5. The Technological Environment – Business Environment



In this chapter, we study what is technology, the relationship between technology and development, the contribution of technology to society and how it can be integrated with business. Further, we study the role of technology in developing countries including forms of technology transfer and the role of innovation in creating technology. We conclude this study with an analysis of India and the global knowledge market with reference to technology. After reading this chapter, you will be able to understand and appreciate the role of technology to developing countries like India.


The word technology comes from the Greek word technologia, meaning systematic treatment. The Oxford English Dictionary defines it as “the study or use of the mechanical arts and applied sciences.” Webster's defines technology as the “totality of the means employed to provide objects necessary for human sustenance and comfort.” The Webster's Encyclopedic Dictionary of the English Language offers the most elaborate and comprehensive definition of technology: “It is the branch of knowledge that deals with the creation and use of technical means and their interaction with life, society and the environment, drawing upon such subjects as industrial arts, engineering, applied science and pure science.” In the words of Frances Stewart, “The technology available to a particular country is all those techniques it knows about (or may with not too much difficulty obtain knowledge about) and could acquire, while the technology in use is that subset of techniques it has acquired”. For a business firm engaged in production, both the technology available and the technology in use are important. Technology encompasses both knowledge of methods employed—both to carry on and to improve the prevalent system of production and distribution of goods and services—and entrepreneurial expertise and professional know-how.”1 Technology is often identified with the knowledge about machines and processes. In a broader sense, it refers to the body of skill-sets, expertise and systems available to make, use and do useful things.”2 Technology is one of the essential factors considered by the World Economic Forum to evaluate the global competitiveness of nations.3


Technology is one of the prime motive forces of development. Whether the need is for more food, better education, improved health care, increased industrial output or more efficient transportation and communications, technology plays a decisive role. It consists of a system of knowledge, skills, experience and organization that is required to produce, utilize and control goods and services. Technology is critical to development because it is a resource and the creator of new resources. In economic terms, increased use of improved technology “can lead to larger quantities of output for given quantities of capital and labour; better products; new products; and a larger variety of products.”4 All of these constitute economic growth. It is a powerful instrument of social control and affects decision-making to achieve social change. Technology is not neutral; it incorporates, reflects and perpetuates value systems and its transfer thus implies the transfer of structure.

The Contribution of Technology

Technology is one of the important determinants of success of a firm as well as the economic and social development of a nation. Technology is one of the most critical inputs for economic growth. Countries that possess superior technology enable their people to earn enhanced incomes through high productivity and enjoy high standard of living. On the contrary, people of poor countries with low technology produce less and earn low incomes and have low standard of living.

Development is a complex socio-economic process which rests in large part upon the extent to which internal innovative capability is kindled. One of the major tasks that developing countries are facing is to create, nurture and restructure their internal capacity to invent and innovate. Indeed in the long run, the society is to be poised to generate its own technology by developing suitable infrastructure. The answer to such a model of modernization is provided by Japan. The technology locally developed reflects local conditions, objectives and needs. The technology so developed is called “Appropriate Technology”.

Shapes People's Lives

Technology, one of the most dramatic forces shaping people's lives through the years, “has released such wonders as penicillin, open-heart surgery, and the birth control pill, and such horrors as the hydrogen bomb, nerve gas, and the submachine gun. It has also released such mixed blessings as cell phones and video games.”5 Every new technology is a force for “creative destruction.” Transistors hurt the vacuum-tube industry, xerography hurt the carbon-paper business, autos hurt the railroads, and television hurt the newspapers. Instead of moving into the new technologies, many old industries fought or ignored them, and their businesses declined. Yet it is the creative destruction that enables the free-enterprise system to be dynamic and helps the society to move forward towards growth.”6

Fosters Innovation

Inventions and innovations in one field have a contagious effect on other fields as well. Countries that have superior technology can produce superior and better goods and spread beyond national boundaries into the field of international trade. They try to outsell their competitors by making available more sophisticated and technically better goods. Development of business as an ongoing process depends on regular introduction of new technology and its capacity to generate and absorb technical change.

Innovations that constantly update technology in the Western world were both cost-reducing and demand-increasing. In fact, both fed upon each other. During the initial period of the Industrial Revolution, inventions and innovations reduced the costs of production and also brought a whole breed of new consumer goods to the market. As more and more consumers sought to purchase the new variety of goods, prices of which continued to decline with introduction of division of labour that led to increasing economies of scale, the pressure of demand increased. This encouraged entrepreneurs to come forward with more new and improved products. Increased demand of the consumers played an important role in the industrial development of the West by providing a continuously expanding market for the industrial goods.

The rapid economic progress of the West reflects clearly the importance of technology as a factor promoting business activity. Technology has led to greater output and reduced working hours, generated a host of skilled jobs in design, maintenance, and engineering, safer working conditions, production of new and better goods of standardized quality with more efficient use of raw materials and so on.

