger scale, scope and impact, (ii) focus on common societal challenges, and (iii) enhanced synergies between India, the EU and its Member States. This Partnership will include in particular an increased focus on innovation with mobilisation of industrial partners in EU–India cooperation, defining policies and measures to create favourable framework conditions (e.g. standards, regulations, public procurement) for the deployment of innovative products. The current and future EU research and innovation programmes offer scientists, researchers and innovators throughout the world opportunities to work together and to make the discoveries and breakthroughs that will improve our economies and our daily lives. So the time is right to step-up our Indo-European cooperation in research and innovation. A possible iconic emblem for the Indo-European research and innovation partnership could be "frugal innovation". It is about doing more with less, an innovative fix born from ingenuity and scarcity of resources. Frugal innovation is also a mind-set suggesting openness to improvisation and outside ideas in a search for the simplest route to solving a complex problem. This may be particularly pertinent for Europe where austerity and budgetary constraints is the new operating system for both the public and private innovation stakeholders, and actually for the EU and its Member States as a whole. Frugality is becoming our new framework.


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Foreword

I would like to congratulate the EBG Bangalore Team under the capable guidance of Mrs.Anandi V Iyer, Bangalore Chapter Chairperson, for their efforts in publishing the Innovation and R&D Survey report of European companies in India.

EBGI was launched in the year 1997 to promote European business interests in India. Our aim is clearly to make EBG's mission statement a reality:

Mr.Vinod Verma Chairman, EBG India

“The European Business Group (EBG) in India aims to promote Europe as India's most preferred business partner thus creating environment that allows European Business to flourish” The Bangalore Chapter is the youngest of the three EBG Chapters in India and has been putting a lot of energy and effort into enhancing the activity of the European Business Community, by initiating CFO Forums and completing the Innovation Survey, as well as conducting regular networking meetings.


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Foreword It is with a great pleasure and a deep sense of satisfaction that I present this Study on European Investment in R&D in India on behalf of the European Business Group (EBG). The EBG has been for the last 10 years a strong proponent of enhancing European engagement in India, driven by the amazing vision and passion of Mr David Hudson MBE its Founder Chairman and now by Mr Vinod Verma who is always raising the bar on creating and facilitating collaboration opportunities for European companies in India.

Anandi Iyer Chairperson European Business Group

One of the most important instruments that the EBG has developed is India, Bangalore the Position Paper for EU- India, which provides an insight into the framework conditions of some critical industry sectors and also recommends action points to both sides. Innovation is a new theme which has been addressed very effectively by the EBG Bangalore Chapter over the last two years. Some great support from Dr Wido Menhart, Chairman Innovation Sector Committee, Mr Guenter Zwickl, Co-Chairman Innovation Sector Committee, Mr Clas Neuman, Chairman ICT Sector Committee and Mr Enrico Ruehle, CoChairman ICT Sector Committee has made this possible. Last year the first Position Paper on Innovation was developed and submitted to the EU – India Summit authorities, which was very well received and indeed some recommendations were taken seriously. We strive to take this forward and organise an Indo-European Innovation Forum that will facilitate, forge and further Indo- European Innovation and R&D collaboration. The project is an outcome of several key people working for several weeks on activities ranging from conducting secondary research to interviewing respondents and collating data. Importantly, the constant support and encouragement from Dr Phillippe De Taxis Du Poet, the Head of Science and Technology Office of the European Delegation was the guiding force for us. Mr Pavan Soni, Doctoral Researcher from IIM Bangalore and Ms Jayashree, BMR Advisors have been instrumental in conceptualisation, preparing the questionnaire and developing the report. For the secondary research and helping with interviews, the project is thankful to Mr. Senthil, Mr. Saksham Khandelwal, and Ms. Prerana Jha. The project also extends gratitude to various survey respondents and interviewees who took their precious time in helping us with the endeavour.


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Introduction When General Electric set up its Indian Development Centre, the largest offshore centre outside of US, many questioned this step. The famous words of Mr. Jack Welch in answer that India offers the highest intellectual arbitrage per dollar, is now an oft repeated quote at most conferences and forums that focus on Innovation and R&D. Today, India is one of the most attractive destinations for multinational firms looking outwards for talent and customers. Starting with the first wave of multi-national companies (MNCs) setting up their captive centres in India in early 90s, today it’s estimated that over 750 R&D subsidiaries of MNCs employing 200,000 engineers exist in India1. In a matter of just over two decades, India has witnessed a phenomenal achievement and this speaks volumes about what this nation has to offer. The slowing down of markets and economies in the developed countries, and potential shown by several emerging nations have made firms explore innovative approaches of developing new products and services that reach the market faster and cheaper and are acutely focussed to customers’ requirements. India has pioneered the ‘frugal’ approach to innovating new products and services 2 . Such resource efficient and customer centric , disruptive solutions that look at efficient utilisation of resources across the value chain not only suit the needs of emerging economies and the bottom of the pyramid consumers, but also find a market in developed economies, a phenomenon called by many epithets including ‘reverse innovation’, disruptive innovation, and bricolage, among others3. This reflects the belief that heterogeneous, multi-layered markets like India aren’t just meant to consume the stripped- down, end-of-life products from the western firms, but could emerge as beachheads for new forms of innovations. Some of the often discussed examples of innovation activities in India have been those of MNCs from USA, such as General Electric, Intel, IBM, Microsoft and more recently Google. While the US firms have made their entry into India strongly and are here for a while now, European companies too are not very far behind. However the extent of their engagement with India, and their reasons for doing so are not so well analysed or reflected in the many studies that often get quoted. The genesis of this Study is this very lacuna that was felt by many actors engaged in the Indo European Corridor, and strongly articulated by Dr Phillippe De Taxis Du Poet, Head of Science Technology, EU Delegation office in New Delhi. The objective of the Study is three fold. Firstly, the Study attempts to capture the extent of engagement of European companies in India in the field of R&D and Innovation. While doing so, it is also seen as important to decipher the drivers and inhibitors of doing R&D activities in India, as experienced by European companies. It is important to underline that the Study covers companies of all sizes, and the definition of “Europe” is in its geographical context, not political. 1

