Bangalore

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Indian tech innovation: hardware still poor second to software

by Nitin Dahad

india_internet_2

Photo courtesy World Bank

I’ve just spent a week in India talking to several hundred people in the electronics system design, manufacturing and components sector at two annual conferences for India: or put simply, the Indian tech hardware industry. And it seems that they are still struggling to make their mark in the global ecosystem – a stark contrast to the Indian software and digital media sector, which is booming, and seeing considerable innovation to solve real world problems, for the huge Indian market and beyond.

The week saw two big events for the Indian electronics hardware and components sector: the annual IESA Vision Summit in Bangalore, their 10th such one; and the Source India event in Chennai run by electronics components industry association ELCINA.  I have two major observations from these two events.

From the semiconductor industry event, it was clear that the rhetoric was much the same as over the last five years – the association still talks about the need to set up semiconductor fabrication facilities in India for some level of self-sufficiency in electronics supplies (and to avoid the surplus imports from China); and it talks about the $400 billion ESDM (electronics systems design and manufacturing) market opportunity in India – this figure hasn’t been updated for at least three years.

The mantra is the same and a number of chief ministers from different states were inviting the audience to come and set up manufacturing in their state, with lots of incentives offered (such as free space).

[Editor’s note on this: I asked a question from the floor to a panel of state IT ministers at the IESA Vision Summit enquiring which state offered which benefits to overseas investors, and how an overseas investor could differentiate between all these states so they could make the right choice; the moderator immediately dismissed the question, saying foreigners need to look at India as many different countries, since that is the reality, as there is no one ‘India’: in one fell swoop they seem to have dismissed Prime Minister Narendra Modi’s efforts to present India as one to the outside world!]

At the component manufacturing level, the issue from some of the speakers seemed to be that India was good for manufacturing low level discrete components for the Indian market, but sometimes innovation and quality was an issue if they were considering export markets.

Is the issue image?

And this might be a key issue – Indian electronics manufacturing could be having a problem with its image. When I was advising the British trade and investment organization in 2012 to encourage business between India and the UK, there was a complete lack of interest from trade bodies like NMI, who said India was purely a low cost software outsourcing destination and couldn’t be considered seriously in the area of electronics systems design and innovation.

But there must be some kind of disconnect between global perception and what is happening on the ground. Take for example Cosmic Circuits, which was acquired by multinational electronic design tools vendor Cadence in 2013. Cosmic Circuits was founded in Bangalore in 2005 and had developed advanced mixed signal (ie: analog and digital) semiconductor intellectual property for functionality like USB, MIPI, audio and wi-fi in leading edge technologies known in the semiconductor industry as 40nm and 28nm. By the time of its acquisition, top tier customers globally were shipping 50 million chips containing Cosmic Circuits’ intellectual property.

While Cosmic Circuits was successful, India doesn’t have many stories like this to tell in electronics systems design – most of the successes are in software startups. The hardware industry still appears to be focused on manufacturing and setting up expensive fabs, rather than encouraging innovation in system design.

Young ambition for startups – inspired by software startups

Despite this, there does appear to be a drive by younger design engineers who have ambition and are willing to go to startup mode. I met several advanced technology startups in Bangalore which look set to take on global markets well. One for example is Maxerience, which doesn’t yet have a web site, but is doing something innovative and smart (see its LinkedIn page) – it has developed technology that converges advanced machine learning algorithms and high speed computing for real time recognition and detection, with applications in surveillance, defense systems and industrial automation. The demo I saw at the conference itself told me there is something worth watching here with this company.

This inspiration in the electronics industry is obviously coming from the ground up rather than being driven by industry associations. Youngsters are probably inspired by what’s happening in the software industry, and reading about the thousands of startups solving real world problems and able to grow rapidly in a global market – these stories are told daily in magazines like YourStory and VCCircle, and many others.

And even in the mainstream press there is a buzz about the Indian tech sector. For example, NASSCOM, the software industry trade association, said that India saw 800 new technology start-ups setting up in 2014, taking the total number of startups to 3,100, and that the country is poised to house the second biggest ecosystem for tech startups after the USA in the next two years, on account of the ongoing high growth rates.

In the report, NASSCOM said these startup companies have received over USD 2.3 billion in funding since 2010, while over 70 private equity and venture capital funds are active in the segment. In addition, there were over 62 angel investors active in 2014, and there are over 80 incubators and start-up accelerators operating in the country.