Progress in technology may be either labour augmenting or capital augmenting. When technology is labour augmenting, it enables labour improve and upgrade its quality or skills as for example the use of video conferencing and other satellite teaching programmes. “Similarly, capital augmenting technological progress results in the more productive use of existing capital goods—for example, the substitution of steel from wooden ploughs in agricultural production.”7

Affects Competitive Advantage and Buying Power

Technology often provides a competitive advantage. Technological change is a major driver of competition. It brings about in industry structural changes and creates new industries. It is also a great leveller, eroding the competitive advantage enjoyed by well-entrenched firms and promoting hitherto unknown entities to the forefront. Many of today's great firms grew out of technological changes that they were able to exploit. Technological change is the most prominent among the catalysts that change the rules of competition.

As Michael Porter points out in his well-known book Competitive Advantage, “Technology can alter the nature and basis of rivalry among existing competitors in several ways. Technology affects competitive advantage if it has a significant role in determining relative cost position or differentiation. It can also alter the bargaining power of the suppliers and buyers. Technology, in several instances, is an entry barrier.”8

Acts as a Force Multiplier

Western countries have been using technology for a long time as a force multiplier on human capital, where one technological growth has led to another in a virtuous cycle of progress. Technology has been the key underpinning of the dramatic increase in productivity in the Western world. This can be shown by the following evidence. “The top 10 brands of the world (Source: Millward Brown 2008 brandZ report) are Google, GE, Microsoft, Coca-Cola, China Mobile, IBM, Apple, McDonald's, Nokia and Marlboro. Interestingly, six out of the ten are technology brands. Some of GE's businesses can be counted as technology businesses. That takes the number to seven.”9

Displaces Labour

Technology is not an unmixed blessing. It has its own ill effects. The most dreadful negative effect of technology is that it leads to displacement of labour, causing unemployment. Man is reduced to a mechanical cog in the wheel of production. By being subservient to mechanical processes in production, he loses his identity and uniqueness of his personality.


Figure 5.1 Technology is Both Complex and Enchanting


Courtesy: Freephotosbank.com


Technology that enables man to produce large scale standardized products reduces man to a life of monotony and joylessness. In the rat-race for better life in a technological age, he becomes devoid of artistry and creativity. “Environmental pollution increases, anxiety and insecurity rises, and old crafts and craftsmanship declines. Man becomes a machine and gradually loses his identity in a fast changing society.”10

Managing Technology for Development

“Technology is a composite of techniques, comprising craft skills requiring the dexterity of hand and eye, and conceptual skills such as operating data, design engineering, construction, production, and maintenance. It is generally accepted that the systematic application of technology led to the gradual sophistication of economic activities that in turn caused a great improvement in the standard of living in developed countries over the past two hundred years.”11 Technology, apart from being the engine of growth for the national economy, is also the ‘means’ for transforming the natural world into a man-made world. The production system of a country, a byproduct of the prevalent technology, is the key factor in transforming natural resources into produced resources.


Every business today uses technology to the maximum extent to make worthwhile business decisions, reduce cost and increase productivity. In every workplace function in routine business operations, we can observe that technological innovations have been appropriately integrated. Communications and access to information are two of the more easily observable areas. Electronic messages or e-mails are being effectively used by organizations with a view to improving internal communications and even to get in touch with outside business associates. “Firms can keep better track of their inventory, orders or product schedules through technologically enhanced information systems. The corporate web site emerged as an effective marketing tool and on-line merchandizing helped firms shorten their purchase – to delivery cycle time.”12 Though it appears that the technology adopted in different divisions of an organization looks similar, we can easily identify differences in it as to where it is being used within the firm. As it is, we can identify four areas in which firms use technology. These are: (i) Communications and information management; (ii) Operations as in any production or manufacturing activity; (iii) Product design; and (iv) Research and Development (R&D). Of these four areas, Information Technology (IT) is the one that has developed business most and has brought in innumerable benefits to organizations in terms of savings in cost, time and resources. IT can be defined as the technology that is being used for the generation, transmission, storage, organization or management of information. Thanks to IT, it has been made possible to increase the speed of processing and transmission, improving the accuracy and user-friendly form of information and reducing the size of data to the minimum possible extent. Considering all these things together, it can be stressed that IT has revolutionized many areas of business life. It has enabled speedier growth and has become the core activity of a number of very large industries such as software, communication, entertainment; Information Technology enabled services (ITes), apart from impacting the lives of almost the entire human race. Technology can benefit business in a number of ways:

  1. Cost reduction: Technology enables business to reduce costs. Cost reduction is done by replacing manual tasks with automation. For instance, when computer was introduced, it replaced a whole lot of men and women who were typing and maintaining accounts using receipts and vouchers manually. Such replacements, of course, ensured enormous savings and cost reduction.