R&D report by Zinnov Consulting, 2012

2

The Economist. 2010. First break all the rules: The charms of frugal innovation.

3

Govindarajan, V., and Trimble, C. 2012. Reverse Innovation: Create Far from Home, Win Everywhere. Harvard Business Press.


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Hence these companies include medium as well as large firms from most of the countries in Europe, including UK. Secondly, the Study endeavours to get insights on how the European presence in India in this field can be further strengthened, as well as how Indo-European collaboration in R&D can be catalysed. These insights are generated through questionnaire based surveys, focussed discussions and interviews with R&D heads and leadership team of the Indian operations of select European firms. Finally, the Study captures best practices exhibited by large European firms in managing innovation and R&D in India to showcase successful examples and inspire more European companies to make their way into the Indian subcontinent.

Structure of the Study The Study is a blend of online survey, personal interviews and secondary data mining. A total of 50 companies participated in the online survey. These companies range from medium size enterprise to Global Fortune 500 companies, and represent most European countries, including Albania, Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxemburg, Netherlands, Norway, Spain, Sweden, Switzerland, and United Kingdom. Further, six interviews were conducted with the leaders of Indian R&D units and senior management of Indian operations to triangulate the survey findings and get qualitative insights on health and prospects of R&D operations in India. The first section documents the results of the online survey, and sets the ground for further qualitative insights. The second section delves into the specific practices and trends of R&D activities of European MNCs in India, as gathered from the interviews and secondary data mining. The last section offers policy level and firm level recommendations on ways to strengthen the R&D landscape in India. The Appendix contains the survey questionnaire, the descriptive statistics of the participating firms, and the questionnaire for the personal interviews.

Methodology For the purpose of this Study, the terms innovation and R&D are used interchangeably and mean the same. The terms refer to the ‘product or process improvements, either incremental or radical, that are generated in part or whole in the Indian geography’. The firms in question are MNCs headquartered in Europe and having operations in India, either in a fully owned manner or through a joint- venture. The Study has three levels of intervention. The first is a primary survey conducted online where 50 companies participated out of 300 that were sent the survey form (a response rate of 17%). The respondents were approached through e-mails and followed up by telephonic calls. The survey questions and respondent profiles are presented in Appendix 1 and 2, respectively. The second level is interviews with senior management of R&D at Indian operations conducted for six companies. The objective was to decipher some of the tacit drivers and inhibitors of doing R&D in India and how firms endeavour to build a culture of innovation at their Indian operations. The third level was generating insights through secondary source data mining where European Business Group India, Bangalore Chapter

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a total of 72 companies were studied. Sources include published interview, firm’s annual reports, press-releases, online articles and firm’s websites. The low response rate in the primary survey (17%) could be attributed to the nature of the objective. R&D and innovation being areas sensitive to the firm, many firms weren’t willing to divulge too much of an information, especially quantitative ones. One of the challenges of this Study has been to get the companies to share their information, despite the fact that all of them were approached through known contacts, and informed about the objective of the Study. The secondary source data mining could therefore corroborate the findings and bridge the gap to a certain extent. Summary and inferences of the responses pertaining to R&D and innovation are shared in subsequent sections of the report. One needs to observe that as some participating MNCs are diversified entities, and have multiple businesses in India, the numbers in responses may not add to 50.


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Section I: Survey findings 1.

Primary purpose of entering India There could be several reasons why an MNC would decide to enter India. The reasons could range from pure market considerations, to an attractive labour market or tapping into local expertise in product development, and process improvement. The survey shows that most of the European MNCs enter India from a pure manufacturing consideration, sighting cost advantage, qualified workforce and attractive market conditions as prominent reasons. This inference could be the greater representation of manufacturing firms in the survey sample. A medium term strategy is also the consideration such as leveraging India as a design base and R&D centre. The other reasons identified for entering India include: providing service support for high-end equipment imported from Europe, offering environmental services to the parent organization and local customers, funding India specific projects, providing securing services, marketing and sales operations, mineral, and oil and gas exploration, delivering IT consulting services to global and Indian customers, and geographical expansion.

Exhibit 1: Primary purpose of MNC’s exploring India.

2.

Key objectives of Indian R&D/ innovation operations As observed above, a significant number of manufacturing firms look at India as a design and R&D base for their Indian and global market. Therefore an attempt has been made to explore the key objectives of the firm’s R&D investments in India. Not surprisingly, cost reduction still remains a prominent reason for MNCs choosing India. Impressively, a significant portion of firms aim towards designing and developing new products suited for India markets and catering to other emerging locations. The strategy therefore is to create employment in local market for local products. On the other hand, this is indicative of how India is becoming an attractive destination for new product development for MNCs catering to the emerging markets. This includes and often presupposes orientation towards achieving process improvement, and minor modification in existing product lines. Major modification to the


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existing products and development of new product remain less of a focus for Indian operations.