Another report suggests that India will have at least five ‘Internet of Things’ (IoT) startups with a billion dollar valuation by 2018. According to Anshul Gupta, principal research analyst at Gartner, the continued affordability of smartphones and growing acceptance of BYOD (bring your own device) means more and more people are accessing corporate data through mobile devices; he says that Indian enterprises are at an early stage of understanding the impact of Internet of Things (IoT) technologies on their core business, suggesting this is only just the beginning.

In summary, I have written on numerous occasions about the Indian electronics and software industry over the last 22 years. One of the common themes throughout has always been that India needs to encourage innovation in electronics design, so that they can compete in global electronics ecosystems and match what is happening currently in Indian software. Last week has shown that while the messaging from trade bodies might not have changed, young Indian electronics engineers could be the ones who actually drive change and create innovative startups in technology hardware that compete with the big global players.

India’s tech cities and innovation ecosystems: are they nearly there yet?

In many places around the world, the topics of innovation, start-up ecosystems and entrepreneurship have become common and fashionable areas of discussion. Almost everyone has debates around how to encourage innovation, how to grow the start-up ecosystem, how entrepreneurship can be encouraged and how entrepreneurial activities can be nurtured to grow. Having just spent some time in India talking to some of the players in this ecosystem and attending conferences, India is no different.

There’s no shortage of daily news on these subjects, with some activity or another that moves its tech cities like Bangalore, Pune, Hyderabad and others closer to emulating Silicon Valley in some ways (see the Mashable article on Pune).  Just in the last week, mobile start-up accelerator Tandem Capital announced it was launching in Bangalore, India, and will back up to 20 early stage ventures with seed capital of US $200k each. Last year, Startup Village was opened in the city of Kochi, in Kerala state, an incubator with 1Gbps internet connectivity, to encourage telecoms and IT start-ups.

Startup Village aims to incubate 1,000 telecoms product start-ups over 10 years, with at least one being a $1 billion company started from a college campus. Dreaming of being a ‘Silicon Coast’, Startup Village will create an ecosystem and provide a platform for start-ups to create breakthrough technologies for the global telecommunications Startup Village Kochi logoindustry, focusing primarily on student start-ups from college campuses. The village provides several incentives, including a three-year service tax exemption, its own angel fund, and many other services on reduced or no fee basis – like IP strategy, infrastructure, and legal services.

While there’s lots of momentum in India, there are still gaps in the ecosystem. According to Paula Mariwala of Seedfund, speaking at a seminar on entrepreneurs and opportunities in India at Stanford University earlier this year, she said early stage investing is still far from mainstream, and there are several roadblocks – like lack of early adopters of products and services, access to technology and talent, and lack of a support system due to being a risk averse culture. On the latter point, it’s widely known that Indian students are invariably encouraged to study engineering, medicine, law, and commerce, and then get ‘safe’ jobs rather than go into business.

Mariwala says they can only replicate Silicon Valley in India by fixing the education system in India, since there are currently poor links between industry and academia across various sectors. The country also needs more role models and M&As. Good examples of Indian-born start-ups for the Indian market include Flipkart, Redbus, Inmobi, Makemytrip.com, naukri.com, and several others.  These are hence providing some role models for other would-be entrepreneurs, but more are needed.

Beyond the quick exits

While the investors are chasing entrepreneurs and start-ups in the internet and cloud space for potential quick returns or exits, long-term vision on innovation is also being looked at. India’s president, Pranab Mukherjee, said last month that India needed to spend more money on innovation. He said that both public and private sector spending on innovation should be comparable to the levels spent in countries such USA, China, Japan, South Korea, Israel and the UK.

Quoted in The Hindu newspaper, he said “India spends only 0.9 per cent of GDP on research and development,” and that, in a globally competitive world, India had to unleash its innovation potential to increase capacity, productivity, efficiency, and inclusive growth. “The spirit of innovation has to permeate all sectors of economy from universities, business and government to people at all levels.”

The lack of technology innovation in India could be the reason why Indian conglomerates like Tata look overseas to invest in ground breaking technology research for commercialization and to produce the ‘next big thing’. Tata recently invested US $5 million into a fund at Israel’s Tel Aviv University, in its technology transfer company. According to the university, a Tata delegation of 13 scientists visited to see more than 70 technologies in the process of evaluation, and concluded that the structure would fit well with their innovation strategy.

While technology innovation might not be India’s forte, it does not necessarily mean India doesn’t have its own areas of innovation – for example, just last month, an Indian scientist made a major breakthrough in developing a $1 vaccine for the prevention of diarrhea. This could save the lives of thousands of children all over the world, as the current vaccine is available only at almost 20 times that price.

