India has been an important contributor to global product R&D for over two decades. Companies such as Texas Instruments realised India’s R&D potential in the 1980s. Today, there are over 600 multinational companies undertaking product R&D from India, including companies such as Microsoft, SAP, Oracle and Yahoo! The traditional IT services industry has also expanded its capabilities to offer outsourced product development services. A number of patents have been filed from Indian subsidiaries of global corporations. These factors have augmented the perception of India’s capabilities, with Indian firms now being seen as important global players.
However, in spite of capability in product R&D, India has not realised its global potential. Lack of risk funding has been an impediment. Till the early 2000s, venture capital (VC) funding for software products was hard to come by. A product business requires significant upfront investments, and returns can be expected only after three-five years. As a result, funding was limited. But since 2005, this has been changing and VC investment in the product segment has accelerated. As per a Nasscom software product study, VC funding has grown at a CAGR of 43 per cent, from $76 million in 2005 to $156 million in 2007. Incubation centres are coming up across the country, assisting companies with funding and mentoring. Since 2001, about 371 software product start-ups have come up; over two-thirds were created in the past three years alone. The growing technology adoption in the domestic market is further fuelling VC investment.
Although the availability of VC and private funds has increased, there is scope to strengthen the investment ecosystem. Increasing our focus on early-stage investing and mentoring would further the growth of our product industry.
The Indian product industry has seen more success in application software than system software. Some of the innovative companies/products such as SunTec, Finacle and i-flex compete and win among the world’s best. Our strength continues to be in industries such as BFSI (banking, financial services and insurance), telecom and retail. India must continue capitalising on its domain expertise and domestic demand to build enterprise application software products for the global marketplace. In such an environment, companies must acquire intellectual property (IP) to accelerate growth. Other areas such as business intelligence, social commerce and mobile applications also hold great promise.
Indian product and service companies can forge greater partnership for mutual benefit. Product companies can benefit from established customer and geographic reach of the services companies, while services companies can utilise the products to provide a complete solution — encompassing application, system integration, infrastructure and BPO services. New models such as software-as-a-service (SaaS) are prompting companies to think in this direction. Large service companies are already creating product offerings that can be provided in a SaaS model. They are creating business applications owned and operated by them in their data centres, and providing associated services such as system integration, infrastructure management and BPO services. This model is especially attractive to customers in the current economic environment as they pay in a subscription model.
India Inc. needs to continue strengthening the talent pool for products. While progress in product development capabilities has been encouraging, we need to improve marketing, management and user experience capabilities. This calls for a closer partnership between industry and academia. Our ability to strengthen these capabilities will determine whether or not we will be able to compete with the best and succeed.
India has built a great brand for itself in the world of IT and IT-enabled services. We need to achieve a similar feat for software products. This requires collective participation of product companies, industry bodies, academia and the government. We are at an inflection point where we can expedite this progress. By enhancing capabilities, building a strong investment ecosystem and choosing the right offerings, the industry can reach its goal of $9.5-12 billion by FY2015.The author is CEO and Managing Director of Infosys Technologies
(Businessworld Issue 20-26 Jan 2009)
