Over the last decade or so a raft of companies, including GE, Honeywell, Philips, Motorola, sap, Google, IBM, Cisco and Microsoft have queued up to tap low-cost-yet, as they are quick to add, high-quality-Indian talent to undertake cutting edge research. And the secular trendline seems to point towards India consolidating its position as a leading destination for outsourced research and development (R&D) work. Surprisingly, however, an IBM-Plant Location International study released last month says the number of investments in R&D and service projects in India declined about 20 per cent to 204 in 2005 compared to 256 in 2004. Ditto with China. The report goes on to add that the BRIC (Brazil, Russia, India and China) countries registered an average fall of almost 20 per cent in foreign inbound investment in 2005 compared to 2004. The main beneficiaries of this trend: the mature economies of Europe and the us, which, the report says, have emerged as the top R&D destinations.

So, we have record investments being announced on the one hand and a respected study saying that the opposite trend is true. What gives? Is India really losing its edge as a hub of top-end R&D projects?

Incidentally, the study admits that India accounted for about one-fourth of new R&D centre investments globally. P. Anandan, MD, Microsoft Research India, says: "As the Indian software industry matures and explores new opportunities for growth, we will see it increasingly engage in R&D. There have been a relatively small number of industrial research labs till now, but we are seeing that changing very rapidly. For us, there is no question of moving back any research to the us or elsewhere".

"SAP Labs India is our largest development facility outside Germany," says Georg Kinesse, MD, SAP Labs India, adding it will double its headcount over the next five years. "A fourth of the total product development efforts at sap Labs India are focussed on the Business Process Platform (BPP), sap's roadmap for the future of enterprise software and one of the most important products under development at the company," he adds, emphasising the importance of its Indian operations. Cisco, too, says much the same thing. "Our centre in Bangalore has made significant contributions in most of the R&D projects at Cisco; the 7500 router platform was primarily developed in India, and we've also made significant contributions towards wan technologies and BPX switches," says S. Devarajan, Managing Director, Cisco Systems India.

The industrial conglomerates, such as GE and Honeywell, that have quietly transformed India from a low-cost to a high-quality research destination, are also in no hurry to move or scale down. Guillermo Wille, CEO, Jack F. Welch Technology Centre, bristles at the suggestion that Bangalore, or India, is losing its place in the global R&D pecking order. "India has been designated as a centre of excellence in several areas like modelling, computational fluid dynamics and materials," he says. Like GE, Dutch consumer electronics giant, Philips, too, has leveraged India's talent to undertake core research (and not just software or it services) work in India. The company's second campus in Bangalore is now its largest research centre outside its base in Eindhoven.

Interestingly, despite the report, IBM's own India plans are on a fast growth track. "IBM is upgrading the size and scope of its India operations," says a company spokesperson. Hewlett-Packard, too, is focussing on areas that are beyond the traditional scope of the company's business today. "HP Labs is not a low-cost, outsourced research establishment. Since inception in 2002, we have been very successful with many of our initiatives, including the Gesture-Based Keyboard, among many others," says Ajay Gupta, Director, hp Labs, India.

The conclusion: There is no cause for alarm. India remains a magnet for R&D investments.

-additional reporting by Rahul Sachitanand

INSTAN TIP
The fortnight's burning question.

Is the govt's decision to keep Chinese companies out of key areas of the India economy citing security concerns justified?

No. Malvinder Singh, MD and CEO, Ranbaxy Laboratories

In today's globalised environment, there should be minimal restrictions on the commercial activities of companies. If we want Indian companies to have a smooth sailing in foreign markets, we will have to treat companies from other countries wanting to do business in India with the same regard.

Yes. Abhishek Singhvi, Congress Spokesperson

The security-related decisions that impinge on business are taken on a case-to-case basis, pertain to a very small set of projects, and are based on solid grounds.

