India And Silicon Valley: Now The R&D Flows Both Ways

The ravages of the dot-com bust are still evident at Andale Inc.'s Mountain View (Calif.) headquarters. Half the office space sits abandoned, one corner of it heaped with discarded cubicle dividers and file cabinets. But looks are deceptive. The four-year-old startup, which offers software and research tools for online auction buyers and sellers, has seen its workforce nearly quadruple in the past year -- with most of those jobs in Bangalore.

Andale's 155 workers in India, where employing a top software programmer runs a small fraction of the cost in the U.S., have been the key to the company's survival, says Chief Executive Munjal Shah, who grew up in Silicon Valley. In fact, Indian talent is adding vitality throughout Silicon Valley, where it's getting hard to find an info-tech startup that doesn't have some research and development in such places as Bangalore, Bombay, or Hyderabad. Says Shah: "The next trillion dollars of wealth will come from companies that straddle the U.S. and India."

The chief architects of this rising business model are the 30,000-odd Indian IT professionals who live and work in the Valley. Indian engineers have become fixtures in the labs of America's top chip and software companies. Indian émigrés have also excelled as managers, entrepreneurs, and venture capitalists. As of 2000, Indians were among the founders or top execs of at least 972 companies, says AnnaLee Saxenian, who studies immigrant business networks at the University of California at Berkeley.

Until recently, that brainpower mostly went in one direction, benefiting the Valley more than India. Now, this ambitious diaspora is generating a flurry of chip, software, and e-commerce startups in both nations, mobilizing billions in venture capital. The economics are so compelling that some venture capitalists demand Indian R&D be included in business plans from Day One. Says Robin Vasan, a partner at Mayfield in Menlo Park: "This is the way they need to do business."

The phenomenon is due in no small part to the professional and social networks Indians have set up in the Valley, such as The Indus Entrepreneurs (TiE), in Santa Clara: It now has 42 chapters in nine countries. Prominent Indians such as TiE founder and serial entrepreneur Kanwal Rekhi, venture capitalist Vinod Khosla, entrepreneur Kanwal Rekhi, and former Intel Corp. executive Vin Dham serve as startup mentors and angel investors. In early November, Bombay-born Ash Lilani, senior vice-president at Silicon Valley Bank, led 20 Valley VCs on their first trip to India to scout opportunities. Of the bank's 5,000 Valley clients, 10% have some development work in India, but that's expected to rise to 25% in two years.

Such opportunities for the Valley's Indians flow both ways. Hundreds have returned to India since 2000 to start businesses or help expand R&D labs for the likes of Oracle (ORCL ), Cisco Systems (CSCO ), and Intel (INTC ). The downturn -- and Washington's decision to issue fewer temporary work visas -- accelerated the trend. At a Nov. 6 tech job fair in Santa Clara, hundreds of engineers lined up, résumés in hand, for Indian openings offered by companies from Microsoft Corp. (MSFT ) to Juniper Networks Inc. (JNPR ). "The real development and design jobs are in India," says Indian-born job-seeker Jay Venkat, 24, a University of Alabama electrical engineering grad.

The deeper, more symbiotic relationship developing between the Valley and India goes far beyond the "body shopping" of the 1990s, when U.S. companies mainly wanted low-wage software-code writers. Now the brain drain from India is turning into what Saxenian calls "brain circulation," nourishing the tech scenes in both nations.

Some Valley companies even credit India with saving them from oblivion. Web-hosting software outfit Ensim Corp. in Sunnyvale relied on its 100-engineer team in Bangalore to keep designing lower-cost new products right through the downturn. "This company would not survive a day if not for the operation in India," says CEO Kanwal Rekhi. Before long, India may prove as crucial to the Valley's success as silicon itself.

By Robert D. Hof in Santa Clara, Calif., with Manjeet Kripalani in Bombay

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