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 / Autumn 2006 / Issue 44(originally published by Booz & Company)


Innovators without Borders

The study found that companies that had met and managed each of these considerations were most likely to prosper from offshoring innovation. One major automotive company that took part in the Booz Allen/NASSCOM study expects to save as much as 50 percent by outsourcing its power-train engineering and is seeing real improvements in quality. An industrial machinery maker is saving 60 percent by offshoring its electronics engineering and has quadrupled its rate of new product introduction.

Neither of these success stories would have been possible without an engineering program that broke the old rules about keeping what’s core in-house. For any company to compete in the 21st century, it must develop the kind of flexibility, agility, reach, and market-sensing ability that a global innovation footprint enables.

Biotech: India’s Innovation Generation Gap
by Inder Verma

More than two decades ago, when the field of biotechnology was in its infancy, Prime Minister Indira Gandhi assembled a task force made up of scientists of Indian origin to figure out how to position India as a leader in that revolution. As a member of the task force, I came to see firsthand that India has great potential to become an independent power in innovation. But I also learned why our country is at least 15 years away from realizing that potential.

We helped launch a nationwide effort to improve the quality of science, with an emphasis on molecular biology, by investing in infrastructure and training. We encouraged the formation of a number of small biotech labs and consulted with biotech companies as well, always in hopes of turning them into engines of discovery. Instead, just about every Indian biotech company came to focus solely on manufacturing. For example, a company might obtain the genetic material needed to make hepatitis B vaccine (which is very expensive to make in the United States), and then manufacture it for export and domestic consumption.

Biotech in India is now primarily a manufacturing outsourcing industry. It makes drugs and diagnostics, synthesizes molecules, conducts clinical trials, and otherwise provides sophisticated goods and services that already exist in the Western world. Indian companies can do all these things quickly, inexpensively, and efficiently. But Indian biotech does not create new drugs or molecules or processes; it’s not patenting new ideas. It’s basically a services business, and there’s no reason to expect that to change anytime soon.

It’s not lack of capital that holds us back. Biotech is a very expensive business, but there’s plenty of money looking for investment opportunity in India. The problem is the capability shortfall. For example, only a handful of people in the country can conduct advanced stem cell research; therefore, there’s no sense in setting up a company whose product will require that kind of staffing.

This problem is rooted in an Indian culture still heavily premised on bureaucracy. Across just about every facet of society — education, government, business — rules and regulations value seniority over many other qualifications. In too many Indian companies, little premium is placed on innovation and creativity. Thus, there’s not enough incentive for innovative, let alone groundbreaking, work.

The same is true in academia. American universities are geared toward promoting curiosity-driven research, which is the hallmark of innovative inquiry. They place an extraordinary premium on innovation. That is why biotech innovation occurred first at Stanford; the University of California, San Francisco; MIT; Columbia; and other great research institutions. The American pharmaceutical industry exploits that excellence by securing strong ties with these schools. But in India, the relationship between pharmaceutical companies and academia is almost nonexistent. Indeed, most Indian universities are ill equipped to support advanced scientific research.

Our task force has proposed that the government give out a large number of postdoctoral fellowships to send Indian scientists abroad to institutions like the Salk Institute, where cutting-edge work is taking place. Here at the Salk Institute, where I’m on the faculty, postdoctoral fellows from around the world do basic research in such areas as cancer, AIDS, and Alzheimer’s disease. Many have gone on to continue their work, usually in faculty positions, in their home countries. Our proposal would help Indian researchers pick up the modes of thinking that lead to breakthroughs and bring that expertise back to India.

China is much better than India at this “export–import talent model,” because it’s easier for a scientist to split locales, working part of the year in the U.S. and part in China. But bureaucratic obstacles and scarcity of lab space make that much more difficult in India. Furthermore, a Chinese scientist can return home and command a salary to match his or her American paycheck — even if that means earning 10 times the salary of a local scientist. That’s just not done in India. The culture does not accept that sort of preferential treatment.

To develop an innovative capability, India will have to develop a new mind-set: It must support risky research financially and in spirit, and it must reward breakthroughs with appropriate recognition. This shift will not happen overnight, but it can be made.

We must start by retooling the education system. We also have to invest in the science infrastructure and encourage students to develop their curiosity. Doing so will help reverse the “brain drain.” How many great researchers have abandoned India to find intellectual satisfaction and financial success abroad? In the case of biotech, India will not get the best minds to return unless it can guarantee lab space, funding, adequate equipment, and intellectual camaraderie. Building up the scientific infrastructure of major Indian universities will go a long way toward meeting those guarantees.

Our committee has also proposed that major universities in India set up technology transfer offices to encourage researchers to start thinking like entrepreneurs. When a graduate student gives a presentation at Salk, he or she will always consider patenting the idea or discovery he or she has come up with. It’s a given. In India, that’s not the case. But we can encourage innovative thinking by giving researchers an incentive: making it easy for them to patent and protect their ideas.

India has an opportunity right now to lure back people who could turn its biotech industry around. Funding in the U.S. has become very tight, and that could drive scientists to return to India in search of greater job security. It is worth considering a proposal to bring 100 young Indian-born scientists who are now working in the U.S. to India next year for a three-day symposium. The symposium would showcase the best of Indian science and offer tours of the world-class facilities that many institutions are building. Great efforts are going on in India to overcome the constraints I mentioned, and we want more researchers to know about it and become a part of it.

The biggest game changer will be the first success story. Once an Indian biotech company comes up with a breakthrough molecule or a blockbuster drug, we’ll see a rush of activity. Researchers, investors, and business leaders will come together to establish a new generation of innovative biotech companies. Success, after all, breeds success.

Inder Verma ([email protected]) is a professor of genetics and the American Cancer Society Professor of Molecular Biology at the Salk Institute in La Jolla, Calif.

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  1. Thomas Goldbrunner, Yves Doz, Keeley Wilson, and Steven Veldhoen; “The Well-Designed Global R&D Network,” s+b Resilience Report, 05/15/06: A study of cross-boundary innovation networks worldwide showing low-cost, high-value ways to design them. Click here.
  2. Barry Jaruzelski, Kevin Dehoff, and Rakesh Bordia, “The Booz Allen Hamilton Global Innovation 1000: Money Isn’t Everything,” s+b, Winter 2005: This study of the world’s 1,000 biggest R&D spenders revealed the importance of an innovation strategy in achieving results. Click here.
  3. Matthew G. McKenna, Herve Wilczynski, and David VanderSchee, “Capital Project Execution in the Oil and Gas Industry: Increased Challenges, Increased Opportunities,” Booz Allen Hamilton white paper, March 2006: Engineering shortages loom in energy and other capital-intensive industries. Click here.
  4. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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