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Conventional wisdom holds that the typical engineer or scientist in India or China might work for an outsourced service provider doing low-end computer programming in return for meager wages. Similarly, it’s thought that the main reason Western companies hire offshore engineers is to supply markets in China and India with stripped-down versions of American products at rock-bottom prices.
The remarkable reality is that many big American R&D spenders have undergone a quiet transformation of their product development capabilities during the last decade that includes embedding Asian capabilities much closer to the core of their operation. Offshore engineering centers have become central to businesses such as Microsoft, Abobe, and Synopsys. But there are just as many companies still stuck in outdated ways of thinking about their R&D. In our experience, there are three myths that keep companies from realizing the potential of offshore engineering talent:
Software only: R&D centers in emerging markets shouldn’t be viewed solely as places to develop low-cost software. Forward-looking companies use Asian R&D for a broad range of product development.
In July 2014, FMC Corporation, which makes agricultural products to increase crop yields, ingredients to enhance food texture and stability, and lithium products to improve battery performance, opened an R&D Center at Zhangjiang High-tech Park in Shanghai, China to undertake process research in organic and organo-metallic chemistry for the company’s global agrochemicals and specialty chemicals markets.
Mylan synthesizes active pharmaceutical ingredients in Mumbai and Hyderabad, and Air Products runs an advanced gas applications laboratory in Shanghai. And one of us (Bagla) has advised a consumer products company to design home care appliances and a medical devices company to develop dental consumables—both using Asian engineers.
Low-end, peripheral work only: The reality is that Asian engineering centers are now central to the success of many American companies. One measure is head count. Cadence, Infinera, Microchip, Microsemi, Synopsys, Teradata, Texas Instruments, and VM Ware are among the companies to state their second largest R&D teams are located in India or China. Some companies have more engineers in India than in the United States. Without the Asian teams these companies would be unable to design new products anymore.
Some time ago, Adobe said that over 200 patent filings for its products had originated from its engineers located in Noida, outside of New Delhi and that 20 of its products were run completely from India. The company has invested well over $300 million in India. In an interview with ZDNet, Niranjan Maka, managing site director at VMware India’s research and development unit revealed that engineers in Pune had created 47 invention disclosure filings in one year.
Cadence has over 900 technical employees in Noida and also maintains staff in Bangalore, Pune and Hyderabad. The India operation works on electronic design automation software and Intellectual Property. Synopsys shared, “Initially, our site here [in India] did mostly quality checking of products; now we have advanced R&D in simulation and testing here, and we have direct support for a number of customers from here that is quite advanced. The fact that in the semiconductor domain today we have the largest Synopsys Users Group Conference in India is quite remarkable.”
Executives who are willing to stick their neck out to better integrate offshore teams into the mainstream product innovation pipeline are often able to minimize employee turnover and truly leverage Asian talent fully. On the other hand enterprises that globalize their engineering teams purely for cost reduction often tend to battle fear and loathing on the American side while their best Asian talent moves on quickly to competitors.
Local markets only: The most pervasive myth is that offshore engineers cannot design products for American markets. This may have been true a few decades ago. But modular product design, object-oriented programming, and sophisticated global supply chains have largely rendered these objections obsolete.
For example, console video games such as those played on Sony PlayStations or Microsoft Xboxes were virtually non-existent in India a decade ago. Yet the erstwhile Midway Games had testers in India perform much of the Quality Assurance for games such as Mortal Kombat. “We installed a video game lounge, so testers could familiarize themselves with the various genres and game-playing techniques,” Paul Sterngold, who sponsored the program remembers in a personal interview with one of us (Bagla). “We trained a team of engineers first to play these games and then to test them robustly. After a somewhat painful training curve, the offshore team was actually able to match California-based testers in productivity.” Today most large video game product development includes significant contributions in art, animation, engineering and QA from Asian teams.
Casino gambling is only permitted in two tiny Indian states and revenues are miniscule by Las Vegas standards. Despite the absence of a local market, Bally Technologies, which spent over $111 million on R&D in 2013, maintains two of its four major R&D centers in Chennai and Bangalore India; the other two are in Las Vegas and Reno, respectively. It leases 128,000 square feet of space in India according to a 2013 filing and earlier reports stated that the company (now merged into Scientific Gaming) had over 700 employees in India, almost a quarter of its global workforce at the time.
These three myths no longer reflect reality. Companies increasingly rely on engineering talent in China and India to drive product development across a wider range of new products and for a wider range of markets. Perhaps the Taiwanese-American CEO of graphics chipmaker NVIDIA Corporation, Jen Hsun-Huang, put it best when he visited Bangalore to inaugurate their R&D center there: “We know from experience that India is home to some of the world’s brightest engineers, as many of our top employees today are originally from there.” The company also runs a similar center in Shanghai.