A history of learning in R&D

To close the gap with China, Indian policymakers must view R&D not merely as an expenditure, but as a strategic process of building organisational capability

Economic policymakers complain that Indian firms are not spending enough on research and development (R&D). They should examine some fundamentals. What is R&D? How is it converted into useful products competitively? How should useful R&D be measured before counting how much money is spent on it? The histories of US and Indian manufacturing industries — both of which have lost to Chinese manufacturers — can provide policymakers with valuable lessons.

 

In the 1990s, while the US promoted free trade across borders and compelled foreign governments to abandon industrial policies, its tech and financial services companies were conquering the world. At the same time, US manufacturers woke up to realise that Japan had built the world’s strongest manufacturing companies — and was beating US giants.

 

Whereas US companies had built the world’s largest R&D centres — General Motors in automobiles, DuPont in chemicals, Xerox in electronics, Bell Labs in telecommunications — and scientists at such organisations won Nobel Prizes, Japanese firms still beat them in the market.

 

India’s industrial history provides lessons. A 1978 article by Joseph Hanlon in New Scientist titled “India Builds a Truck” begins by describing the Tata truck as the mark of “one of the developing world’s most successful technology transfers.” The article contrasts the story of Tata Engineering and Locomotive Company (Telco, now known as  Tata Motors) with the usual experience in developing countries, where local companies merely assembled kits supplied by foreign manufacturers and never acquired the ability to design and manufacture vehicles themselves.

 

Hanlon gives some details. Daimler-Benz initially supplied designs, machinery and German technicians for the Tata truck project. At the peak of the collaboration, there were about 300 German technicians at Telco, where Indian engineers were assigned to learn from them. Telco trained around 2,700 apprentices and more than 600 graduates during the period. Tata progressively moved from assembly to manufacturing components, then established its own forge and foundry. By 1966, Telco had established its own R&D facility. Indian engineers modified the Mercedes-derived truck extensively for Indian conditions — overloading, poor roads, inadequate maintenance and local manufacturing capabilities. By the end of the collaboration, Tata was making the vehicle overwhelmingly in India. Most importantly, when the agreement ended in 1969, Telco had acquired sufficient capability to continue developing trucks independently.

 

The last point is really what makes the episode historic. The technology wasn’t merely transferred; technological capability was learned. The evidence suggests that Tata deliberately designed the relationship to facilitate learning, according to Hanlon.

 

A United Nations Industrial Development Organization publication ‘Industry and Development’ later examined the Indian commercial-vehicle industry and reported that Telco and Ashok Leyland had become major exporters, particularly to developing countries. It attributed their success to “strict quality control, production adaptation, improvements based on indigenous research and development” and government encouragement. It described the commercial-vehicle sector as having gone a long way towards achieving international competitiveness. A particularly telling contemporary Indian assessment came from the Monopolies and Restrictive Trade Practices Commission, which, when considering Telco’s Pune expansion in 1971, observed that it was one of the few Indian companies that had planned its technological development so that it was ready to terminate its foreign collaboration at the end of the initial approved period.

 

Sumant Moolgaokar, the architect of Telco’s learning infrastructure in Jamshedpur and Pune, from 1947 until he handed over the company’s reins to Ratan Tata in 1991, called Telco Pune a ‘learning factory’. He always reminded managers that they were not building a truck — they were building an industry. Moolgaokar had a long-term industrial development plan with a manpower development plan at its core. The manpower plan began with the induction of young people with no industrial experience into the learning factory, and their progress through stages of learning until they became masters of their crafts and builders of teams.

 

The first activity on the land Telco was given to build its Pune truck factory was a training school for apprentices. Next was an R&D centre where young engineers could experiment and learn how to design products; alongside it came a world-class truck manufacturing facility. Telco’s own machine-tool and die-making units came up alongside the truck factory. In them, engineers and workmen designed and made the machines and tools used to make trucks. Manpower development, R&D, tool building and truck production formed an integrated learning process, with which Telco was able to design and produce a brand-new light commercial vehicle in a world-record time in 1986 to beat the Japanese manufacturers who were permitted to sell their vehicles in India.

 

India has fallen well behind China, the other billion-plus population Asian giant, in the race to create employment for its people and raise their incomes. Per capita incomes in China have grown eight times that of India since 1991. While China calibrated its opening to international markets and stayed on its socialist path of development, India abandoned industrial policy and embraced open markets. The Chinese machinery and capital goods production sectors, which are the foundations of manufacturing industries, have become eight times larger. China’s production of high-tech manufactured products, including electronic hardware, is more than 50 times larger.

 

China’s policymakers and companies in many fields, including artificial intelligence, have become the fastest learners in the world. In a world where competition can emerge from new entrants from other countries — and even from other industries — only those that learn faster can survive and win.

 

The problem is not merely that India spends too little on R&D. It is that Indian firms and policymakers have not sufficiently understood R&D as a process of building the organisational capability to learn. The question they must ask, therefore, is not why Indian firms are not investing enough in R&D. Instead, they should ask how Indian companies will learn to learn faster than Chinese companies and make up for the ground they have lost since the 1990s.

 

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The writer is the author of “Reimagining India’s Economy: The Road to a More Equitable Society”