Yes. D.S. Rawat, Secretary General, Assocham

The issue pertains to national security, which is a very sensitive topic. Any decision that the government takes on security-related issues is part of a well thought out process and should not be subjected to any interpretation or controversy.

-Compiled by Kapil Bajaj

Q&A
"India Is Way Ahead Of China"

Teresa Barger, director of Corporate Governance for the World Bank and the International Finance Corporation, was in Delhi recently. BT's Aman Malik met her to discuss a range of issues concerning the subject. Excerpts:

What corporate governance issues are emerging markets facing today? How do they compare with India?

Some of the emerging markets today are talking about raising the level of awareness on corporate governance. A lot of this depends on the listed public companies in these countries. India is way ahead of such markets. What it still needs, however, are strong institutional investors such as insurance and pension funds.

How do we match up to China?

India is light years ahead of China. There is great awareness in Indian companies about following corporate governance principles. Chinese companies are still struggling to come to terms with the idea.

How does corporate governance affect the competitive advantage of companies?

Mature stock markets like Korea and even some emerging markets in South Asia and South East Asia reward good corporate governance with significantly higher premiums.

Manufacturing Leads The Way
The economy is on song, but weaknesses in power and infrastructure need attention.

Brick and mortar is back in vogue. In an economy that, in recent times, has grown on the back of the services sector, manufacturing has revved up the gross domestic product (GDP) growth meter during the first quarter of the year, nudging it to a record high of 8.9 per cent. India Inc. certainly has reason to cheer. And, so does the political system-growth in the manufacturing sector offers blue collar employment opportunities like no other sector and, to that extent, addresses the aspirations of the voting class.

However, growth in the manufacturing sector during one quarter means little over the medium term; not surprisingly, Finance Minister P. Chidambaram has pitched the annual growth rate at 8 per cent. For instance, agriculture, which constitutes a chunky 23 per cent of the GDP, has recorded a flat growth rate of 3.4 per cent. And, while there is little the government is doing to improve this sector, the rain gods, too, have not been kind this year.

In the case of manufacturing, India is on a better footing than China, whese exports are exposed to the vagaries of global demand to a greater extent due to the relatively low absorption rate of its domestic market. Back home, the fact remains that the record export growth-of over the 20 per cent year-on-year-witnessed in the past, mirrors the manufacturing growth. "A good part of the growth in manufacturing is reflected in the spurt in exports," says Ajit Ranade, Chief Economist, Aditya Birla Group. Hence, any threat of a slowdown in global growth will hurt the manufacturing sector. And, while the International Monetary Fund (IMF) has recently raised its global growth outlook for 2007 from 4.4 per cent to 4.7 per cent, it has warned of several factors that could drag it down. These include a further hardening of crude oil prices, inflation and a slowdown in the US housing markets.

While such external factors are beyond the control of both the government and industry, there is definitely one sector that requires the highest priority-infrastructure. The GDP report card for the quarter indicates a slowdown in the electricity, gas and water supply segment-from 7.4 per cent growth recorded during the corresponding quarter last year to 5.4 per cent this time around. With power proving to be a significant cost element in several manufacturing industries, the government needs to hasten the pace of power reforms.

-Balaji Chandramouli

A House Abroad
You can buy land in UK and other places.

Looking to invest? Buy land in the UK

Resident Indians can now buy land, legally it seems, in the UK. UK Land Investments Group, a UK-based land trading company, is selling 200-450 sq. m. plots of land in that country to Indians. "We offer a legal and transparent way of buying land in the UK. Purchasers get land titles directly from the UK government," says Alex Walia, Managing Director (Asia) of UK Land Investments Group, which started its operations six months ago through Delhi-based UKLI Real Estate. The company currently offers 200-250 sq. m. plots in New Addington (Bromley and Kent), and Borehamwood (Hertfordshire) for £13,200 (Rs 11.3 lakh), an amount designed to be within the ceiling of $25,000 (Rs 11.5 lakh) that forex laws allow Indians to invest in properties abroad.