In summary, India’s new tech cities like Bangalore, Pune, and Hyderabad are emerging as thriving tech start-up ecosystems, but lack some of the innovative thinking and role models needed to make them really successful start-up ecosystems on the global stage. The examples of investment in real innovation potential, as we’ve seen from Tandem Capital and Kochi’s Startup Village, means that there are initiatives that would potentially lead to some parts of India generating a thriving Silicon Valley-like ecosystem.

Global collaboration, cross border entrepreneurship: ingredients for growth

A recent survey among science parks conducted by the IASP suggested that many of them are expanding their activities and sphere of influence beyond their physical boundaries, getting involved in managing other parks within their own region or country, and even participating in the creation and management of other innovation-based projects besides science parks. What the data doesn’t tell us though is that there is a growing trend of parks working or collaborating outside of their own countries – with some significant initiatives promoting cross border innovation and entrepreneurship.

It’s clear that a lot more is happening across borders. For example, only this week there was a major initiative signed between Russia and China, and India has been developing its own Bangalore/San Francisco/Silicon Valley linkage.

One of the big announcements this week was the signing on 5th June 2012 of a framework agreement on collaboration between the Skolkovo Foundation and Beijing Zhongguancun Science Park (Z-Park), during the state visit by Russian President Vladimir Putin to China. The agreement was signed by president of the Skolkovo Foundation, Viktor Vekselberg, and general director of the Z-Park Administrative Committee, Guo Hong.

Skolkovo

Skolkovo’s strategic goal at its innovation centre in Russia is to concentrate international intellectual capital, stimulating the development of breakthrough projects and technologies.  In recent months large multinational corporations like Microsoft have announced they are establishing their presence in Skolkovo.  Other key partners working with Skolkovo include Intel, IBM, Cisco, EADS, Siemens, Ericsson, and Nokia. Most of them plan to set up their own R&D centers in Skolkovo, where Russian and foreign scientists, engineers and managers will be working together.

Before the signing ceremony this week in China, Viktor Vekselberg paid a visit to Z-Park and held talks with Guo Hong. Z-Park is home to the offices of 217 Chinese and foreign technology companies accounting for about a third of all investments in high technologies in China.

The Skolkovo Foundation president also held talks with deputy minister of science and technology of the People’s Republic of China, Cao Jianlin, to discuss in detail the prospects for innovation collaboration between the two countries. An agreement was reached to set up two joint working groups – the first will elaborate the collaboration strategy, while the second will propose specific cooperation projects in designated scientific fields. More details of the announcement are available on the Skolkovo Foundation web site.

In recent months, Skolkovo has also been building bridges in Israel and Japan. According to Globes newspaper in Israel, the Israeli Industry Center for R&D (MATIMOP) and the Skolkovo Foundation are to announce a call for papers for joint R&D project by Israeli and Russian start-ups to obtain support from Office of the Chief Scientist in Israel and the Skolkovo Foundation. The latter’s VP, Stanislav Naumov, said, “The difference between Russia and Israel’s entrepreneurial system required thinking together to find a formula for cooperation. The formula we reached enables us to move forward to the stage of extensive collaboration by ventures of the two countries. The special call for papers that we are publishing is another important stage in developing cooperation between Russia and Israel, which began a year ago with the fostering of innovation and the commercialization of advanced technologies.”

Two Israeli start-ups Indoorgo Navigation Systems Ltd., which is developing navigation systems within buildings, and Inango Systems Ltd., which is developing appstore applications for the smart home, are already operating at Skolkovo, outside Moscow.

Transforming from raw material to innovation economy

Skolkovo is part of the Russian economic development strategy to transition from a raw material-based economy to an innovation-driven economy. Skolkovo has been established to create an environment to promote and commercialize cutting-edge technologies. It is a town outside of Moscow which will be built by 2014, but the project is already underway, and will soon have 500 participants—technology companies and research centers. In 2011, foreign investments in technology projects there amounted to $150 million; in 2012, it is expected to more than double, according to the foundation. They are planning to be self-sufficient (i.e. no government funding) within five to seven years.

India’s Silicon Valley link

While India has strong links with the USA in terms of economic collaboration and trade, there is a cross border initiative of another kind, between Bangalore and San Francisco.  The cities have twinned together some time ago and were promoting the initiative at the recent TiECon 2012 conference in Santa Clara (CA, USA).  There is also a ‘Cross Border Entrepreneurship’ initiative between the Bay Area of Silicon Valley and Bangalore, the Silicon Valley of India.

