Wipro Bites into R&D Pie

This may be a new paradigm in outsourcing. In what is perhaps the first of

its kind, Wipro Technologies recently signed a letter of intent with Ericsson

for a ‘total’ outsourcing deal under which the company will take over the

Swedish mobile networking giant’s R&D units in Hyderabad, New Delhi, and

Bangalore. Around 300 employees of Ericsson India might be transferred to Wipro

under the deal that is to be formalized in November.

"Ericsson will transfer the personnel working in its three software

R&D development centers to Wipro. Also, Ericsson will continue to purchase

R&D consultancy services from Wipro. It is a mutual commitment to work

together," says Dr A L Rao, President Telecom & Internetworking group,

Wipro Technologies. The Ericsson R&D centers in India have been developing

solutions for operations and maintenance for mobile networks, IP routers and

e-commerce solutions. Though no figures are available from the company, Wipro

gets an estimated business of about $5 million from Ericsson every quarter.

This figure is likely to increase after the deal is formally inked in

mid-November. Wipro gets a major chunk of its revenues from research and

development.

Ericsson’s decision to sell its software R&D resources to Wipro is

perceived as a part of its strategy to reduce its cost base and concentrate on

its core processes. The cash strapped telecom major has publicly admitted that

it plans to concentrate specific products and technologies into fewer and larger

units with an eye on reducing overhead and co-ordination costs. This is not the

first time that Ericsson has sold its R&D centers’ resources to a research

partner. Recently, Stockholm headquartered Teleca and Ericsson signed a letter

of intent for an outsourcing deal where the GPRS R&D unit from Ericsson

Norway will be transferred to Teleca and 70 employees will be moved from

Ericsson to Teleca in Norway. Wipro, on the other hand, has set itself a

long-term goal of managing product cycles. We believe that total R&D

outsourcing is about taking ownership of managing the product life cycles,"

says Dr Rao. Wipro, over a period of time, plans to take over the product

lifecycles of some of Ericsson’s technologies depending on the comfort levels

of the teams working on the products.

Wipro’s Telecom and Internetworking services division has been working on

areas including voice switches, VoIP solutions, data switches and routers,

broadband access and wireless networks for telecom and datacom equipment

manufacturers like Nortel, Cisco, Nokia, Ericsson, and Alcatel. The R&D

services segment in India is presently estimated to be around $1 billion and

employs about 30,000 people. An oft-quoted study by Merrill Lynch forecasts that

revenue from R&D services would touch $4 billion by 2005. Presently, the

segment is dominated largely by a handful of players like Wipro, HCL, Hughes

Software Systems, and Sasken who corner a major portion of the business.

Revenues are not the only reason why Indian companies are eyeing the global

R&D pie, which is estimated around $ 275 billion. For Indian firms, it

represents an opportunity akin to an ‘earn-while-you-learn’ scheme. Other

than generating steady revenues, R&D servicing is also an opportunity to

develop intellectual property and consequently move up the value chain.

The R&D servicing business represents a window of opportunity for the

industry to gain the knowledge and expertise required for achieving its ultimate

fantasy–the world of systems design and software.

TEAM DQ