No longer just the domain of call centres, Bangalore has matured into the place for world-class research and development, says Saritha Rai.

Years ago, when the world pictured Bangalore they imagined an outsourcing hub full of call centre agents and paid-by-the-hour software workers. How that has changed.

Today, that same city has metamorphosed into a thriving research and development centre where advances in areas such as chip design, software product design and innovative healthcare products are driving profits for global multinationals.

Google’s Map Maker, Intel’s six-core Xeon processor, Microsoft’s search engine Bing and HP’s Dynamic Smart Cooling Technology have all been designed or have key components built in the city. IBM and Microsoft have tens of thousands of employees based in Bangalore. Cisco is developing next-gen intelligent networking technologies in the city.

Bangalore’s makeover as a maturing global R&D base is as recent as the last couple of years. An ecosystem of inexpensive global talent, maturing skills and innovative ideas for new products and services have aided the transformation.

“There is a defined shift post-2007,” says Bangalore-based Praveen Bhadada, engagement manager at Zinnov Management Consulting. Bhadada is the author of the recently released study, India R&D Talent Pool.

Where low costs and access to plentiful talent were the top two drivers for R&D growth earlier, the market potential in Bangalore’s Asia-Pacific neighbourhood and the ability to innovate are taking the city to the next level, says Bhadada.

The numbers are impressive. About 60 per cent of the country’s R&D talent is based in Bangalore. Many of the nearly 700 India-based captive multinational R&D centres are located in the city. That is not counting the R&D outsourced to large Indian software companies such as Wipro Ltd and Infosys Technologies, both headquartered in the tech hub.

The fact Bangalore is within a five-hour flight to 70 per cent of the world’s population is turning out to be a strategic advantage. 3M, General Electric and Honeywell see a 15 to 20 per cent revenue growth in the Asia-Pacific geographies in the next three to five years, says Bhadada. Their Indian units are driving innovation not just for the regional but also the global markets.

For more than a decade, multinationals which opened R&D labs in India were doing more ‘D’ than ‘R’.

The swing to greater research happened a couple of years ago when Cisco set up its globalisation centre in Bangalore, making the city virtually its second headquarters outside its base in Silicon Valley. In an unprecedented move, the company then relocated its number two executive, the Dutch-born Wim Elfrink to Bangalore.

Companies like Cisco and Nokia are not just shifting R&D to India, they are also shifting R&D management to India and that is the game-changer, says Navi Radjou, executive director of the Centre for India & Global Business at the Judge Business School, University of Cambridge.

“By giving core R&D responsibilities to their India heads, companies like Cisco, General Electric and IBM have pioneered a new global innovation model,” says Radjou. He calls them an enlightened breed of multinationals that have come a long way from using R&D merely for adapting existing products or building products for local markets.

The city’s cosmopolitan, friendly feel and its mild weather are a hit with expatriate executives such as Cisco’s Elfrink who rents one of Bangalore’s most expensive and plush housing options – a villa in a gated community. Cisco says it plans to shift 20 per cent of its leadership to Bangalore in the coming years.

Costs in Bangalore are still comparable to other global R&D centres such as Shanghai in China, the Ukraine and Russia. Zinnov’s analysis of cost per fulltime R&D employee in Bangalore and Shanghai showed Bangalore holding a 15 to 17 per cent cost advantage. That advantage would hold for the next five to seven years, says Bhadada.

The global economic meltdown has made Bangalore cheaper too, according to Zinnov. Where costs per full-time employee were $41,000 a year ago, they have since dropped to $38,000.

To be sure, Bangalore has its challenges. Certain skills such as user interface design and product architecture are of limited availability. The local infrastructure is weak and the government is nowhere near as supportive as China’s.

Yet in a world swiftly changing into a multi-polar economic order, emerging markets like India and China will account for much of the growth. Using Bangalore or Shanghai to mould Western businesses’ global identities is just smart thinking, says the University of Cambridge’s Radjou.