Kunal Banerji, Vice President (Marketing), Ansal API, a Delhi-based real estate company, warns: "You must be very careful when buying land abroad and must be very clear about what you want to achieve."

The governments of Dubai and Malaysia also allow foreigners (and, therefore, Indians, too) the option of owning or leasing properties, but Indians buyers are required to comply with the legal restriction of not investing more than $25,000 in assets abroad.

So, before you jump at an offer to invest abroad, think of the legal landmine ahead.

-Kapil Bajaj

Media Arbitrage
Cash-free barter trading arrives in India.

Active's Blunt: Right time to be in India

Cash-free barter is not a new concept in India, but because of the complex nature of the business, it has not been very popular in India. Now, a us-based corporate trading firm, Active International, is setting up operations in India in collaboration with a local infrastructure and real estate player, Aeren R. Enterprises, to try and create a market for this. The joint venture, Active International India, aims to provide mainly media buying services to companies in exchange for their excess inventory or any other distressed or unused asset. No cash is involved in the purchase of the assets; instead Active issues trade credits to the client for the full value of the asset disposed.

Here is how the model works: suppose there is a lessor of automobiles that has Rs 33 crore worth of vehicles coming off lease. Active buys this inventory, issues trade credits for the amount to the company and subsequently, sells the inventory in the market for Rs 10 crore. Then, it buys gross media worth Rs 220 crore at a net price of Rs 187 crore (because it buys in bulk, it gets discount) for the company. The auto company pays Rs 33 crore in trade credits and Rs 154 crore in cash for the media bought. Active's profit: Rs 10 crore. The leasing company gains because it has to spend less cash for buying media. Says Alan S. Elkin, ceo, Active International: "The utilisation of trade credits creates cash savings and economic value from the amounts that otherwise the company would have to spend in cash." According to George Blunt, CEO of the India venture, the market is ripe for corporate trade.

-Archna Shukla

Just A Door-bell Away
Living in the age of deliverance.

Not too long ago, "home delivery" meant having something sent over from the neighbourhood grocer round the corner, or having a florist deliver flowers to someone on a birthday or some other special occasion. Then came Pizza Express (now, sadly, no more), followed by Smokin' Joe's, Domino's and the rest. Today, you can have virtually anything at your doorstep, be it at the office or at home. Liquor stores (in Mumbai and Pune) have recognised the potential and not only send over the booze, but also things like ice, aerated drinks, cigarettes, wafers, and other edibles. The internet too, has flung open the doors on this phenomenon; there isn't a thing, whether you're buying it off eBay or the Chanel website, that you can't have airfreighted to your doorstep. In fact, one will be hard put to compile a long enough list of things you can't have home delivered. Movie or theatre tickets, airplane tickets, every sort of cuisine, DVDs (to buy or rent), books, music, board games, ice cream, clothing, financial services (home loans, etc.), cellular services (bills), water (Bisleri, 20 litre kegs)... just name it and it's there. Phew.

-Deepti Khanna Bose

Sell-Off: No Action Expected

The topic of disinvestment is fast becoming a joke. After the failed attempts at selling minority stakes in public sector units (PSUs) like a Bharat Heavy Electricals, National Aluminium Company and Neyvelli Lignite Corporation, the government is again placing the issue back on the table-this time, it wants to sell minority stakes in non-Navratna PSUs. But it is treading cautiously. "A note is being prepared and will soon be placed before the Cabinet, but the government is still uncertain about the way its allies, especially the Left, will react," says a senior official in the disinvestment ministry.

"It is certainly true that because of differences among UPA partners, I had to put the process (of disinvestment) on hold," Prime Minister Manmohan Singh had recently said at the Congress Chief Ministers' Conclave in Nainital. "We will talk to our colleagues before we move forward in that direction."

Quizzed further, the official says even the note that is being prepared "is open to review". Translated from bureaucratese, that means "don't expect anything on this front anytime soon".

-Amit Mukherjee