Allure of R&D draws tech giants to India

By S. John Tilak and Sayantani Ghosh

BANGALORE (Reuters) - As the world prepared for the launch of Intel's server processor Xeon 7400 last September, engineers in Bangalore -- dubbed the Silicon Valley of India -- were putting the finishing touches on what would become the company's best-performing server chip yet. The chip was designed end-to-end by Intel Corp's digital enterprise group in Bangalore.

Increasingly, the Indian arms of multinational tech giants are working on global brands such as Microsoft Corp's search engine Bing, its upcoming Windows 7 operating system and Google Inc's Map Maker.

The country, perceived as a necessary low-cost option only a few years ago, is fast becoming a destination for higher-end R&D work, with skilled engineering talent and India's own rising economic might adding to the appeal.

While India may not yet have shrugged off its "cheap labor" tag and is periodically the target of populist rhetoric from Western politicians, for technology firms the country has new connotations.

Faced with maturing home markets and aging workforces in the United States and Europe, companies are looking at India for a growing supplier base and young, agile workers.

"Today if you were to ask any of the product companies if they could do without their India-based hubs, I think the answer would be no," said Noshir Kaka, director at McKinsey & Co, a global consultancy firm.

"We're actually seeing the creation of new products and new services that may not have seen the light of day if we had only used a developed-market workforce for them," he said.

Hewlett-Packard, which set up its India R&D center in 1989, started out with cost efficiencies in mind, said Rick Steffens, who heads its systems technology and software division.