Exhibit 2: Key objectives of European MNCs Indian R&D/ innovation projects

3.

Orientation of innovation activities to India specific needs An important aspect of the Study is to assess how acutely the R&D activities of European MNCs cater to India specific needs. While it is interesting to know that still a large number of firms (53%) customize their product offerings to suit Indian consumers’ preferences, taste and budget, it’s also heartening to see that a good share of firms (24%) are also engaged in designing products exclusively to suit Indian markets, and with potential of catering to other emerging markets. Only very few companies state to have no customization done to their product range or doing no amount of innovation on their offerings. Customizations here are construed as incremental innovations.

Exhibit 3: Extent to which the R&D activities of Europran MNCs cater to India specific requirements

4.

Nature of existing collaboration and partnerships

Though it is observed that a majority a European MNCs in this sample exist as wholly owned subsidiaries, they extensively partner with local institutions, including academia in shaping their innovation agenda. The Study seeks to probe the range of collaboration activities that the firms pursue. Since the firms surveyed state to be engaged in designing and developing products catering to Indian markets, the majority of collaborations happen with customers. In the same vein, access to talent being the key in such endeavours, active collaboration is also sighted with universities and educational institutions for engaging in joint- R&D activities and for European Business Group India, Bangalore Chapter

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preferentially hiring talent. Partnership with product vendors for joint- design and development of products also emerges as a significant pattern for responding firms. The nascent startup market in India and immature venture funding capital market is reflected in relatively scarce collaboration with startups. Other collaboration sighted are those for talent enrichment and training in conjunction with training institutions or academic institutions, shaping up the course curriculum in education institutions, and funding of specific research labs and doctoral- level projects. Firms also indicate active work around open- innovation and collaboration with end-users for insight generation and piloting.

Exhibit 4: Nature of collaboraitons that European MNCs exhibit in India in meeting their innovation objectives

5.

Importance of India in innovation value chain

The respondents are inquired about the importance they associate with India as a part of their overall innovation/ R&D value chain and the future prospects they hold for the country. A large majority of respondents (83%) rate India as playing a significant role in their innovation activities, with 31% indicating India to be a strategic location on their R&D landscape. A case in point is the Airbus Engineering Centre India (AECI)4, a fully owned subsidiary of Airbus, which supports the global units on capabilities in modelling and simulation. This 260 people strong facility works closely with Indian airlines operators, technology vendors and research agencies in shaping up the design and development of Airbus’ next generation aircrafts. Another European firm that has invested significantly in India in R&D is SAP. In 1998, the German software giant SAP setup its second largest R&D facility called ‘SAP Labs’5 in India and today the lab spearheads software development and maintenance of emerging market applications and other core applications of the SAP suite of products. To get an appreciation of the overall satisfaction of the European firms operating in India in terms of their R&D investment, the Study chose to use the Net Promoter Score (NPS). Though NPS is usually adopted in client engagement to assess the client’s level of satisfaction with the engagement, the Study chose to use it keeping in mind the need for brevity. In terms of the overall confidence and future prospects for India’s R&D potential, the NPS stands at 98%.

4 5

Airbus R&D in India http://www.airbus.com/company/worldwide-presence/airbus-in-india Profile of SAP Labs http://www.sap.com/india/about/company/saplabs/index.epx


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Exhibit 5: Indication of India’s current and future significant as an R&D destination for European MNCs

6.

Innovation related challenges faced in India While the trend towards identifying India as an emerging R&D destination for European MNCs is clear and present, this hasn’t happened without the firms facing their share of challenges. This section of the Study seeks to understand the current and potential imperilments that MNCs face in implementing R&D related activities in India. The inefficient physical infrastructure and sustained unavailability of quality talent remain the key roadblocks for firm’s furthering their R&D investment in India. While the issue of infrastructure is very obvious, talent hunting is complex. The demographic dividend in India is waiting to be leveraged, meanwhile talented workforce is extremely difficult to retain in a sustained manner. High attrition, high costs of training and retraining are some issues highlighted by the respondents. These lead to a slow but sure erosion of the cost arbitrage that initially propelled the European companies to come into India. Other challenges include complex legal framework, poor business transparency, and insufficient protection for intellectual property rights. More specifically, participants highlight the challenges in acquiring Visa which hampers mobility of researchers and professionals, and thereby knowledge sharing as a key impediment to their innovation throughput. Supply chain concerns are also voiced by major manufacturing firms. Innovation is that part of the business cycle that calls for high investment in terms of people, trust and comfort of operations. Unless these factors are guaranteed, companies will find it difficult to sustain their initial enthusiasm. The findings are more nuanced and highlight the role government and policy makers could play in promoting higher R&D related investment by European MNCs in India.


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Exhibit 6: The key impediments sighted while doing R&D investment in India

The above stated responses do not provide an exhaustive insight gathered from the survey, as a few questions were of descriptive nature and generated qualitative insights. The following section attempts to offer the trends observed through reviewing the survey findings and through discussion with the respondents and interviewees.


