two decades india has become a global hub for software development and offshoring of back office services as we call it
and what we were interested in finding out was that because of this huge industry that has started over the last two decades in india offshoring software development and back office services there 's been a flight of white collar jobs from the developed world to india
when this is combined with the loss of manufacturing jobs to china it has you know led to considerable angst amongst the western populations in fact if you look at polls they show a declining trend
for support for free trade in the west
now the western elites however have said this fear is misplaced for example if you have read i suspect many of you have done so read the book by thomas friedman called the world is flat
he said basically in his book that you know this fear for free trade is wrong because it assumes it 's based on a mistakenassumption that everything that can be invented has been invented
in fact he says it 's innovation that will keep the west ahead of the developing world with the more sophisticated innovative tasks being done in the developed world and the less sophisticated shall we say drudge work being done in the developing
now what we were trying to understand was is this true
could india become
a source or a global hub of innovation just like it 's become a global hub for back office services and software development and for the last four years my coauthor phanish puranam and i spent
investigating this topic initially or you know as people would say you know in fact the more aggressive people who are supporting the western innovative model say where are the indian googles ipods and viagras
if the indians are so bloody smart laughter so initially when we started our research we went and met several executives and we asked them what do you think will india go from being a favored destination for software services and back office services to a destination for innovation they laughed
the more polite ones said well you know indians make good software programmers and accountants but they can 't do the creative stuff sometimes it took a more took a veneer of sophistication
and people said you know it 's nothing to do with indians it 's really the rule based regimented education system in india that is responsible for killing all creativity
they said instead if you want to see real creativity go to silicon valley and look at companies like google microsoft intel
so we realized that maybe we had the wrong question and the right question is really can indians based out of india
do innovative work so off we went to india we made i think about a dozen trips to bangalore mumbai gurgaon delhi hyderabad you name it to examine what is the level of corporate innovation in these cities
you are taking a particular perspective on innovation which is innovation for end users visibleinnovation instead innovation if you remember some of you may have read the famous economist schumpeter he said innovation is novelty in how value is created and distributed
it could be new products and services but it could also be new ways of producing products it could also be novel ways of organizing firms and industries once you take this there 's no reason to restrictinnovation the beneficiaries of innovation just to end users
and specifically there are four types of invisibleinnovation that are coming out of india
the first type of invisibleinnovation out of india is what we call innovation for business customers which is led by the multinational corporations
which have in the last two decades there have been seven hundred and fifty r amp d centers set up in india by multinational companies employing more than four hundred thousand professionals
now when you consider the fact
the other thing we were told then was yes but you know the kind of work that is coming out of the indian r amp d center cannot be compared to the kind of work that is coming out of the u s r amp d centers so my coauthor phanish puranam who happens to be one of the smartest people i know said
he 's going to do a study what he did was he looked at those companies that had an r amp d center in usa and in india
and then he looked at a patent that was filed out of the u s and a similar patent filed out of the same company 's subsidiary in india
so he 's now comparing the patents of r amp d centers in the u s with r amp d centers in india of the same company to find out what is the quality of the patents filed out of the indian centers and how do they compare with the quality of the patents filed out of the u s centers
interestingly what he finds is and by the way the way we look at the quality of a patent is what we call forward citations how many times does a future patentreference the older patent he finds something very interesting
what we find is that the data says that the number of forward citations of a patent filed out of a u s r amp d subsidiary is identical to the number of forward citations of a patent filed by an indian subsidiary of the same company within that company
so within the company there 's no difference in the forward citation rates of their indian subsidiaries versus their u s subsidiaries so that 's the first kind of invisibleinnovation coming out of india the second kind of invisibleinnovation coming out of india is what we call outsourcing innovation to indian companies
for their global products which are going to be sold to the entire world for example in the pharma industry a lot of the molecules are being developed but you see a major part of that work is being sent to india
for example xcl technologies they developed two of the missioncritical systems for the new boeing seven hundred and eighty seven dreamliner one to avoid
collisions in the sky and another to allow landing in zero visibility but of course when you climb onto the boeing seven hundred and eighty seven you are not going to know that this is invisibleinnovation out of india
the third kind of invisibleinnovation coming out of india is what we call process innovations because of an injection of intelligence by indian firms
hundreds of thousands of smart young ambitious kids on a call center job very quickly they get bored and they start innovating
traditional call center company used to be a traditional call center company today they 're developing analytical tools to do predictive modeling so that before you pick up the phone you can guess or predict what this phone call is about
and the most significantmanagementinnovation to come
out of india invented by the indian offshoring industry is what we call the global delivery model
products for end users is the visible tip of the innovationiceberg india is well represented in the invisible large submerged portion of the innovation iceberg
now this has of course some implications and so we developed three implications of this research the first is what we called sinking skill ladder and now i 'm going to go back to where i started my conversation with you which was about the flight of jobs
now what happens is when you outsource the bottom rung of the ladder to india for innovation and for r amp d work at some stage in the very near future you are going to have to confront a problem which is where does the next step of the ladder people come from within your company
so you have two choices then either you bring the people from india into the developed world to take positions in the next step of the ladder immigration
what we are trying to say is that once you outsource the bottom end of the ladder
you it 's a self perpetuating act because of the sinking skill ladder and the sinking skill ladder is simply the point that
you can 't be an investmentbanker without having been an analyst once you can 't be a professor without having been a student you can 't be a consultant without having been a researchassociate so if you outsource the least sophisticated jobs at some stage the next step of the ladder has to follow
the second thing we bring up is what we call the browning of the tmt the top management teams
because that 's where the product leadership is that 's where the important market leadership is right and the last thing we point out in this slide which is you know that to this story there 's one caveat india has the youngest growing population in the world
this demographic dividend is incredible but paradoxically there 's also the mirage of mighty labor pools
indian institutes and educationalsystem with a few exceptions are incapable of producing students in the quantity and quality needed to keep this innovation engine going so companies are finding innovative ways to overcome this but in the end it does not absolve the government of the responsibility for creating this educational structure
so finally i want to conclude
by showing you the profile of one company ibm as many of you know ibm has always been considered for the last hundred years to be one of the most innovative companies in fact if you look at the number of patents filed over history i think they are in the top or the top two or three companies in the world of all patents filed in the usa as a private company
here is the profile of employees of ibm over the last decade in two thousand and three they had three hundred thousand employees or three hundred and thirty thousand employees out of which one hundred and thirty five thousand were in america nine thousand were in india
in two thousand and nine they had four hundred thousand employees by which time the u s employees had moved to one hundred and five thousand whereas the indian employees had gone to one hundred thousand
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