    Technology has not only helped in large scale production, but also continually reduced the dimensions of products to make them small, powerful and cost effective, with its attendant advantages to business and consumers. The process of miniaturization has reached such a level that questions are being raised as to when the process will stop. For instance, the development of Integrated Chip (IC) with transistor technology over the past 50 years “has followed the famous Moore's law according to which the number of transistors in an IC would roughly double each year. Technology has continually reduced the dimensions of the transistor to make a small chip more powerful than ever.”13

  2. Improved product quality: Technology provides the business chances to enhance quality through the elimination of human error, and making available more consistent procedures for production. The reduction of errors by increased automation offers the business opportunities of greater customer confidence and reduced costs through lower error corrections.
  3. Increased productivity: Technology enables business to make substantial increases in productivity, which can be defined as the capacity of business to produce output with a given level of resource. The use of technology makes the business more efficient—machines can work for longer hours with no tea-breaks; they never go on leave, do not go to bathrooms in between and so on. More work output can be produced for the same cost, or less, than if the work was performed by men and women.
  4. Shorter turnaround period: “Technology can help businesses to accelerate processes. The more rapid transmission of information coupled with the mechanization of many tasks means that decisions can be made faster and goods can be produced more rapidly than previously. Technology facilitates the making of better and more accurate decisions.”14
  5. Informed decision making: In business, faster and accurate information transmission has enabled managers to avail the information to make informed decisions.
  6. Innovations: Innovative technology combined with worldwide information and communication revolution has been the catalyst for productivity growth in the banking industry. The symbiotic relationship between IT and banking has reduced costs, increased volumes and facilitated customized products. This integration which holds the key to the future success of the banking industry has helped them improve services to their clients, better housekeeping, optimal use of funds and establish management information system (MIS) for decision-making, proper management of assets, liabilities and risks, all of which assist them to improve their profitability. Internet, wireless technology and world-wide processing of information have created a transformational change in the banking industry. Technology also offers tremendous potential to change for the better designing, and distributing financial products and services. There is plentiful cost savings through electronic and self-delivery system. All these technological challenges in the banking industry is fast creating a highly dynamic, competitive and aggressive work culture with a view to meeting challenges arising out of customer relationships, product diversity, brand values, reputations, corporate governance and regulatory compliances. Telecommunications, another fast growing technology in the world, enables businesses access information at electronic speed from any part of the world. By doing so, businesses can offer better products and services to their customers to ensure their own success.

Apart from massive use of capital, highly sophisticated technology has played a significant role in the recent development of Western Europe, America and Japan. On the other hand, the technology used and the techniques of production adopted in developing countries are backward and they often determine the boundaries of what is possible for business in these countries to do. However, this situation is changing fast in modern large-scale industries, especially when they cater to the global market.

The choice of appropriate techniques is an important issue for any developing country. “In India and such other highly populated countries, the basic problem is of making a choice between labour-intensive and capital-intensive techniques. Some developing countries prefer to use intermediate technology. Presently the technology gap between the developed and developing countries is so wide that the latter cannot hope to adopt the sophisticated techniques of the former with any chance of success.”15

The technology used in the production processes is an important factor determining the rate of economic growth. If the technology used is not appropriate to the country, then it will retard rather than accelerate the process of economic development. Hence, the assessment of technology becomes an extremely important dimension of the process of development.

Most of the underdeveloped countries, unfortunately, have gone in for a technology which was not developed either by them or for them. This has resulted in their lopsided development. As the technology imported from the developed countries was labour saving and capital absorbing, it has not generated adequate employment, which was one of the avowed objectives of development policy. “Whatever employment has been created by this technology has been mostly for skilled labour and technologists. This has created a few islands of relative affluence surrounded by a vask of sea of poverty and economic stagnation. The lopsided development of the Indian economy can be attributed largely to the choice of inappropriate technology.”16

Technology Acquisition and Protection

Specialized technical information and services are used for manufacturing competitive products. The patent system plays a significant role in protecting the inventions of an industrial utility in developed countries in exchange for public disclosure of the entire gamut of information congealed in an invention. This gives the interested public the possibility of further improving it or seeking substitutes for the patented product or service. The State, through the patent law, confers on the patent owner exclusive rights for a limited period. Once the patent lapses after a specific period of time, its information enters the public domain after which it can be freely used by anyone without the patentee's approval.

The know-how agreement is the most important means of acquiring technology for developing countries. Know-how is a body of information that emerges from the practical experience of working the patent from the testing of raw materials, operational sequences, machines, products and markets. Know-how is a phase between technical assistance and patents. Like technical assistance, know-how is a package of technical information. However, unlike it, a substantial portion of the information is confidential, which gives its possessor some technical and/or marketing advantage over those using information that is not confidential.

A trademark is a word or a phrase, logo, sound or package design that helps a consumer distinguish between one company's products from another. It is used as a means of identifying one brand as different from another. Trademarks are some sort of monopolies over the use of symbols in business.

Technology Transfer

In the case of a developing country, the technology transfer provides both access to advanced techniques of production and a means of educating and training its people in the use of technological information and how to put them to work. Political and social factors also influence the choice of technology. The choice of a given technology is influenced by political and social factors. Financial considerations may dictate the choice of a particular technology.

