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India As A Global R&D Hub

Consulting | Jun, 2021

With the growing requirement of new product design and development owing to reduced product life cycles, research and development (R&D) have become quintessential to devise new applications utilizing the stock of knowledge. Once concentrated within developed nations or physical boundaries of a corporate firm, now R&D centers are gradually expanding in developing countries as more companies continue to tap newer markets. India is rapidly becoming the R&D hotspot for multinational firms, ranging from IT and telecommunications through pharmaceuticals and biotech, willing to relinquish current market profits to enhance future performance. The country offers a unique blend of massive market opportunity, favorable business environment, highly skilled and low-cost workforce, and lucrative fiscal benefits that make India a perfect location for cutting-edge R&D projects for global companies across industries. Companies such as Microsoft, Oracle, Motorola, IBM, GE, AMD, Cisco, Seimens, and more than 100 Fortune companies have already set up their dedicated R&D facilities in India for taking up R&D activities in new and emerging markets in high-tech areas. 


What Attracts Multinational Companies to Establish R&D Facility in India?

Highly skilled and Young Workforce

Creating and maintaining technological competitiveness requires access to a wide range of scientific knowledge and skills. But R&D is a labour-intensive activity that requires highly skilled engineers and scientists. Moving R&D activities to a low-wage country like India, MNCs gain access to a highly skilled workforce at fraction of the cost of that in their own countries to develop innovations. India has a large population of educated workers, including 22 million graduates but institutions do not train them in basic research, which limits the talent pool. However, global companies are increasingly willing to invest in human capital and build skills to bridge the knowledge gaps required for research. Providing good infrastructure, work environment, comparatively attractive compensation, better career options, and exposure to frontiers of R&D, foreign firms are able to attract the skilled labour force of India to cater to cutting-edge research across verticals. Besides financial benefits, companies can gain 30-40% improvements in their time to market, which increases their profitability. 


Huge Domestic Market

The recent jump in local consumption with a rise in middle-class population has led to an increased demand for creating innovations that suit emerging local market flavours. Multinational companies are now focusing on the development of products and solutions for the local market that could create new opportunities for them. However, low tech penetration and price sensitivity often make it harder to innovate for the Indian market, so global companies are collaborating with emerging start-ups to maximize possibilities. Global giants such as Google, Amazon, Microsoft, SAP, and ISM are investing as well as incubating with start-ups, or collaborating with small early-stage service providers to develop products that appeal to Indian consumers. Such collaborations with start-ups can help multinational companies to mitigate risks and create a large spectrum of possibilities. Also, MNCs can turn local ideas into products that expand the knowledge base of headquarters in their home country. 


Policy Support 

Since multinational companies contribute significantly to India’s GDP growth, the government offers favourable policies to allow ease of doing business and enable liberalized regulatory environment so that they face fewer regulatory and infrastructural bottlenecks to set up their R&D facilities in India. The latest survey of multinational companies revealed India is the leading choice for foreign direct investment. To encourage R&D investments, the government offers various tax incentives on revenue and capital expenditures incurred by companies in carrying out R&D activities. The government provides a super deduction of 150% on tax to manufacturing companies on in-house R&D expenditure for filing a patent application, performing clinical trials, and obtaining approval from authorities. A concessional tax rate of 10% is granted on income earned by royalty for patents developed and registered in India. Besides, custom duty exemption to in-house units of industries and GST concession for research institutions are provided. 


Well-established Intellectual Property Rights (IPR) policy

The World Trade Organization requires all its members to follow the IPR policies stated under the agreement, ‘Trade-related Aspects of Intellectual Property Rights (TRIPS)’, which creates a friendly business environment for companies willing to enter a different country for expanding their operations. Being a WTO member since 1995, India is obligated to follow these rules and therefore foreign companies can enter India without worrying about the safety of Intellectual Property. 


Rise in Global Capability Centres

Global capability centres resulting from the globalization trend have played an essential role in the evolution of software development and generic innovations in India. The centres currently employ more than a million technically qualified people, out of which 40% staff work in engineering, research and development, and business process management roles. Even new generation fully digital companies who have shifted their operation from the traditional approach to big data are heavily investing to set up GCCs in India rather than relying on third-party outsourcing. US-origin GCCs based in India are at the forefront of helping multinational companies to implement robotic process automation. 


Different modes for forming industrial R&D alliances 

Contract Research

Clinical trials take up most of the time in R&D activities as it is a tedious and time-consuming process that involves exorbitant expenses on part of research organizations. To reduce the financial burden, foreign companies are opting for strategic outsourcing, and thereby collaborating with contract research organizations (CRO) in India. CRO acts as a feasible channel that facilitates the integration of local R&D capabilities into global discovery and development to meet the demands of evolving medical device and pharma industry. CROs are already set up with all the necessary tools and resources required for conducting trials and research support services. Thus, foreign companies hiring CROs get access to the most advanced software and hardware IT capabilities to facilitate the acceleration of clinical trials while maintaining comprehensive quality control at a reduced cost. 


Custom Synthesis

India dominates the custom synthesis market as it is a preferred destination for pharmaceutical outsourcing by both drug innovators and manufacturers due to improved process engineering, the development of new chemical processes, and low labour costs. Custom synthesis is a high-value and innovative business that requires multi-year expertise and knowledge. With custom synthesis, foreign companies can order exclusive synthesis of products with the purity and specifications or methods they require. Custom synthesis enhances flexibility and efficiency of manufacturing processes for pharmaceutical industries, willing to cut down R&D costs, turning fixed costs into variable ones. 


Challenges for MNCs to Set-Up R&D Facility in India 

Recruitment of Suitable Candidates

Although there is a large pool of E&T graduates in India who are eager to work for foreign companies, many MNCs face difficulty in finding suitable graduates for their R&D positions. The primary reason for substantial dissatisfaction is that most E&T graduates in emerging countries are not qualified to the same quality level as graduates in developed countries or do not have the right engineering skills. Due to the lack of quality labs and libraries, up-to-date curriculum and faculty, and other necessary infrastructure in the educational institutions of developing countries, graduates are not able to acquire the required skills that can satisfy the demand of R&D positions for MNCs. Due to stiff competition for high-quality graduates, MNCs are recruiting inadequate or low-quality graduates and prepare them for R&D positions through ‘in-house/on-the-job’ training. Besides, many foreign companies have started collaborating with educational institutes to offer courses/projects and establish hi-tech laboratories so that at the end of formal education, the company receives industry-ready graduates. 


Talent Retention

R&D employees are valuable and non-substitutable assets as they carry innovation-related information, essential for technology-intensive corporations. Replacing a highly trained and skilled employee with an inadequately skilled employee that needs to be trained to the same level of technical know-how would cost the company time as well as money. When R&D employees move out and join competitors, the source firms’ trade secrets are at danger of leaks, which may compromise future innovations of the company. The confidential innovation knowledge possessed by the subsidiaries could be highly critical to MNC’s business in host countries for local as well as global operations. The outward mobility rate of R&D employees in emerging countries is higher than that in developed countries. Besides, non-disclosure agreements are highly legally enforceable in developed countries due to strong IPR regimes so R&D employees would be more reluctant to share confidential information to prevent fighting lawsuits against large corporations. 



India has emerged as one of the key markets for path-breaking innovations. The increasing personal disposable incomes, rising skilled youth population, country’s economic growth over the years have made India an attractive market with world-class potential. A historical scarcity of resources in combination with constraints in the emerging country has led to an increased focus on frugal innovations that can withstand a tough economic environment. In the coming years, more international companies are planning to enter the India market for R&D activities, which could further strengthen the country’s foothold in research arena. 


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