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Section II: Key innovation trends The online survey is supplemented by conducting interviews with six firms in order to substantiate the findings and gather some detailed insights. Further, secondary research is performed for 74 European companies having R&D operations in India. The key insights from the said sources are shared under the following key themes. 1.

India as a strategic R&D location for global product development The survey and interviews indicate the trend towards moving away from a cost- focused approach towards a more quality- focus one while engaging with India. Several leading firms are integrating Indian operations to the global innovation value chain, and the benefits are clearly beyond cost arbitrage. Such areas range from high-end engineering to consumer durables and healthcare services. Few instances include: −

UK’s retail giant Tesco opened Tesco Hindustan Service Centre in Bangalore in 2004 to offer back-office services for its global operations. But soon the centre became the source of radical innovation for the company. The 6,000 people strong unit in Bangalore 6 has delivered mobile retailing solutions, paperless picking technology for the retailer’s warehouses, and innovations around customer billing and store management. The centre turned itself from a back-office to back-bone of Tesco’s global operations. So much for an industry that runs on wafer thin margins.

−

The Swedish- Swiss power and automation major ABB identifies India’s R&D unit as one of its seven core technology centers. Setup in 2002 to develop and support IT solutions for the firm’s global product base, the Bangalore center today employs 1,000 scientists and is the largest of all the R&D units of ABB7. Riding on this technology success, India is fast becoming ABB’s export hub.

−

In the highly competitive automobile components industry, Sweden’s SKF had leveraged India’s operations in delivering breakthrough products for the global market. The 400 people strong Bangalore based two-wheeler R&D centre called ‘The Application Development Centre' recently delivered two new patent- worthy products, adding to the tally of 50 such offerings in past 4- 5 years8. This is a case in point of enterprise- India moving beyond the cost- arbitrage proposition.

6

Tesco HSC activities http://www.tescohsc.com/whatwedo/index.html

7

ABB’s site http://www.abb.co.in/cawp/inabb506/6a58701e58e17743652571d500315825.aspx

8

Business Line http://www.thehindubusinessline.com/companies/article2778178.ece


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2.

Honing a culture of innovation in Indian operations A series of interviews have thrown light on how some of the large European MNCs are honing a culture of innovation in their Indian locations. Some of the marquee examples include: −

The Bosch Group has been in India since 1953 and employs over 25,000 associates. It has in India, the largest development centre, outside of Germany, for end to end engineering and technology solutions. In an interview, the Managing Director of Robert Bosch Engineering and Business Solutions India 9 identified some of the ways the firm fosters a culture of innovation. These include: Innovation Days, where inventors and innovators are felicitated annually, creating an innovation pipeline by having dedicated funds for performing proof-ofconcepts, and having a strong mechanism of measuring concept generation and idea implementation though patents and copyrights count.

−

Philips Innovation Campus (PIC) is another large R&D setup by a Dutch company in India. The firm has 20% of Indian workforce in R&D, largest outside of Europe. Present since 2000, the campus houses research teams working on areas of healthcare, lighting and engineering10. Apart from giving high amount of freedom and resources for experimentation, the PIC encourages employees to collaborate extensively with partners outside of the firm. The interview with head of PIC India highlighted one such engagement that includes collaboration with an Indian university on getting healthcare related data and developing community healthcare programmes.

−

Swedish telecom equipment major, Ericsson, has a much regimented approach to encouraging innovation within the organization. An interview with the leadership team at Indian R&D identified Innova - an internal venture funding model, where ideas are screened at multiple levels and funds are apportioned towards productization. Once a year resulting prototypes and research projects are showcased at the Research Day, where many of these can see the light of the day. This is akin to running a corporate venture capital program in India.

−

UK based IT major Logica has carved a unique way of inspiring innovation and co-creation within its enterprise. Its famous Spark Innovation Centers 11 are showcase centres and ideation spaces where employees, customers and business partners create and exhibit new concepts. Their Spark Innovation Centre in Bangalore focuses on mobility solutions and that in Chennai aims at Intelligent Transport Systems (ITS).

9

Bosch R&D in India http://www.boschindia.com/content/language1/html/4427.htm Philips Innovation Campus http://www.bangalore.philips.com/html/Research.html 11 Company website http://www.logica.in/we-do/innovation/ 10


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3.

India pioneering frugal innovation for emerging markets With a very large and prospering middle class, India is not just an attractive market for European MNCs, but also serves as a laboratory for creating products that are suitable for emerging economies. The elements of robustness, portability, de-featuring, adoption of leapfrog technology, and large scale production12, that MNCs are able to practice and perfect in India while developing their new products are great assets while addressing the emerging markets. Here are some of the successful examples of how European MNCs are leveraging India as a test-bed and beachhead for development and launch of novel and cost effective innovations. −

Continuing on its commitment of developing leading-edge products suitable for India and India- like markets, Philips launched it low- cost, modular and energyefficient ultrasound device- ClearVue 13 . Designed and developed in India for Indian market, the device is a true example of frugal mind-set, as applicable to world class innovations. The product is also findings a significant market in developed economies, a phenomenon dubbed as ‘reverse innovation’.