Technology, markets, and investment share a triangular relationship. The entrepreneur's task is to choose a technology that will minimize the risks in investment and markets. “Market factors influence the choice of technology, primarily, in terms of its viability with respect to product volume, product mix, and product quality.”17

The Need for Technology Transfer

It is now axiomatic that the elimination of the economic backwardness of the developing countries and their accelerated industrialization are possible only on the basis of the latest scientific and technical achievements. So, the transfer of know-how is regarded as a pressing task for the industrially developed countries, international organizations and UN agencies. In the broad sense of the term, transfer of know-how is a process aimed at creating suitable conditions in the developing countries for the production of goods for industrial and foreign demand.

Experience shows that there are obstacles to the realization of this task which are of a technical, financial, commercial, legal and organizational character. In the first place, the very fact of transfer of technology, of technical know-how and production secrets does not by itself solve the problem. The successful introduction of technology depends on the ability of the recipient country to adapt it to its own possibilities, on the quality of raw materials, climatic and other conditions. National legislation and sometimes local traditions also can influence the effective utilization of this technology greatly.

The lack of national research centres and skilled personnel, the inadequate development of the system of scientific and technical information, the low level of literacy of the population limit, the scope of the application of advanced technology in the developing countries—all result in the widening of the gap between them and the developed countries.

Before a country takes off in technology, it has to go through various stages of technical development. This could be categorized into four groups, viz. (i) borrowing technology, (ii) technical adaptation, (iii) technical maturity and (iv) technical innovation. Multinational corporations are today the most important agencies for transfer of technologies.

Forms of Technology Transfer

The forms of transfer of technology are varied and inter alia include:

  1. Exchange of information: Widely practised on a bilateral and multilateral basis, it takes different forms: distribution of papers and surveys, discussion of special problems at international seminars, fact finding tours and exhibitions.
  2. Free use of technology-based information: Free use of technical methods, specifications and technical documentation for products, designs, materials, etc. and non-patented elements of technology which are freely available.
  3. Gratuitous transfer of technology with assistance: This assistance usually takes the form of sending consultants to help the local specialists to master the new technology and start production.
  4. Technology obtained through agreements: Technology is often handed over on the basis of agreements on scientific, technical and economic cooperation. Such agreements are concluded on an intergovernmental basis or between individual firms or organizations.
  5. The rendering of technical services: This includes different types of short-term technical assistance from foreign companies under contract.
  6. Industrial cooperation: This implies contractual relations between independent enterprises or firms.
  7. Mixed or joint enterprises: Recent years have seen a rapid growth in the number of mixed or joint enterprises in many developing countries.
  8. Construction or technical assistance in the construction of industrial and other prospects: Developing countries use the technical assistance of developed countries in the construction of industrial and other important projects.
  9. Import of industrial goods: The purchase of industrial goods from abroad is becoming a method of acquiring new technology. There is a characteristic trend towards a relatively large proportion of equipment for industrialization in the developing countries' imports. The delivery of industrial equipment is very often accompanied by assistance in training personnel, starting production and maintenance.

“While science policy, R&D policies and educational policies are obviously relevant to technology choice and adaptation, the practical institutional implications are far-reaching. The problem of establishing an effective dialogue between scientists, technologists, politicians, planners, economists and others has proved quite intractable in many developed countries.”18


Innovation is a very important factor that provides competitive advantage and, consequently, determines success. Innovation, defined as “introduction of something new” feeds technology. According to Joseph Schumpeter, significant advances in the economy occur by disharmonious leaps and spurts as entirely new investment horizons are exploited. The entrepreneur, who is the innovator, is the central figure in the Schumpeterian analysis. “Innovation may take any of the following forms: The introduction of a new product; the use of a new method of production; the opening of a new market; the conquest of a new source of raw material supply; the reorientation of an industry. Innovations may help companies to increase market share, capture new markets, create new market segments or even to create entirely new industries and markets.”19

It is of three types: (i) radical innovation, (ii) incremental innovation and (iii) next-generation technology innovation. There are many factors which stimulate the innovation drive of a firm. These include the company's own strategy, demanding customers, competition, social forces, government policies and the like. There is no guarantee that an innovation will be a commercial success. An innovative product can commercially fail due to various reasons; success presupposes several favourable conditions. Solow said that the sum and substance of the research is that innovation is the key to growth. Innovation is considered as new knowledge embedded in goods, services and whole processes in the market place.

Innovation drives economic growth as does the sheer addition of more inputs such as capital, labour and land. In fact, it was shown in the 1950s, through research and empirical studies, that in most industrialized countries including USA, innovation is more important than mere accretion to more inputs and production. Innovation drives techno-economic change or improvement in the productivity of both capital and labour considered together, termed total factor productivity.

