Dasaradha Gude didn't even set eyes on a computer until he was 19 years old. Today, at 44, the boy from an impoverished remote village in southern India is one of the country's most successful serial technology entrepreneurs. In fact, one of his more recent efforts, CuTe Solutions–acquired in February by graphics chip behemoth ATI Technologies Inc.–has become the $4.2-billion Canadian company's largest research and development shop outside North America. It's a deal Gude (above) hopes will bring more attention to the fact that India has a bubbling innovation culture, not just a cheap pool of computer code consultants. “You do get the money in consulting, but not the satisfaction,” he says. “We're proud that we got both.”
Officially dubbed ATI Technologies India and based in steamy Hyderabad, nearly 1,500 kilometres south of Delhi, CuTe–which creates software to compress and decompress audio and video data for hand-held game and mobile phone developers–is not just another offshore development arm. Its Markham, Ont.-based parent has already given the Indian operation complete control over the audio component of its products, and transferred dealings with at least one large customer to it. “Within three months, [the CuTe team] was already engaged and doing everything from application development, supporting customers, ASIC [application-specific integrated circuits] development, reference designs and diagnostics,” says Adrian Hartog, ATI's chief technology officer.
Hartog expects the new team to boost the capabilities of ATI's Imageon and Xilleon graphics-chip families, designed for hand-helds and set-top boxes, respectively. The Indian engineers are also designing microchip sets for cellphones and high-definition TVs. The team has already helped introduce to Korea a 3-D gaming phone that uses an ATI chip, and more successful projects like that are planned. To get there, ATI plans to invest several million dollars in India over the next five years, with immediate plans of adding 100 engineers–more than doubling the current contingent.
But deep-pocketed ATI (TSX: ATY) is supplying more than just cash: it has also been swapping team members. There are 11 CuTe engineers working in Toronto, and ATI has been sending some of its Canadian technical personnel to India on short sojourns to share their knowledge, including a senior technical manager for an 18-month period. While ATI president and CEO Dave Orton hasn't made the trip yet (he plans to), Hartog has, and says such executive buy-in is necessary for any offshore arm to feel like it is part of the team, particularly when the time difference alone between Markham and Hyderabad is nine-and-a-half hours or more.
ATI is no stranger to India, having outsourced various projects–including a hand-held one to CuTe–over the past six years. But in the fall of 2003, the Canadian firm was looking to offshore rather than continue outsourcing. The difference is subtle, but important. Outsourcing is effectively contracting: a company doesn't carry any additional head count, the work tends to be short-term in nature and a small group of 10 to 15 is appended to a specific development team–in ATI's case, chip design. Offshoring means establishing a physical presence in another country to gain access to a local talent pool or cut development costs. ATI was close to tapping out on R&D investment tax credits at home, so it began examining the potential gains in either China or India.
By the time ATI went looking for help in audio compression in the spring of 2004, it had already figured out that India would be a better place to set up shop than China–even though the latter made more sense from a customer numbers perspective. India is not only a cheaper place to conduct business, but there are also fewer potential risks, lower turnover rates, better intellectual property protection and no language barrier. “We had a directional strategy to offshore development at the same time the CuTe development team was more integrated with our team on the hand-held side,” says Orton.
Once ATI set its sites on CuTe, the deal was done in about three weeks, including just two days of due diligence. In large part, that's because Gude had his paperwork already in order. But instead of taking the money and running, he decided to stay and become managing director of ATI India. Gude had spent nearly two decades in Silicon Valley working for various semiconductor companies on ASIC chips, designed for a particular application as opposed to a function such as controlling computer memory. Later, after deciding to become more involved in India, he started CuTe in 1996 by funding a small group of people focusing on digital audio-video technologies, eventually developing an expertise in compression–something he figured would be a hit. “As complexity increases and the devices become smaller, you need better technology because you need to process the same data with limited resources,” explains Gude. “It's much more complex building a mobile software application [than one for the desktop.]”
ATI India's solution for compressing voice and video data is really just a modern take on an ancient audio engineering wonder. At Golconda, a 480-year-old fort that sits atop a hill overlooking the Hyderabad area, a hand clap at a certain point underneath the entrance dome can be heard clearly at the Bala Hissar, the massive fort's highest location, almost a kilometre away. The trick? A dozen or so diamond angles cut into the dome's roof allow sound to reverberate to a much greater effect. A guard at the entrance could thus easily warn those within the citadel of impending attack. A similar domed foyer further inside the fortress allowed the king to hear clearly without actually seeing or coming into close contact with the speaker.
There are nearly 500 years separating the two technologies, but both are proof that innovation exists in India, even though most of the world's attention is fixated on outsourcing pieces of technology projects and tech-enabled services such as call centres. There's a large pool of talented workers here, willing to work long hours for comparatively low wages, just waiting to be exploited by western capitalists. So much so that the U.S. government is considering restrictions on American companies taking advantage of the lower-cost, high-quality labour that India offers. A number of North American companies such as Microsoft, Sun Microsystems and Oracle have growing development teams in the country, and big consulting firms like Accenture and EDS are entrenched, as well. Meanwhile, homegrown Indian corporations Wipro Technologies and Infosys Technologies have built billion-dollar outsourcing empires. Not a bad business model, but not one that inspires the likes of Gude. Nor do any of those companies push India's agenda forward when it comes to innovation. “Big companies like Wipro and Infosys are worried about starting or funding innovative companies because they could have a conflict with one of their customers,” says Gude.
Nevertheless, in the 12 months ending March 2005, 151 new technology companies sprang up in the Hyderabad area alone, with exports growing 65%. While most of those new entries are in software support, Gude estimates about 10% of them are working on innovative solutions. “Ten or 15 is quite a number in our minds at this point, and it is growing,” he says. “The little pockets are there, but they are never exposed.” And when they are, Gude expects more acquisitions as the international giants of technology figure out India is more than just a source for cheap computer code.