−

While the world celebrated the launch of ultralow cost car- Tata Nano, it is the innovation from Bosch that made the miracle possible. Keeping the tight cost and emission targets in view, Bosch India exclusively designed a two-cylinder Common Rail Direct Injection (CRDi) system with an enhanced Electronic Control Unit (ECU)14 to power Tata’s dream car. This meant challenging some of the fundamental assumptions of automobile engineering, and a tough challenge pushing one of the best in the business to be even better.

−

AstraZeneca is the UK based pharmaceutical major which leads the pack of firms doing research on tropic diseases. Its centre in Bangalore is their only dedicated research centre for TB in the world, and is making the firm the fastest growing pharma company in the country15. Brushing aside all doubts over India’s talent quality and Intellectual Property Rights protection, the pharma major is the only MNC in India which offers an integrated approach to the discovery, development and marketing of pharmaceuticals. Not only does the company caters to Indian market, but also has builds capabilities to address other emerging markets.

−

The century long presence of Unilever in India places the consumer products giant aptly to shape research on some of the most pressing problems that India

12

Elements of Frugal Engineering by Kumar, N. and Puranam, P. 2011. Inside India: The emerging innovation challenge to west. Harvard Business Press. 13 Philips’s offerings: http://www.healthcare.philips.com/main/products/ultrasound/systems/clearvue550/ 14 Bosch’s innovation centre http://www.boschindia.com/content/language1/html/734_13769.htm 15 Corporate site http://www.astrazenecaindia.com/about-us/what-we-do/


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and similar emerging nations face. The award- winning water purifier- Pureit16 is a result of the insight. As one of the six global R&D centers, the 300 people strong Bangalore team specializes in the areas of microbiology, virology and microstructure creation, and leads research on water purification. Innovations from Indian centre are indeed lifesaving in the context of several African countries and places where availability of clean drinking water is a challenge. 4.

Innovation through collaboration Akin to the trend in developed economies where collaboration is increasingly getting adopted, India has witnessed a similar trend over last one decade. Such collaborations aren’t limited to accessing the local market or in overcoming institutional limitations, but are indeed enabling mutual competence building. Some of the marquee cases of collaborative innovations are shared below: −

BAE Systems from the UK has identified India as one of its five home markets17. With over 350 employees through the two Joint Ventures in defence with Mahindra & Mahindra and Hindustan Aeronautics Limited, BAE Systems is both developing local competency as well strengthening its global innovation value chain. The strategic importance of the sector as well as the sophistication of work involved is an indicator of the level of commitment that BAE Systems has shown towards India.

−

UK’s GlaxoSmithKline Consumer Healthcare is another case in point of a firm adopting open innovation and collaboration strategy with partners on areas ranging from new product development and packaging innovation 18 . At its Gurgaon based facility, the firm invites its key vendors from across India to share their ideas and partner with them on cost saving and value added packaging innovations, and has very successfully revived some of its best known brands in the process.

−

Another instance of collaborative innovation is that of Swedish telecom major Ericsson. The firm has over 800 dedicated people for R&D across its three centers, and does extensive collaboration with service firms, such as Wipro and academia, including IIT Madras 19 . The firm also leverages the open source community extensively and has created an internal venture capital market to fund novel solutions.

16

Hindustan Unilever’s innovation section http://www.hul.co.in/innovation/ BAE Research in India http://www.baesystems.com/our-company-rzz/our-businesses/bae-systems-india 18 GSK’s annual report http://gsk-ch.in/downloads/GSK_Annual_Report_2011.pdf 17

19

Gathered through interview with head of technology operations in India


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5.

India’s savvy customers pushing the technology frontier The burgeoning middle class, global exposure through media and IT revolution, and ubiquitous technology ensures that Indian customers could become some of the most demanding customers in the world. Innovation in India isn’t limited to low- cost or ruggedness, but may also entail high- technology and convenience akin to consumers in the developed economies. European MNCs are realizing these needs and marrying locally generated insights with global technologies to create new solutions with a global appeal. −

The Indian team of UK’s Standard Charted Bank launched customized banking solution for the urban, tech- savvy Indian customers. Dubbed as Breeze Banking 20 , the new solution integrates an access through internet, smartphone technology and social media. This first-of-a-kind solution in the market buttresses the case of innovation not limited to manufacturing or hi-tech industry, and also the fact that Indian customers could offer some of the most demanding conditions for MNCs to generate disruptive and unprecedented solutions that require out- ofthe- box thinking.

−

The unique and demanding conditions offered by India have given a huge opportunity for French auto-major Renault to up their local innovation presence. At their Mumbai based Design Centre21, Renault actively experiments with their automobile design, ranging from interiors to features to add to its stable of automobile engineering expertise. The success of firm’s Logan car first in India and then in Europe is a case in point of certain leverage the India market offers. The firm’s CEO, Carlos Ghosn certain regards Indian experience quintessential to the firm’s global success22.

−

One of the biggest symbiotic relationships on innovation in recent times has been that between Indian market and the Finnish mobile phone maker- Nokia. Being the fastest growing and second largest market for Nokia globally, India has helped the firm experiment with new mobile phones, features, and business model innovations. The famous Nokia 1100 handset, the Life Tools and mobile applications are but few of the instances of local insights transformed into great solutions. Acute understanding of Indian customers gave Nokia a great opportunity to tap into global market. Now when Nokia is reviving after losing its market share to the likes of Samsung and others, it is India again scripting the turnaround story23.

