CAN India emerge as an innovation powerhouse? Over the past two decades, India has achieved a dominant share of offshore work, giving Western populations angst about the loss of white collar jobs. The traditional concern in the West has been about immigrants coming onshore to compete for local jobs; now it seems that the effects of that competition can be felt from distant offshore locations. But many Western elites have argued that this fear should have its limits, that outsourcing can only go so far because the distinctive advantage of the developed world remains innovation. For example, Tom Friedman in The World is Flat argues that innovation will continue to keep the West economically supreme, with the “more sophisticated tasks being done in the developed world and the less sophisticated tasks in the developing world – where each has its comparative advantage.”
I and my colleague Phanish Puranam spent three years researching whether India could transition from being the favored destination for offshored services to a locus of innovation. We discovered that despite substantial innovation taking place in India, much of it has been invisible. While a company like Intel ensures consumers know they are using a personal computer powered by Intel innovation, there often isn’t any such label on products when the innovation originates in India.
“Can India be a platform for generating innovation for the global markets?”: Google, GE, Intel, Microsoft have already answered in the affirmative. These companies have joined about 750 multinationals seeking to develop business-to-business products for global markets in their Indian research and development (R&D) centres just as they do in their R&D centres in the West.
Perhaps the most invisible of Indian innovations is the global service delivery model. It is not a product innovation, but rather a management innovation, a new way of managing globally distributed work. It reconceptualises formerly physically collocated activities by breaking them up into subtasks that can be done in different geographical locations, and it specifies the necessary means for integrating this work back again. Whether a piece of work can be executed remotely does not critically depend on how simple and standardised it is. Instead, the possibility of remote delivery depends on whether its linkages to other pieces of work are standardised.
If one takes a step back and thinks about the invisible innovation in India, it has some disquieting effects for jobs in the West. As more work moves to China and India, companies in the West are likely to confront what we call the “sinking skill ladder” problem.
What is a skill ladder? The idea that to do highly sophisticated innovative work, you need to have done less sophisticated work at some stage in your career. Imagine being the partner at a consulting firm without having been an associate, an investment banker without having been an analyst or the head of a clinical research team without having done any “bench-work.”
The work that the juniors do in each of these cases may be fully separable from the work that the seniors do; indeed the junior could be somebody sitting in India. However, in each of these cases, the seniors will continue to have a deep understanding of what exactly the juniors do because they have been juniors themselves at an earlier stage of their careers. Without such knowledge, arguably the seniors could not do their own jobs effectively.
A problem lies ahead: Western companies are blocking their talent pipelines. Without that route, how will tomorrow’s senior leaders emerge? Unless they have grappled with this question, it seems facile to say that companies in the West can “move up into higher-value-added services” and leave the “low end” work to their counterparts in Asia.
In some sense, the problem for managers of companies from the developed world is less complicated: they can move the next rung of their R&D, and even their headquarters, to where it can be done more effectively and efficiently. However, disconcerting questions for policy makers in developed countries will remain.
Nirmalya Kumar and Phanish Puranam are co-authors of India Inside, published this week by Harvard Business Review Press. Nirmalya Kumar is a professor of marketing and Phanish Puranam is a professor of strategy at London Business School. They are also co-directors of the Aditya Birla India Centre at the school.