The Next Wave of Globalization: Offshoring R&D to India and China

Then there's the other reason R&D is increasingly headquartered in India and China: proximity to emerging markets. Cisco now has 2,000 people doing R&D in India. "The head of that center sits in an office and looks like a modern day Pharaoh with the scale of building under way around him," says Engardio. "He says in five years, they will have 10,000 people. And by the way, I'm not looking for average engineers. I want innovators. These are no cheap bodies." Why? He's not looking at the U.S. as his major market for product sales. He's looking at emerging technology greenfields markets like Dubai in the United Arab Emirates and Saudi Arabia. "All the new developments outfitted with next generation telecom networks we'll never see in the U.S.," says Engardio. "The next generation of services is going to be in Asia." So Cisco is situating the design work in India. "Is it going to work out?" asks Engardio. "Who knows? But it seems like the right bet."

Anything that a company's customer touches and feels will remain harder to offshore to India, China or anywhere else, says Engardio. And perhaps, most important, so too the innovation itself. The product ideas happen at headquarters and are executed elsewhere.

"The only thing (India) isn't doing is owning the intellectual property. The multinationals are pulling the strings and staying at the top of the food chain, which is why the debate over whether this is good or bad for the United States is very, very murky," says Engardio, "The American companies have India working for us, in a way."