SF Bangalore

This latter initiative is based in the belief that innovation-lead entrepreneurship is the way to bring Indian start-ups on to the global platform.  Its key objectives are to a) help innovative, commercial and global product ideas move beyond the concept phase; b) create a global network of people, funds and resources and make it accessible to all entrepreneurs of Indian origin; c) curate and mentor ideas and help them be funded by investment capital, and d) encourage execution through global teams – increasing cross border collaboration.

One of the programs in India benefiting from this partnership is the ‘eHealth Technology Business Incubator’, sponsored by the Government of India’s department of Science & Technology. An innovation fund provides idea stage funding with a provision for scale up funding increasing the success rate. The incubator has entered into an MOU with University of California Santa Cruz (UCSC), to collaborate on joint technology entrepreneurship development initiatives; on joint research and development, providing opportunities for start-ups to establish their operation in special economic zones (SEZ); on activities to enhance their growth potential and facilitating collaborative research; and to providing access to mentors in Silicon Valley plus access to venture capital firms and angel investors in the Silicon Valley.

The role of the Indian diaspora in the USA in enhancing innovation ecosystems – through capital and knowledge transfer – is increasingly becoming important. Over the last few years, many successful Indian entrepreneurs in the USA have been turning their attention to nurturing companies and ecosystems in India. Even the US state department recognizes the Indian diaspora’s importance both in the India and the USA, as we have seen in the remarks made this week to the U.S.-India World Affairs Institute in Washington DC.

This diaspora’s role in cross border collaboration, innovation and entrepreneurship can be seen very effectively both with Indian and Chinese communities worldwide. As has been said on various platforms, the role of the diaspora is more than just providing remittances back to the home country. What we are seeing now though is how the BRICS countries – and in this article I have just highlighted Russia, India and China – are using global collaboration to really cement their place in leading-edge positions on the global innovation map.

Nitin Dahad, CEO & Publisher, The Next Silicon Valley

Are innovation clusters local or global?

Social media has, it seems, taken over the world. Partly as a result of this ‘connectedness’, it is possible in this modern world to collaborate and create businesses more easily across international borders.  So are tech hubs and clusters really relevant, or is the whole world one big tech cluster?

Attending Social Media Week last week in New York, one would have got the impression that New York is the centre of the tech universe. In particular, during one keynote, venture investor Jalak Jobanputra quipped that Silicon Valley entrepreneurs from San Francisco were asking her ‘how do I get to New York?’, referring to the fact that more was happening in ‘Silicon Alley’ (New York) than in ‘Silicon Valley’. Apart from the obvious answer that came from someone in the room (fly JetBlue), it seemed to be that panel of speakers were all convinced that New York now had more going for it than the Valley.

When you look at deals, the volume of deals is still higher in Silicon Valley (by about five times more than New York), but when comparing 2011 numbers to 2010 numbers, VC investments in New York rose 64.3 percent in terms of dollars and 10.2 percent in terms of deals, while investment in California rose only 24.4 percent in terms of dollars and 5.0 percent in terms of deals (see ‘Venture capitalists favor Silicon Valley, but Silicon Alley is rising fast’). So one can see where the New York tech community representatives were coming from.

Silicon Valley also saw significant jobs and wealth growth – according to the 2012 Silicon Valley Index, more than 42,000 jobs were created in the region in 2011, and Silicon Valley’s per capita income in 2011 expanded by four percent to reach $66,000. The index also revealed that patent registrations leapt by 30 percent over 2009 with 13,311 new patents registered in 2010, largely in computers, data processing and information storage.

Given the title of this publication, we often get asked “Where is the next Silicon Valley”.  Actually as we have established above, Silicon Valley might set the global benchmark, but given the question posed at the beginning of the article, it might not actually be a relevant question, given that it is possible to collaborate using social and online collaboration tools. What seems more relevant is whether a good innovation ecosystem can be formed locally that can connect with the global network.

In this scenario, and it already happens extensively, start-up and fast growing tech (and non-tech) companies are building teams in the relevant locations where there is expertise and where the customers are located – these are increasingly in different and multiple locations – and then exploiting the benefits of online tools and social media to build globally dispersed teams from the outset.

And some investors are beginning to recognize the fact that they need to venture to other innovation hubs (for example Dave McClure going to New York and various parts of South America last year) and not just in their back yard.

So the question is not about whether you should be in Silicon Valley vs Silicon Alley, or Bangalore vs Recife: the question is more about how you can build across multiple innovation hubs simultaneously. Innovation is now global not just local.

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