R&D: India’s missing giants

Source- The post is based on the article “R&D: India’s missing giants” published in the “Business Standard” on 23rd March 2023.

Syllabus: GS2- Government policies and interventions for development

Relevance– Innovation for growth of economy

News– The article explains the lack of R&D expenditure in India. It explains the need for global brands in India and creating a world-competitive industry to build these brands.

What are issues with R&D expenditure in India?

India lags the world in R&D. It is the fifth largest economy, but ranks 16th in investment on R&D.

Large firms worldwide dominate investment in technology. The top 20 investors in industrial R&D account for over 20% of the total industrial R&D done by millions of firms worldwide. But, the 26th largest investor in industrial R&D worldwide invests more in R&D than all of Indian industry combined.

Top five firms in the non-financial sector have low R&D investment in India. While the top five firms in the US spend 152 billion dollars on R&D, in China 31 billion dollars, but in India they spend only 0.9 billion dollars.

R&D investment as a percent of profit is much more interesting. It is 37% in the US, 29% in China, 43% in Japan, and 55% in Germany. In India, it is 2%.

What are the benefits of developing global brands by India firms?

It is argued that large groups in India have failed in building a single global brand. It is blamed on a mentality of outsourcing. The international firms like Apple, Microsoft, Sony, BMW are globally associated with great products in particular industries.

The brands they have built provide global reach and a premium positioning that delivers great profitability.

How the firms in East Asian economies became global brands?

Firms like Samsung, Hyundai, LG, TSMC and Acer did not start as global brands. They began with outsourcing, as original equipment manufacturers or OEMs. They build manufacturing operations of global scale.

They used their demanding buyers as a source of technology that made them world-competitive. They invested in R&D, as process innovation, to make manufacturing more efficient. They then offered their buyers products with new and improved designs.

With world-competitive manufacturing and product design in place, they made the shift to their own brand manufacturing. They launched their own brands.

This is the story of Samsung in microwaves and semiconductors, LG in TV sets, Hyundai in cars and excavators, TSMC in microprocessors, and Acer in laptops.

As firms like Hyundai, Samsung moved up the OEM to OBM chain, their investment in R&D multiplied. Samsung has consistently ranked among the world’s five largest investors in R&D. It invests $18 billion a year, more than all of India

What is the way forward to build global brands in India?

It requires a long-term entrepreneurial outlook with investment in technology. There is a need for building a world-competitive industry.

Outsourcing should not be discouraged. The current protection though PLI subsidies must continue. At the same time, there is a need to invest strongly in design.

A few giant investors in R&D must emerge in India. The most profitable firms in software, in consumer goods and industrial products are suitable for it. If they are not willing, new entrants to build world-leading firmsbased on investments in technology must be prompted.