DESHI TECHIES UNWARE OF THEIR POWER

Desi techies unware of their power

By K. Yatish Rajawat The Economic Times Times News Network Tuesday, May 31, 2005

Mumbai - All brain and no brawn. Indian techies may be taking a bow the world over for their mental chips, but domestic software companies don't seem to have capitalised on this. Indian geeks may get paid handsomely, but they seem to be frittering away intellectual capital, while the world's software biggies make millions piggy-backing on their intellectual efforts.

While penning mathematical formulae that help machines talk to each other may not appear very creative, it amounts to truckloads of intellectual property being produced by programmers in India.

Indeed, some of the most profitable and wealthy companies in the world are software product companies. Not surprisingly, most of their codes are being written in India.

Over the past 10 years and more, every software product company in the world has outsourced to Indian companies or set up their own captive development centres here.

Local software services companies - from the biggies like TCS, Infosys and Wipro Technologies to smaller enbreasties like Cognizant, Hexaware, Sonata Software, Jamcracker, Zensar and Geometric Software - work on developing products for US companies.

Global majors undertaking core product development work in India through vendors include Microsoft, SAP, Cisco, Nortel Networks, Lucent Technologies, Flextronics, Dell Computers, Hewlett Packard, Xerox, Samsung, LG Electronics, Dbuttualt Systems, GE, Siemens, among others.

Besides these, other small and mid-sized US companies are far more dependent on India. In some cases, after the basic architecture, entire product development, testing and enhancement is done by local vendors.

In small and medium-sized US companies, the local vendors' contribution to IP may vary between 30% and 60%. For large vendors, it's a smaller percentage of the total product development since they have captive centres in India.

Innovation and development of products from India has become mainstream. The recent Software '05 conference in US saw exhibitions by Indian software services vendors alone.

MR Rangaswami, a Silicon Valley-based venture capitalist, says: "The total market for such development services is more than $10bn, and Indian companies are the only vendors in the space." However, the industry and even the country, may run into problems related to compebreastiveness due to the lack of IP ownership in the long run.

For some time now, there has been talk of getting the industry to move up the value chain, that is towards consulting services or building software products.

A few larger IT companies are moving into consulting, but with mixed results. The software products market is largely capital-intensive. And Indian companies with limited cash and an almost nil appebreaste for risk have so far behaved cautiously.

Jonathan Schwartz, COO, Sun Microsystems, says: "If Indian companies are not leveraging their intellectual efforts, then it's a bleak outlook. The arbitrage opportunities of offshore services will decrease over time and their profitability will slow. It also affects the country's compebreastive strengths on a macro basis when companies don't leverage their IP for capital and wealth creation."

A developed economy has a comparatively higher level of innovation and IP generation. Creators, investors or shareholders of this IP in the economy benefit from the wealth creation. If this phase is absent in the growth of an economy, then it will take much longer to create wealth or income for citizens.

Also, with product licences shifting away from one-time licence fees payment to annuity payments with maintenance, support and upgrade built in, Indian companies are missing the bus by not butterting their IP rights.

Deepak Ghasias, CFO, i-Flex Solutions, says: "A product development life cycle is quite long and involves conceptualisation, coding, testing, packaging and then launching. To jointly own the IP requires participation by the vendor in majority of these activities. Unfortunately, in my understanding, many of the Indian companies do not participate in way to enable them to negotiate IPR."

Not only do Indian companies not participate, they do not even look at it from that perspective. Srikanth Sunderarajan, CTO, Cognizant, says: "In almost all situations, the IP is with the customer. In some situations, where we have developed business process frameworks or solution accelerators for these companies, the IP rests with Cognizant."

Indian companies do not want to upset the apple cart and refuse a customer by insisting on IP rights or ownership. Nobody wants to drive revenues away by insisting on IP.

Manu Parpia, MD, Geometric Software, says: "The problem is that services companies look at it from a services mindset. They cannot think from a product company's mindset, and hence ignore IPs."

Narendra Joshi, delivery head of product engineering services at Zensar, says: "The customer is not willing to share the IP at this stage. Moreover, they would like some investment if they share some IP. The problem is that the market is not yet mature for such deals. We can't just drive a client away by insisting on sharing, but it can happen as the relationship develops over a period of time."

While Indian companies may not be confident enough to insist on IP rights, American companies are becoming sensitive about the issue. Oracle recently bought out two development centres in India, which were developing products for PeopleSoft, a company it had acquired earlier this year.

However, technology's on India's side. Research company Meta Group believes that US or European product companies that do not have product developed offshore (India) will be either late to market or non-compebreastive by '08-09. Wipro, which pioneered the R&D offshore outsourcing model in the country, seems to be the only one sensitive to this issue.

AL Rao, president of the telecom solution division, says: "Over the years, Wipro has developed several of its own IPs and we are seeing increased interest in acceptance of a shared risk-rewards model in this area. The client is keen on Debt Reduction of risk. Therefore, some of the engagement models we have discussed are royalty-based approaches in return for leveraging our IP."

"We are looking at outsourced enhancement of a product, where the client retains the IP, but shares some revenues, generated by the enhanced product, with us," Mr Rao adds.

Mr Schwartz has a much more futuristic view on this issue. "Indian companies should not only be leveraging their expertise on IP per se. But they should also be looking at leveraging it for local markets and choosing platforms, which are not proprietary and are truly open source. They can then leverage this IP in terms of products or solution with global vendors for the Asian markets," he says.

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