If we analyse the fantastic growth of Silicon Valley in California, USA as an IT hub with a huge impact on American economy, we realize that it attained such status because it fostered the innovation necessary to develop ground-breaking technologies. “In fact, studies show that the engine for growth is mainly is accumulation of human capital—of knowledge—and it is also seen as the deciding factor for differences in living standards world-wide. The fact of the matter is that physical capital accumulation plays an essential but decidedly supporting role.”20

The twenty first century presents tremendous and unlimited opportunities for innovation. The soaring population growth and the increasing need to feed the world's poor, the spread of consumerism, the great divide between the “have's” and the “have not's”—all are opportunities that cry for innovation in every field of human endeavour. Through innovation, mankind has to find the ways and means of maximizing human welfare with its limited resources. Moreover, “some of the most exciting work today is taking place in biotechnology, computers, microelectronics, telecommunications, robotics, and designer materials. The human genome project promises to usher in the biological century as biotech workers create new medical cures, new foods, and new materials. Researchers are working on AIDS vaccines, totally safe contraceptives, and non-fattening foods. They are designing robots for fire fighting, underwater exploration, and home nursing.”21

Case 5.1 India Slips in Global Innovations Rankings

India has slipped in the global innovations rankings, to the 56th spot, compared to 41st last year, said a study conducted by the industry body CII and B-school INSEAD. Last year's chart-topper USA slipped to the 11th position this year while Iceland climbed up the ranks to take the top position in the Global Innovation Index (GII) for 2009–10. Sweden, Hong Kong (China), Switzerland and Denmark are behind Iceland, among the top economies in the index.

As per the study, that covered more than 130 countries, India is among the top 60 economies when it comes to innovation, and ranks among the top 20 Asian and Middle-Eastern economies. India was ranked ahead of economies such as Indonesia and Sri Lanka, but falls behind others such as Malaysia, China and Korea. In the Asian and Middle-Eastern region, which includes New Zealand and Australia, Hong Kong has been ranked at the top followed by Singapore, New Zealand and Japan.

Only two Asian economies—Hong Kong and Singapore—feature in the top 10 countries in the index. Singapore, too, has slipped in the index from the fifth position last year to seventh this year.

GII is calculated based on data from various sources such as the World Bank, International Telecommunications Union, besides the World Economic Forum's annual Executive Opinion Survey, wherein CEOs of various nations help rank their countries in a number of variables. The index takes into account aspects such as institutions and policies, human capacity, ICT infrastructure, market and business sophistication, high-tech exports, innovation in new technologies, market value of publicly-traded shares, etc. According to the survey, when it comes to institutions and human capacity, India tops among the BRIC nations. Similarly, in terms of human capacity, which captures the human resource and education aspect of a nation, India is among the top 30 countries in the world and leads among the BRIC countries as well.


Source: Bureau, India slips to 41 in CII-INSEAD global innovation rankings, The Economic Times, 4 March, 2010. Reproduced with permission.


Technology is incubated through research and development. While technology-focused countries spend almost 5 per cent on research and development (R&D) as a percentage of GDP, poor countries such as India earmark much less (India spent 0.61 per cent in 2000–05). This reflects on the poor productivity these countries have in every sphere of industrial and agricultural production.22 Because of the huge investments called for in R&D which poor nations can ill-afford, it can be outsourced. Several companies do this.

A company may also source technology externally from R&D organizations and other firms (including foreign firms). While sourcing foreign technology, the firm should ensure that the technology it chooses is the appropriate one and should be able to properly absorb the technology. Japanese industry is known for the choice of appropriate technologies and improving on them after the absorption.

“Increasing opportunities emerging as a result of globalization are forcing many companies in South Asia to increase their R&D efforts. In India, for example, as a result of the economy opening up to global competition and in compliance with WTO regime on protection of intellectual property rights, all large pharmaceutical companies have started putting greater vigour into R&D. They have also started reaping the benefits of their efforts. Pharmaceutical companies such as Ranbaxy, Torrent, Zydus, Cadilla, Reddy's, Biocon, Cipla, and Wockhardt have several new molecules in various stages of development, testing, and approval.”23


At the time we started our planned development, we were forced to buy technology from whatever source it was available and had to a pay high price and had a limited choice. After five decades of planning economic development and after having acquired adequate manufacturing skills and expertise and absorbed know-how in several fields, we are in a position to talk to our collaborators and joint venture partners from a position of strength. There are many countries that are willing to part with their technology and know-how to India except in certain high tech areas, of course, at a price.