20

Breeze banking site http://breezebanking.standardchartered.co.in/ Renault’s Mumbai Design Centre http://www.renault.com/en/groupe/renault-dans-le-monde/pages/renault-eninde.aspx 22 From the HBR blog http://blogs.hbr.org/cs/2012/07/frugal_innovation_lessons_from.html 23 Interview with Nokia’s India head http://articles.timesofindia.indiatimes.com/2012-0510/strategy/31655134_1_nokia-strategy-nokia-s-india-important-market 21


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6.

Worrying false starts by European MNCs in Indian R&D arena While the posture that European MNCs has towards investing in R&D in India has been largely positive, there are some concerning instances of false starts. There are large European firms that made promises of investing in R&D in India but such plans never materialized. Though specific reasons could range from overestimation of local demand, to concerns with Intellectual Property Rights (IPR) protection, the trend is worth observation. Specific cases include the R&D investment commitment made in 2007 by Germany’s Beiersdorf, the maker of Nivea range of cosmetic products24. A similar early commitment was shown by Skoda Auto in Indian in 2004 25 in sight of attractive government policies towards foreign R&D investment, but it has not materialized as of date. Another case is the decision of Swiss pharma major Novartis to put its Indian R&D operations on hold in 200926. Such false starts and premature pull-outs by large MNCs looking for broadening their R&D base forces a slight re-evaluation of the India Story.

7.

Innovation and R&D is not limited to Bangalore! It iss often construed that innovation and R&D activity in India is limited to large cities, especially to Bangalore. Much of the credit for this misconception goes to the remarkable success Indian IT industry has experienced in past two decades. In fact, the secondary data mining reveals that European MNCs are present in several parts of the country and this finding seems to be concurrent with the location specific advantage that many such places offer. The following map indicates the R&D locations of 74 European MNCs in India. The map clearly indicates that even though Bangalore dominates the share of R&D facilities of European MNCs, there is a reasonable presence of such facilities in other parts of the country as well, and this further strengthens the case of domain breadth and geographical spread of talent available in India.

24

Market Bulls http://www.marketsbull.com/news/stockmarketnews.php?page=40591

25

Business Line http://www.thehindubusinessline.in/2004/07/14/stories/2004071402150200.htm

26

Economic Times http://articles.economictimes.indiatimes.com/2009-11-12/news/28455630_1_glivec-ip-indiaand-china


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Exhibit 7: India’s map indicating the location of R&D facilities of leading European MNCs (map not to scale or accurately representign locations)

8.

Large firms are still missing out on Advantage- India One of the intriguing findings of the secondary research is that large firms are unevenly leveraging the Indian advantage of talent and cost. This inference ranges from financial services industry to retail industry, healthcare and food. In the banking and financial services industry, large European MNCs, such as Credit Suisse, ING Group, and HSBC, have set-up dedicated back-office and IT delivery units in India and are drawing upon cost benefits as well as novel solutions from such investments. For instance, Credit Suisse’s Shared Services Centre27 based out of Pune employs 3,500 engineers and offers Financial Accounting, Information Technology and Investment Banking Operations support for over 50 countries. However, other financial

27

Credit Suisse https://www.credit-suisse.com/careers/campus_recruiting/en/locations/pune.jsp


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services majors, such as Aviva, Barclays, Prudential, Standard Life, UBS, ABN Amro, and Allianz, among others aren’t seen to be following their peers, even though benefits of setting up an Indian operation are apparent. It’s important to note though that some of these companies might be partnering with Indian- based technology offshoring firms to tap into the India advantage of cost and market access. In a similar vein, the success experienced by Tesco’s Hindustan Service Centre in delivering technology tools and applications for its global retail operations hasn’t encouraged other large retailers such as Metro, Carrefour, and Aldi, among others to test Indian waters. Similarly, Nestle, which is present in India for over 100 years, is only now contemplating on setting up an R&D unit28. On the other hand, the competitors of the likes of GlaxoSmithKline Consumer Healthcare and Unilever have a long history of doing dedicated R&D in India. A similar case is in the automobile industry, where Mercedes- Benz Research and Development Centre in Bangalore 29 and Renault Design Centre in Mumbai 30 are fuelling much of firms’ design and innovation activities in India, while the other luxury car makers, including BMW, Volkswagen31 and Audi, aren’t tapping into the talent pool available. This leads to the obvious question: Why aren’t some large European companies keen to emulate the success that their peers have tasted in India? Is it a case of a few challenges shadowing the overt success? Or are there success stories not broadcasted effectively? Here’re a few recommendations addressing these questions.

28

Nestle press release http://www.nestle.com/Mirrored/PressReleases/AllPressReleases/Pages/Nestle-to-investin-RD-Centre-in-India.aspx

29

Facility’s website http://www.mercedesbenz.co.in/content/india/mpc/mpc_india_website/enng/home_mpc/passengercars/home/world/Our_Presence_i n_India/1.html

30

Renault’s India activities http://www.renault.com/en/groupe/renault-dans-le-monde/pages/renault-eninde.aspx 31

Had plans to set-up R&D facility in 2008 http://www.carazoo.com/autonews/2108200801/Volkswagen-to-Setup-Randamp;D-centre--in-India


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Section III: Recommendations Some of the challenges posed to India’s R&D future are well known. These include the concerns regarding quantity and quality of engineering and scientific talent, inadequate physical infrastructure, and an investment unfriendly environment. Instead of offering generic recommendations on areas which are well known and are where solutions are underway, the Study attempts to draw attention to some of the less sighted concerns and offers recommendations for both policy makers and firm agents in Europe and India to leverage the current R&D investments in India. 1.

