Chinese Telecom Firms Open R&D Centers in India to Gain Foothold in Massive Market

In the last five months, we’ve seen announcements or news items about five Chinese handset makers—Xiaomi, ZTE, Coolpad, Phicomm, and Vivo—exploring the possibility of R&D centers in India. These strategic moves validate the predictions in our recent Engineering Services Blueprint of growth in engineering services from Asia-Pacific, particularly our call on the China market.

The main reasons are:

1. India is a growing power in smartphone demand: Demand for smartphones is pushing India to near the top of the markets for mid-tier smartphones. Handset makers want to engage resources in India to develop products specifically for the Indian market. Currently, India is the third-largest smart phone market, after China and the US, and we expect it to overtake the US in the next couple of years to become second-largest smartphone market.
2. Leveraging India’s talent in engineering services: India has a large and qualified engineering workforce that American and European MNCs have both utilized via captive engineering centers and third-party service providers. Now as Chinese firms globalize, they can use India’s talent in engineering services as well.

These Chinese firms have one big role model, Huawei, which transformed itself from a small Chinese firm to a global MNC (2014 Revenue, US$46.5 billion) in last two decades, to emulate. Huawei opened an R&D center in Bangalore, India, in 1999 to leverage India’s talent in engineering services. That center has grown to 2,700 people, with 98% local workers. The Bangalore center is also Huawei’s largest R&D facility outside China. Incidentally, Huawei is also doubling down on India and recently launched a new R&D campus in Bangalore with an investment of US$170 million that will be able to accommodate 5,000 engineers.

Lately, Huawei has also shown the path to grow in a local market with local R&D facilities. Huawei opened an R&D center in Finland in 2012 with 100 engineers for developing its products for the Finnish market. The result is that in Q2 2015, Huawei has become number one tablet vendor in Finnish market (by number of tablets sold) beating some of the big global rivals, including Apple, and Samsung.

There is a clear realization among Chinese companies about the strength of India and its engineering talent. But, sadly, China as an R&D opportunity is not on the radar screen of many Indian heritage engineering service providers.

Engineering service providers should watch these developments carefully and act early. It started with telecom and soon Chinese firms in other verticals will follow in leveraging India’s engineering talent and domestic market. If more and more Chinese firms open their captive R&D centers, then it will be difficult and time-consuming task to turn them into third party outsourcing model. Providers should act quickly to take advantage of this trend.