“India has developed capabilities in a variety of fields extending from consumer goods to heavy engineering. Indian technology is also more suitable and can be easily adopted in most of the developing countries as compared to highly sophisticated technology from many of the developed countries. Indian organizations can provide a wide range of services including project studies and engineering, process know-how, creation, commissioning, start up and management of units, training of local people, etc. Many Indian firms are in a position and willing to participate in the joint ventures in countries across the world.”24

Though it is true that India is ranked as a low technology-using country, it should be emphasized that vast and dramatic changes are taking place on that front nowadays. For instance, Basix, an organization dedicated to the poor, has teamed up with Axis Bank to develop a cell phone banking application, which enables people to operate their bank accounts from anywhere using a smartcard (that stores their fingerprint) and a specially equipped cell phone. Basix is able to do all of this for a fraction of what big banks charge. Sukumar Rajagopal cites another interesting example that involves usage of vouchers in the payments' space. All that the people subscribing to Tata Sky are required to do is to buy a voucher for a specified amount from their neighbourhood grocery store and send the voucher number as text message to the company, which has thus completely side-stepped the send-the-paper-bill and wait-for-payment rigmarole.25

In building India's technological capabilities, its scientists and engineers play a very significant role. They have helped the country not only earn the reputation of a knowledge power, mainly by building her prowess in IT and ITeS sectors, but also in other areas of technology-based industries. Recently, Sunti Tyagi, Director-Technology, Intel India acknowledged that Indian engineers and researchers would have a big role to play in Intel's plan for the next rounds of chip design.26 Indian engineers are being engaged in the most high-tech scientific industrial research across the world. They have been contributing to the flawless conduct of airlines, Olympics and wherever IT is being used. In the recent successful tests of particle collider called large hadron collider (LHC) designed to push proton beams at the speed of light by firing it into a 27-km tunnel to recreate conditions a split second after the Big Bang—the massive explosion believed to have created the Universe—one-third of the 600 associated scientists are Indians.27

Case 5.2 Emergence of India as an R&D Hub of IT Companies

India has emerged as the R&D hub of IT companies globally over the years. There is no technology major in the developed world that does not have an R&D centre in the country. These R&D centres tap into the country's vast pool of skilled manpower and help their parent companies to churn out world class products and technologies. India has taken several giant steps over the years in becoming the hub for innovation. India's R&D success story is not a recent phenomenon. The success trail goes more than 20 years back to early 1980s. India's evolution as a sought-after R&D destination for global IT giants is a chronicle well worth telling.

IT MNCs increasingly let their development centres in India handle projects of strategic importance to improve quality of their products and service delivery of their parent companies. India's stature as R&D hub is further reinforced by the fact that many of these world IT giants have established their biggest R&D centres outside of their own countries in India. The unquestioned world leader in chip technology, Intel, commenced its India operations in 1988 by establishing a sales office in Bangalore. Since then, Intel India has played a key role in most of the company's product launching. Intel's Digital Enterprise Group designed the Intel Xeon Processor 7400 series first six-core CPU with 16 MB of L3 cache memory and 1.9 billion transistors, currently the highest-performing server chip that Intel offers. Over the years, Intel India has grown to include the most Intel divisions of any country outside the USA. As Intel's largest non-manufacturing site outside of the United States, the Intel India Development Center (IIDC) focuses on creating innovative products that advance the next generation of technology.1 World's first programmable processor was developed by Intel. Its Corporate Technology Group developed the world's first programmable processor delivering teraflops performance from its Bangalore centre.2

In the year 1989, when only a few MNCs had operations in India, global PC giant Hewlett-Packard began its R&D work in the country. HP engineers in Bangalore contributed to the HP Dynamic Smart Cooling technology that cools systems in data centres on a customized basis and saves energy. The system was tested at HP's Palo Alto headquarters and deployed first in Bangalore. It is now deployed globally.3

In 1993, Oracle India Private Ltd, a wholly-owned subsidiary of Oracle Corp., was set up and focused on the sales and marketing of Oracle software in India. In 1994, Oracle opened its India Development Center at Bangalore, becoming the first MNC to establish core software development operations in India to support its global product development strategy and to cater to the needs of the local market. The R&D centre in Bangalore was Oracle's fifth, and the first outside USA and Europe.

In the year 1997, Genpact (GE) set up GECIS (GE Capital International Services) as an outsourcing unit to offer services from India. During the next eight years, GECIS offered a range of business process services becoming a provider to many of GE's financial services and manufacturing businesses. In 2003, GECIS became the largest IT-enabled services provider in India, hiring 6,000 employees, prompting the company to post signs around its premises warning “Trespassers Will Be Recruited”!

The year 1998 was one of the most significant years for Indian IT industry. The year witnessed India take the very first step towards becoming R&D hub for global IT giants. Microsoft that entered India in 1990 launched in 1998 its India Development Center at Hyderabad, the second largest development centre outside the US facility in Redmond. Starting off with just 20 workers, it now employs more than 1,500 people at its Indian R&D centre. Some of the well-known works for key Microsoft projects such as its search engine Bing and the upcoming Windows 7 operating system were done in India.4

In the year 1998, Motorola, Inc. invested 3.5 million USD to set up a design centre in Gurgaon. Four years after its India foray, it set up a software development centre in Bangalore, with an investment of 13 million USD. The year also saw IBM expanding its presence in the country with a new research lab in Delhi. In the same year, German-based SAP Labs started its operations in India, while Oracle set up its second development centre in Hyderabad. SAP also announced that it was investing 1 billion USD over the next five years in the country to expand operations and double its headcount. SAP recently opened its third co-innovation Lab in Bangalore, the other two being located in Palo Alto, California, and Tokyo.

