Offshore R&D to India, everyone else is

Forget your anachronistic attitudes about offshore workers in India. The engineering and computer science talent there are not just handling first- or second-level technical support calls or testing code written in the U.S. or Europe. They are doing the fundamental research and development for the next generation of IT tools destined for your data center.

According to research released today by Zinnov LLC of Bangalore, R&D in India is worth an impressive $9.3 billion this year and in 2012 will jump to $21.4 billion. Granted, compared to the $367 billion said to be spent in the U.S. on all forms of R&D in 2008, this may seem slight, but the paltry low and shrinking, single-digit growth in the U.S. versus the 23% growth rate for IT R&D in India is telling.

Vamsee Tirukkala, managing principal at Zinnov, says that the vast majority of the R&D done in India is destined for export because the IT market there is "not huge." He also points out that of the 250,000 Indians working in R&D, 140,000 of them work directly for multinational companies like IBM and Microsoft.

Tirukkala says the 594 R&D centers scattered around India, up from 181 in 2000, represent a significant shift in the IT tasks being done there. "The work in India has moved up the value chain," he concludes.

As such, cost is no longer the primary driver behind companies moving work to India. And that's a good thing, too, as employee costs have been rising 16.2% between 2005-2007. However, Tirukkala observes, that wage inflation is from a much, much lower base. He estimates an R&D engineer in India earns average $44,000, while in the U.S. it is about three times that amount.

One thing India lacks, Tirukkala says is an entrepreneurial culture and infrastructure, especially the absence of a vibrant venture capital community. That's why so many Indian entrepreneurs arrive on these shores to build their businesses.

However, Tirukkala says that over the years as many as 30,000 ex-pat Indians have returned home flush with experience and, many times, success at building not just products but companies abroad. And, in time, their experience could kickstart entrepreneurialism there, too.