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The Next Paradigm: India as the Innovation Hub for the World
The Next Paradigm: India as the Innovation Hub for the World

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This article is authored by Karthikeyan Natarajan, Executive Director and Chief Operating Officer, Cyient

The Indian sourcing story that began in 1985 when Texas Instruments established its R&D center in Bangalore has since grown to dominate the global tech sourcing landscape. India is the world's second-largest engineering destination after we consider the parent headquarters of various ER&D players. According to a Bain Private Equity Report, $500 billion of capital is expected to be invested in Indian PE/VC players in the next six years (2021-2027). Today, India is also recognized for fostering a progressive startup environment. The country has the third-largest startup ecosystem globally with over 80,000 startups and has the fourth-largest number of unicorns at 56 (as of June ’21). But to unlock the next growth phase, Indian companies must drive more profound and impactful engagements with customers centered on product innovation and transformation.

From being the world's go-to destination for low-cost tech support, India grew to offer scale and specialization in tech services. It must now focus on becoming a tech innovation partner for the world. Fortunately, the country's technology headstart has tipped the odds in its favor. India is the world's second most connected country, with more than 622 million users in 2020, expected to touch 900 million by 2025. Over half a million engineers are employed in the Indian ER&D sector, with India producing 250,000 digital engineers every year. This has created fertile ground for digital tech and entrepreneurship and a tech-savvy workforce. Moreover, the unrivaled number of young population and incredible thrust on urbanization is expanding the economy and establishing the foundation for digital innovation. 

By undertaking critical, high-impact deliverables from India in niche high-tech sectors, ER&D and technology players can open up new revenue streams and play a more poignant role in the innovation ecosystem. This is possible by unlocking the latent value of the nation's tech and digital ecosystem and bringing together key stakeholders—people, enterprise, and government—to work toward this common goal collaboratively. It is critical to foster an environment that enables the Indian ER&D sector to constantly deliver business value as a rapid, reliable, and repeatable process., With companies demanding more ROI for R&D investments, adopting a more rigorous approach to maximizing value from the natural strengths is imperative.

A Software Innovation Factory for the World

While the world grappled with the pandemic, the buoyancy of the Indian software industry was on full display, with investments touching a whopping $38 billion. As digital transformation gains momentum across industries, India continues to be the most attractive destination for setting up Global Capability Centers (GCCs). Some estimates suggest that the nation is home to more than 1,750 GCCs, which account for 50% GCCs worldwide.

With a focus on digital innovation, intelligent products and platforms, and future-ready tech solutions enabled by cloud and security, India is poised to emerge as the software innovation hub for the world. However, it is vital to support India's established credibility in the tech sector with the right talent development, including nurturing more product managers and software architects to achieve the innovation pace. As we move toward a software-defined future, the demand for new skill sets and engineering talent (full-stack software and digital engineers) will increase substantially. We believe software eats execution for lunch. This is to say that software will decide the survival abilities of product companies in the future.

Several global companies are looking to leverage India's ER&D and software prowess to get the unique advantage of managing the entire product lifecycle from one center. As we prepare for the next growth phase, the key is to shift from product engineering and support to a global digital engineering and innovation hub.

A Push for Digital Engineering and Superior CX

With the meteoric growth of the Internet of Things, Industry 4.0, pervasive Intelligence, and "software-defined," the focus on digital engineering must expand if India is to lead in the innovation space. A study by Zinnov suggests that India will account for 41% of the global digital engineering services market by the year 2025. While the pandemic may have slowed things down unexpectedly,  the country's new-age digital talent pool, coupled with a robust ecosystem of GCCs, ER&D service providers, and burgeoning startups in the space, are expected to drive this growth going forward. The ultimate focus will, without a doubt, lie in delivering superior customer experiences.

By incorporating digital technologies like data analytics and AI throughout the customer journey and the product lifecycle, ER&D companies are driving higher and proactive efficiencies in delivery. From enabling cutting-edge sales experiences to remote service delivery with high-tech performance, enabling data-powered solutions, and increased automation of support functions, digital engineering is set to change the business landscape permanently. Given India's predisposition to digital technologies, the ER&D industry is neatly poised to adapt and sustain digital innovation and create value for customers.

While India is an established global player in service delivery, when it comes to innovation, enabling a growth mindset is vital if India is to become the product innovation gateway to the world. And while the Indian government has provided significant impetus to engineering R&D by way of various tax incentives, programs such as "Make in India" and "Skill India," and "Digital India," the road to becoming an innovation powerhouse is long and arduous. The focus must be on creating a culture that fosters an explorative mindset, bringing different design, engineering, psychology, and art skills. The culture must insist on allowing engineers to experiment, equipping them with the relevant product management skills, and providing them with a strong understanding of customer and consumer needs.

The Road Ahead

NASSCOM estimates suggest that global spending on engineering R&D (ER&D) will touch the $2 trillion mark by 2030, with $500 billion coming from digital engineering services. This opens up a significant opportunity for India (as big as $100-150 billion), given that the country is the largest exporter of ER&D services. The secret lies in delivering continuous value far beyond ensuring product sales. In the wake of COVID-19 and hyper-digitalization, as more and more global businesses focus on expanding and optimizing their value chains, the potential for India's ER&D sector is enormous.

While the pace of innovation is, without question, going to be at an all-time high in the coming years, the focus will be on shrinking time-to-market and ecosystem build-up. In addition, accelerated digitization, inclusive growth (where we look at reskilling and assisting vulnerable populations), a focus on sustainability, and better public health that integrate pandemic handling approaches will up the innovation ante to develop more long-term solutions across industries. Digital transformation, improved workforce productivity, and global geopolitics will drive increased R&D spend in this decade than any other decade in the last century. And enabled by cloud, cybersecurity, data analytics skills in the tech industry, India may well be on the way to becoming a digital engineering hub that can shift from cost and scale to innovation as its core competency.


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