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The unmet innovation challenge

Subir Roy  |  New Delhi 

The rise of the US’ economic power through the last century is attributed to its innovative edge. (Innovation is what makes an invention commercially useful.) This leadership was briefly threatened in the late 1980s when the US did not lose its innovative edge but was beaten by Japan which brought innovations to the market faster by making its marketing and manufacturing work in sync. The US made a real technology-led rebound in the 1990s. However, its economic recovery after the bursting of the technology bubble at the turn of the century, now clear with hindsight, was on a phony impetus from financial innovation and asset prices.

Today, long-term US supremacy is being threatened again because of a new, self-inflicted injury — the damage done to manufacturing innovativeness by moving physically away from it through offshoring to China and India. A lot of services and back-office work has also been offshored to India which stands at a unique crossroads, it has made great progress in acquiring manufacturing competitiveness by being able to host the entire manufacturing lifecycle — design, develop and manufacture.

But India is unable to capture much of the value as most of the innovation taking place is by non-Indian firms. They are developing products in their own R&D centres or outsourcing to Indian engineering services firms and getting the stuff manufactured at either their own factories or through contract manufacturing, as in pharmaceuticals. The book correctly highlights the innovative success of Tata Motors with the light pickup Ace. A more glorious section on the Nano would certainly have been added had the research been conducted today. The real challenge ahead for India or Indian firms is start owning the innovation being undertaken on it shores.

The author, a faculty member of the Indian Institute of Management, Bangalore, has undertaken a careful examination of the various facets of innovation. (Pray, why the blemish of a missing index?) He examines the factors that promote industrial innovation, uses various measures to take stock of India’s current innovation status, and takes a detailed look at why India has failed to achieve its innovation potential, identifying the barriers to innovation. In the last chapter, he provides an agenda for India to move from jugaad — the rough and ready improvisation that has mostly passed for innovation till now — to systematic innovation.

Despite some exceptions in sectors like pharmaceuticals, in the aggregate, India is far from being a dynamic innovator in manufacturing. The innovations in the software industry, which is mainly into services, are process, not product, driven. Even the highly successful pharmaceuticals industry has excelled so far in producing high-quality generics cheaply, with no success till now in original drug discovery.

In the initial years after liberalisation started in 1991, pent-up demand and still high tariff rates enabled firms to do well despite achieving little by way of innovation. It is only now that the challenge to innovate by addressing the fortune at the bottom of the pyramid — developed country firms are already deeply engaged in it — has emerged. The problem of being away from consumers is gone. With innovation skills available very cheaply, my guess is that Indian firms (they are the main deliverers of innovation) will eventually come up to scratch, but we have to wait for the day.

The process can, however, be speeded up by addressing the shortcomings in the Indian environment identified by the author. One is a shortage of innovation funding. Venture capital firms are coming but early-stage angel investors are still too few. There are several government funding programmes for innovation by industry but, as the author points out, they are fragmented, overseen by different agencies and the loan sizes are too small.

A major shortcoming is the state of the higher education system and its R&D capabilities. University research of quality, which is globally cited, is pitifully small. The state and status of higher education and research in India is in sharp contrast to the educational reforms that have taken place in China as a result of which it has forged ahead of India in recent years.

There are also cultural barriers to rapid and powerful innovation. India lacks a tradition of teamwork, hierarchy remains very important, there is a brahminical preference for cerebral work and unwillingness to dirty your hands, low tolerance of failure and weak innovative systems.

What needs to be done? India’s best bet, says the author, is to get technology-savvy entrepreneurs to establish innovation-driven start-ups. The US, Taiwan, Korea and most recently China offer plenty of models of how the state can support research by private firms, industry formations, national-level firms and universities. Devising systems suited to India out of these models should be easy.

Finally, a contradiction needs to be resolved. Studies like the present one spell out in great detail the poor quality of most of the higher education output and the small quantity of research work done in India. On the other hand, India is perceived today as the world’s greatest storehouse of cost-effective innovative talent — scientists, engineers and research workers. China also has the numbers but they come with a slightly higher price tag. A recent study of manufacturing competitiveness by the consultancy Deloitte puts China at number one and India at number two globally. One explanation is that the best of India’s innovative talent has either migrated or is employed by the captive R&D centres of global firms in India. And reverse migration is limited to either a few firms like Ranbaxy or the R&D centre of GE in Bangalore. It is really up to the large Indian firms which have started to make significant global acquisitions to come forward and give India some intellectual property worth the name.

The challenge for India
Rishikesha T Krishnan

The Utpreraka Foundation
197 pages; Rs 400