MNCs to have a India- centric approach to innovation The increasing interest and success of frugal innovation from India creates an imperative for MNCs to look at their R&D investments in India differently. If India’s talent and market is leveraged as a mere extension of their global innovation value chain, then the India- advantage is not tapped into fully. A more amicable approach would be to have an India- centric product roadmap, where teams engage in clean- slate designs and aim to make broad- based innovations. This won’t be possible without an acute insight of local market conditions, and a frugal product management approach. This also would mean empowering the local teams and being open to newer ways of doing R&D.

2.

Reducing barriers for talent flow and knowledge sharing One of the pre-requisites of innovation, especially in a global arena, is free flow of tacit and explicit knowledge. Thanks to the internet and other communication means, the explicit knowledge is getting shared, but with lack of people movement, tacit knowledge remains insular. The complex Visa formalities and stringent procedure yield a very high transaction cost for people movement across boarder and negatively influences knowledge sharing and hence innovation. Hence, while to the government the appeal is to smoothen the Visa process for flow of scientific and engineering talent, the advice to firm agents is to invest in technology to compensate for the inadequate people movement. While the long term solution has to be easy movement of valuable talent, technology and factoring in such exigencies go a long way in addressing the concern in the meanwhile.

3.

Cultivating independent thinking among Indians In answering to the question on differences between Indians and Europeans on cognitive skills and problem solving skills, the respondents sighted that Indians usually need to be told on what problems to solve, while Europeans are good at picking such problems intuitively. Though the quality of solution might not differ significantly, often the value lies in being proactive and thinking independently through the problem. Shaped by the institutional framework and sociological underpinnings, Indians aren’t deemed as independent thinkers, but if the call is that of championing integrated R&D activities, this is increasingly a must- have skill. Here the onus is sharply on firms, as they need to


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cultivate independent thinking across the levels for Indian talent to deliver to the fullest, given the adequacy of technical skills. There is also a call to the education system, especially primary education, to cultivate the independent thinking and creativity ability amongst students. 4.

Strengthening the IPR regime There is no getting ways from the fact that if India needs to emerge as a preferred R&D destination, the country must strengthen its patent regime. Even though India is a signatory of TRIPS, the posture hasn’t encouraged much confidence among MNCs operating in India. This is indicated by the fewer number of patents filed by MNCs in Indian patent office32. Unless firms file patents, the knowledge diffusion won’t happen and that’s not good for the long term health of Indian economy. In absence of strong IPR regime, firms would not be incentivized to declare or share their work, and would rather apply private protection approaches. The onus is clearly on government to strengthen the enforcement of intellectual property rights.

5.

Encouraging academia collaboration on R&D One of the hallmarks of innovation in developed economies is the close tie industry has with academic institutions in conducting joint- research and commercialization activities. While we identify sincere efforts on the part of industry to nurture talent during or post the study period of students, the investment hasn’t reached to the realm of joint R&D work. The head of Nokia Siemens Network’s Technology Center in Bangalore impresses upon the need for having tri-party research projects where R&D firms collaborate with universities and customers to work on new ideas, something that’s fairly routine in western world33. One such instance is the Robert Bosch Centre for Research setting up a Cyber Physical Systems at the Indian Institute of Science (IISc), Bangalore in 201134 to perform research on green technology and mobility.

6.

Showcasing success European companies that have made great strides in the Indian market are not sufficiently showcasing the successes to their peers. While the problems and hurdles are discussed at great length, the advantages are often not broadcasted to others, hence portraying a skewed picture of the Indian R&D scenario. How can one otherwise explain that only a few European companies are making phenomenally innovative work in India, and have their largest R&D centres outside of their own soil, while others are not even considering India? Sharing of case studies is one step in this direction.

32

Detailed patent trends available at Krishnan, R. T. 2010. From jugaad to systematic innovation. Bangalore: Utpreraka Foundation. 33 Part of interview during the Study 34 Press release: http://automotivehorizon.sulekha.com/robert-bosch-centre-for-research-in-cyberphysical_11_2011_postedby_jayashankar-menon


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7.

Grants for industry from the Indian Government While Industry initiatives in Innovation and cross border R&D collaboration find funding in Europe from the Government, in India industry gets much less support in terms of grants35. Since industry participation is extremely critical in getting a product into the market, a stronger funding mechanism from the Indian Government could have a great catalytic effect.

8.

Focussed seminars/ conferences on innovation and R&D Focussed instruments such as seminars or conferences/ awards on innovation and R&D on the Indo-European context could help to get partners together, and excite them to work together on innovative projects. The fact that the Horizon 2020 is just a few months away, it can be opportune to start working towards such platforms to bring actors together.

Finally, there is no better way than to implement one small success so that a ripple effect is created. The EBG would be very happy to announce an EU- India Innovation Forum, to bring Industry/Academia and Government together and initiate a facilitating platform for collaboration.

35

For policy level details refer to Krishnan, R. T. 2010. From jugaad to systematic innovation. Bangalore: Utpreraka Foundation.