The year 2000 (or Y2K) was the year of dotcoms. The year which saw a flurry of Internet start-ups globally, also marked the birth of Indian business process outsourcing (BPO) industry.5 The year witnessed the emergence of BPO start-up Spectramind Ltd. Supported by VC firm Chrysalis Capital, Spectramind which was bought by Wipro in 2003 processed transactions for Internet portals worldwide.

In 2001, Accenture, the consulting firm inaugurated its technology development centre in Mumbai, to service around 35 clients from the facility, with almost 98 per cent of the work done for non-Indian clients. Accenture formally opened its technology lab in Bangalore, its fourth such facility following sites in USA and France in 2008. Accenture's labs focus on research and development in systems integration and software engineering that includes service-oriented and distributed software architectures, collaborative technologies and processes, automated quality management for software development, data quality management and data services, testing theory and practice for software and systems and large-scale distributed workforce management techniques.6 In 2001, Dell too started its R&D centre in India. Internet giant Yahoo opened its software development centre in the year 2003 in Bangalore, it being the company's first centre outside the USA. It aimed to help the company create new ideas and products for e-commerce, web content and search. The Indian success story in R&D continues, reflecting the country's IT prowess. India became an R&D hub for internet search leader Google in 2004. This was also Google's first R&D centre outside the USA. It focused on niche domains such as data mining, data warehousing, business intelligence and knowledge management. Google's News Archive Search helps users search historical archives for events, people or ideas and get a sense of how they have been described over time. The product was developed in India and deployed on a global scale.7

In the same year, IBM Corp. acquired Daksh, India's third-largest back-office services firm. Daksh's acquisition by IBM was the country's largest BPO acquisition ever. During the next year, IBM consolidated its Indian presence with the inauguration of another research lab in Bangalore that focuses on enhancing IBM's “On Demand” offerings in the services business by creating tailor-made solutions for its delivery groups. In the year 2006, IBM made known its plans to invest nearly 6 billion USD in India over the next three years. The announcement further underscored the country's increasing importance as a global hub for IT expertise. IBM announced recently that it was investing 100 million USD in global mobile services research over the next five years. The majority of the research for this project will be done in its India development centre. In fact, next to the USA, IBM India has the second largest labour force in the company.8

In 2006, networking giant Cisco that dominates the networking market set up its Globalisation Centre East in Bangalore, with the focus on to tap intellectual talent, growth opportunities and innovation. Thus far, Cisco has filed more than 600 patents from India. SAP Labs India, the company's largest R&D centre outside Germany, employs 4,200 people. It does two-fifths of SAP's global enterprise resource planning development here. Almost 50 per cent of the global development of SAP's customer relationship management software such as CRM 7.0 was made in India, as also 20 per cent of the development of SAP business by design.



1 Dwarakesh, “Rise of IT MNCs in India”, 11 July, 2009, available online: http://discuss.itacumens.com/index.php?topic=77868.0;wap2.

2 Reuters, “FACTBOX-Multinational Companies Expand Tech R&D in India”, 10 July, 2009, http://www.cnbc.com/id/31825996/site/14081545/for/cnbc/.

3 Reuters, “FACTBOX: Multinational Companies Expand Tech R&D in India”, 10 July, 2009, available online at http://www.reuters.com/article/reutersEdge/idUSTRE5695KF20090710.

4 Recent Coverage, About Cisco - Cisco Systems, http://www.cisco.com/web/IN/about/recentcover.html.

5 Dwarakesh, “Rise of IT MNCs in India”, 11 July, 2009, available online: http://discuss.itacumens.com/index.php?topic=77868.0.

6 Dwarakesh, “Rise of IT MNCs in India”, 11 July, 2009, available online: http://infotech.indiatimes.com/quickiearticleshow/4762723.cms.

7 Staff Reporter, “India becomes R&D Hot spot as Firms Cut Costs”, Business world, available online: http://www.businessworld.in/bw/2009_07_21_India_Becomes_RD_Hot_Spot_As_Firms_Cut_Costs.html.

8 Dwarakesh, “Rise of IT MNCs in India”, 11 July, 2009, available online: http://infotech.Indiatimes.com/quickiearticleshow/4762718.cms.


In the opinion of Sumit K. Majumdar, Professor of Technology Strategy, University of Texas at Dallas, it is essential that Indian companies acquire the technological capabilities required to succeed internationally as they join the global bandwagon. Innovations and productivity growth have been the drivers of economic growth, and Indian companies should strive to be at these frontiers. To achieve this, Indian companies should target those countries that yield useful partnerships. They should seek knowledge alliances with companies in USA, Finland, Sweden—countries which have given the world brands such as Electrolux, Nokia and Volvo—and the Asian Tigers—Taiwan, Japan and South Korea. The success of Toyota, Hyundai, Taiwan Semiconductors and Samsung are well-known. “Hence, what Indian companies can learn from their possible associations with world-class players from these Asian Tigers are not likely to be learnt elsewhere. Indian firms, therefore, have to develop plausible rationales as to why it is a win-win situation for these firms to engage in knowledge alliances with these countries.”28

