By S.Mukherjee & V. Hebbar

What do you think Canon, Pfizer, Southwest Airlines, Sony, Microsoft, Oracle, Nokia, Unilever, and Bosch have in common besides their formidable brand equity and enviable success? The answer is a strong culture of innovation that the top managements of these companies have succeeded in building. Companies and stockmarkets worldover have recognised that business innovation is the key to competitive advantage and profitability. It is no longer a nice-to-have attribute; it is a must-have.

Technological breakthrough, through R&D initiatives, is one of the more important instruments of innovation and value-creation. Companies investing in technologies need to understand the economic realities that will operate in the coming years. Today, 25 per cent of all R&D dollars in the US are accounted for within companies categorised as part of the services sector compared to less than 10 per cent a decade ago. We are at an inflection-point between 2 economic eras. We are making the transition from the old mass-production, consumer-driven economy into the New Economy, one that will be driven by knowledge and technology. This transition will be every bit as disruptive, but certainly much faster than the previous one from the agrarian to the mass-production economy.

THE NEW ECONOMY. In the old economy, growth areas were transportation, resources, chemicals, consumer goods, energy, and utilities. The New Economy's engines are computers, software, semi-conductors, e-commerce, satellite and fibre optics, medical technology, biotechnology, nano-technology, environment, and healthcare. In the US, the components of the old economy are growing at a tardy 2-3 per cent per year while the New Economy is growing at over 20 per cent a year. It is only a matter of time before these trends start reflecting reality in India.

Indian companies will, increasingly, face the challenge of reinventing themselves-repeatedly-to cope with agile competitors from the same industry, from related industries, and from around the world. To remain competitive in the global market of today, our industries have to depend more on knowledge than on natural resources or low labour costs. Knowledge and networking are the enablers of industrial innovation while effective communications and alliances are essential for a rapid response to competition. And companies not keeping up with these developments will be unable to catch up later.

THE POTENTIAL. We believe that the e-Business revolution has presented India with its best opportunity to leapfrog the economic evolution process, and emerge as one of the world's leading hubs for e-Commerce products, solutions, and services. Industries in developing countries like India have to learn to adjust to a new economy dominated by infotech, e-Commerce, and telecom. Or suffer exclusion from the global economy and disadvantage in the competitiveness of their goods and services. With its pool of trained, educated, and cheap manpower, ideally suited for R&D, India is becoming an important destination for such foreign investment.

THE REALITY. India has a long way to go in the field of research and technological development. We believe that India, as a nation, remains one of the greatest under-achievers in the field of science and technology. A comparison of the ratios of output of scientific and technical articles to GDP in various countries puts India below countries like Chile and Kenya, and far behind Israel, the US, and West European nations. This is unfortunate, given that India produces some of the world's finest scientists.

Basic research in India is , at present, limited to the pharmaceutical and defence sectors. Dr Reddy's Laboratories reported acquisition of a research boutique in the US reflects the importance the Indian pharmaceutical industry is placing on R&D. Such acquisitions could help the industry make up for lost time, and develop new drugs much faster than just investing in doing research themselves. On the other hand, R&D departments in Indian manufacturing organisations are, typically, engaged in re-engineering imported designs and technologies to suit Indian manufacturing or market conditions.

THE SOLUTION. We need to ensure that Indian entrepreneurs who dream big do not flock to Silicon Valley due to want of resources and management capability in India. The country must make available venture capital and infrastructure to incubate some of the infotech eggs in hatcheries of our own to be able to discover a golden egg or two. While broad-based incentives like tax-breaks are important, they alone are not sufficient. Building a sound R&D infrastructure requires a broader approach.

One of the more important things on the national agenda would be to improve patent protection. This would provide great impetus to R&D investment by domestic as well as foreign industry. With the WTO and patent regime due to be established in India soon, process patents will be applicable. This will encourage the entry of transnationals, which have been wary of investing in industries like agro-chemicals and fertilisers in the past.

The Government of India will continue to have a large influence on the development and level of investment in telecom, infotech, and e-commerce. Thus, reforms like privatising the telecom sector, setting up of regulations enabling growth in e-commerce, and providing appropriate investment incentives will have a crucial influence on India's success in these areas.

Moreover, the government could partner with industry to finance emerging technologies and undertake research. Investment in basic research is inherently risky, and some government-supported initiatives will be unsuccessful. On the other hand, it is capable of yielding extraordinary returns to society. We also need to boost funding for flagship research centres like the CSIR and the IITs, and make efforts to ensure that innovation is an integral part of the whole culture encompassing the government, the industry, academia, and research institutions in the New Millennium.

We are reminded of the French military leader, General Lyautey, who asked his gardener to plant a particular tree. The gardener protested that it would grow slowly, and not reach maturity for 100 years. The General replied: ''In that case, there is no time to lose. Plant it this afternoon.'' Our government, research institutes, and industry have no time to lose; we must invest in and frame an agenda for innovation today. One that is bound to shape India's success in the latter part of the 21st Century.

Sreenath Mukherjee is Market Director & Vinay Hebbar, Consultant, at Arthurd. Little

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