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Innovation and R&D Activities of European Companies in India: A Study Report (Appendix)

European Business Group India, Bangalore Chapter 901 & 902, Prestige Meridian II Towers, No. 30, M.G. Road, Bangalore 560001 India


Table of Content Appendix I: Survey questionnaire ............................................................................................................ 3 Appendix II: Profile of surveyed companies ............................................................................................ 5 1.

Geographical spread:.................................................................................................................... 5

2.

Lines of business: ........................................................................................................................ 5

3.

Revenue:...................................................................................................................................... 5

4.

Legal form in India: ..................................................................................................................... 5

Appendix III: Interview questions............................................................................................................ 6


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Appendix I: Survey questionnaire 1. Name of the parent organization 2. Global revenue (in million USD) 3. Company origin/ HQ country 4. Lines of businesses 5. Name of Indian organization/ subsidiary 6. Year of entry in India 7. Legal form in India 8. Locations in India 9. Revenue from India (in crores rupees) 10. Number of full-time employees in India 11. Primary purpose of entering India − Imports for Indian Market − Exports from Indian Market − Manufacturing base in India − Design Base in India − Back-Office/ Support Operations in India − R&D in India − Other 12. Current R&D expenditure in India (in crores rupees) 13. Current R&D expenditure in India (as percentage of revenue) 14. Proposed R&D expenditure in India, over next 5 years. 15. Number of people in R&D/ Innovation related activities 16. Number of patent applications from India in last 5 years (in Indian patent office or abroad) 17. Number of patents granted from India in last 5 years (in Indian patent office or abroad) 18. What are the key objective of your Indian R&D/ innovation projects − Cost reduction − Process improvement − Minor modification for existing products − Major modification for existing products − Major product innovations − New Product Development for Indian/ Emerging market − Other 19. How important is India from your firm's innovation value chain perspective − Not considered at all − Considered but not important − important European Business Group India, Bangalore Chapter

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− Very important − India is a strategic location 20. Does your innovation cater to India specific needs − Exclusively designed for Indian market − Customized to suite India market − No customization for Indian market − No innovation so far 21. Type of partnership and collaboration − University Collaboration for R&D − University Collaboration for Preferential Talent Acquisition − Collaboration with Product Vendors − Collaboration with Start-ups − Collaboration with Customers − Collaboration with Competitors − Other 22. Type of Partnership and Collaboration do you plan in future 23. What are the three most important innovation practices that your firm adopts here in India 24. Have you abandoned any R&D/ Innovation project in India in last 5 years. If so kindly share the reasons − No R&D/ Innovation project abandoned in India in past − Yes. We did abandon at least one R&D/ Innovation project in India in past − Other 25. What are the key challenges you face in India? − Quality of Available Talent − Quality of Physical Infrastructure − Poor Intellectual Property Right Protection − Complex Legal Framework − Business Transparency − Security − Political Instability − Visa for Expats − Hiring of temporary, non-Indian staff − Supply Chain related issues − Other 26. For India to emerge as a significant destination for you to engage in innovation related activities, what recommendation do you have to improve its attractiveness 27. Would you recommend India to other European businesses looking to explore this country? (Net Promoted Score) European Business Group India, Bangalore Chapter

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Appendix II: Profile of surveyed companies A total of 50 European companies participated in the survey. Following is the descriptive statistics of the participating firms. 1. Geographical spread: Albania (1), Austria (2), Belgium (1), Denmark (1), Finland (1), France (10), Germany (21), Italy (2), Luxemburg (1), Netherlands (1), Norway (1), Spain (1), Sweden (1), Switzerland (2), and United Kingdom (4). 2. Lines of business: The MNCs were a fair representation from various industries of agriculture, manufacturing and services sector. A detailed description is given in the Exhibit. Please note that diversified MNCs have businesses in more than one industry and hence numbers don’t here add to 50.

Exhibit A1: Industry wise segmentation of participating firms

3. Revenue: Mean (in million dollars) - 22,467 Median (in million dollars) - 1,439 4. Legal form in India: In the survey, a majority of participating firms were wholly owned subsidiaries of their European parent, followed by joint-ventures, and other forms of governance.


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Exhibit A2: Form of Indian entity of European MNCs

Appendix III: Interview questions Apart from the online survey and secondary research, a series of interviews were conducted with senior management engaged in R&D/ innovation activities of European firms in India. The intent was to triangulate the findings as well get from fresh insights on how R&D activities are organized in such companies. The discussion during the interview revolved around the following questions. 1. What are the objectives of your Indian operations? 2. How do you promote a culture of innovation within your Indian organization? 3. What are some of the marquee practices of managing innovation you have adopted at your Indian organization? 4. How do you see your Indian workforce is different from European employees in terms of their creative potential in general and problem solving skills in specific? 5. What are the key concerns you have while managing your R&D operations in India and how are you addressing the same?


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Contact Us EBG India Secretariat & Delhi Office: Mrs. Neema Sunil Kumar General Manager DLTA Complex, South Block, 1st Floor, 1, Africa Avenue, New Delhi - 110029 Mobile: +91-11-9811418874 Telefax: +91-11-22794049 E-mail: [email protected] [email protected]

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Bengaluru Office: Mr. Senthil Kumar Regional Manager European Business Group India 901 & 902, Prestige Meridian II Towers, No. 30, M.G. Road, Bengaluru – 560 001 Tel: +91-80- 4096 5008 Fax: +91-80-40904724 E-mail: [email protected]