According to Biswadip Mitra, Managing Director, Texas Instruments (TI), the big challenges that India faces are healthcare, education, communication and energy. To solve India's problems, we need very high technology (and not low technology), through which we should be able to deliver very high technology at very low cost. For getting a high-value device at a reasonable cost, you need high technology. For instance, TI which brought out a single chip cell phone, collapsed all the components of a phone onto a single chip, which enabled us to get a very high tech device at low cost. This could be also done on medical, energy, security and surveillance related technologies. Many other technology-based IT majors such as Microsoft, Cisco and Juniper Networks are setting R&D units in India, taking advantage of the availability of scientific pool of talents and cost effective scientific infrastructure in the country. For instance, the last mentioned, Juniper, which already has an R&D centre in Bangalore, employing 800 people strong R&D team, plans to invest 70 million USD and adding 600 more people by 2008.29 Likewise, Intel India sees a big role for the country in the next round of chip design. Intel, the microchip designer and innovator, has a “technological roadmap until 2020 and Intel India figured to play an active part in development activities for the next rounds of chip design.” 30

“An important underlying technology across all these areas is low power or ‘no power’ devices in healthcare, energy meters, portable equipment. It will be a huge innovation if we have devices running on almost no power chips.”31

Government policy sometimes is a very important technological environment. Restrictions on foreign technology, scale of operation, type of the technology, etc. very adversely affected the Indian business in the past. The liberalization has significantly improved the situation.32

  • Technology is the branch of knowledge that deals with the creation and use of technical means and their interaction with life, society and the environment, drawing upon such subjects as industrial arts, engineering, applied science and pure science. It is critical to development because it is a resource and the creator of new resources.
  • Countries that possess superior technology enable their people to earn enhanced incomes through high productivity and enjoy high standard of living; in poor countries with low technology, people produce less and earn low incomes and have low standards of living. The technology locally developed reflects local conditions, objectives and needs. The technology so developed is called appropriate technology.
  • Innovations that constantly update technology in the Western world are both cost-reducing and demand-increasing. The rapid economic progress of the West reflects clearly the importance of technology as a factor promoting business activity. Progress in technology may be either labour augmenting or capital augmenting. Technology often provides a competitive advantage. Technology is not an unmixed blessing. It reduces man to a life of monotony and joylessness.
  • Western countries have been using technology for a long time as a force multiplier on human capital, where one technological growth has led to another in a virtuous cycle of progress.
  • Technology enables business to reduce costs. It provides the business chances to enhance quality through the elimination of human error, and enables business to make substantial increases in productivity. It also continually reduces the dimensions of products to make them small, powerful and cost effective.
  • Technology has a major role to play in the industrial development of a country. In a developing country, technology transfer provides both access to advanced techniques of production and a means of educating and training its people in the use of technological information and how to put them to work. The successful introduction of technology depends on the ability of the recipient country to adapt it to its own possibilities, on the quality of raw materials, and climatic and other conditions.
  • The forms of transfer of technology are varied and inter alia include: (a) exchange of information, (b) free use of technology-based information, (c) gratuitous transfer of technology with assistance, (d) technology obtained through agreements, (e) the rendering of technical services, (f) industrial cooperation, (g) mixed or joint enterprises, (h) construction or technical assistance in the construction of industrial and other prospects and (i) import of industrial goods.
  • Innovation feeds technology. Innovation is a very important factor that provides competitive advantage and, consequently, determines success.
  • India has developed capabilities in a variety of fields extending from consumer goods to heavy engineering. Though India is ranked as a low technology using country, it should be emphasized that vast and dramatic changes are taking place on that front now-a-days.
accelerate processes capabilities composite of techniques
cost reduction definition of technology dramatic forces
force multiplier increases in productivity informed decisions
innovation Management Information System patent system
know-how technological change technology transfer
  1. What is technology? Bring out the relationship between technology and development.
  2. Explain the role of technology in promoting economic development. While doing so, bring out the positive and negative role of technology.
  3. What are the advantages that technology brings to business? Discuss this with particular reference to the competitive advantage it brings to business.
  4. What is the imperative need for technology transfer? Discuss the various forms of technology transfer.
  5. Why is innovation necessary to make a country's business modern and up-to-date? Bring out in this context the role innovation has played in promoting economic growth of countries like the USA.
  6. Explain how technology gets integrated with business. Illustrate how this integration has worked in different businesses.

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Rip, Arie. “Regional Innovation Systems and the Advent of Strategic Science.” The Journal of Technology Transfer, 27(1): 123–31.

Wignaraja, Ganeshan, “FDI and Innovation as Drivers of Export Behaviour: Firm-level Evidence from East Asia.” UNU-MERIT Working Paper Series 061, United Nations University, Maastricht Economic and Social Research and Training Centre on Innovation and Technology, 2008.