Ever since Indian workers helped American companies with the Y2K bug in the late 1990s, the world has viewed India as the top outsourcing destination for multinational technology companies. Many multinational technology companies have opened Indian outposts, managed and staffed by Indians, to cut costs. Most of the work done by Indians fell under low-level research and design (R&D) for innovative ideas created in other countries. However, higher-level work has increasingly been moved to these outposts. Naturally, Indians working for foreign companies saw that they could come up with their own innovative solutions to problems within their society. A shift has occurred in the last decade from Indians as researchers and developers for others to innovators for themselves. Certain areas in India, such as Dehli and Bangalore, are now being touted as the next Silicon Valley.

In a country of 1.2 billion, India places a high emphasis on jobs in the technology sector. Many of the leading advanced degree programs in India cater to the hard sciences, such as biotechnology, engineering, computer science and business. Also contributing to an innovation-friendly climate is the fact that almost half the population is under 25 and can bring fresh minds and spirits to solve the problems Indians face. The average age in India for entrepreneurs starting their own tech companies is 39. India already has hundreds of thousands of R&D workers with enough experience and knowledge to become entrepreneurs themselves. The Indian information technology sector has literally grown from almost nothing decades ago to about $88 billion dollars last year.

As part of this growth, Indian companies are developing creative, cost-effective solutions to problems in their country. One example is the company Forus Health, founded by K. Chandrasekhar. Forus has just begun shipping a prescreening tool for the early detection of cataracts, glaucoma and diabetic retina, refraction and cornea problems that are common in the developing world. Their portable device can be operated by a minimally trained technician and sells for a fraction of the cost of a Western version. The company is turning the table by outsourcing to other companies around the world for manufacturing and business development.

There is some skepticism as to whether India can actually blaze a trail of innovation. For one, Indian companies allocate much less money to R&D. Currently, they spend an average of 0.6 percent of their budget on research compared with 3 percent in the West. Technology companies in the United States usually spend 5-6 percent of their budget on R&D. Two, there is a lack of venture capital and investors for many new projects. Entrepreneurs must be willing to take risks and convincing others to invest in the potential success of an innovation can be harder in India than in countries with longer histories of R&D.

But, even more innovation may be happening than we are aware of. A Forbes article stated that a lot of India's innovation is “invisible” due to the fact that many products are created by global segmentation. India's R&D facilities are responsible for highly innovative aspects to products but there is no way to know that based on looking at the final products. A telling example of this is the number of patents filed by Indian subsidiaries of US multinational companies. It jumped from 35 in 2001 to 800 in 2007.

Multinational companies have paved the way for India to develop their own innovative culture. It will be interesting to see how far and how quickly India can develop its own innovations to compete with the rest of the world. While still an outsourcing hotspot, India must continue to foster its own R&D and encourage investors and entrepreneurs to take risks. Silicon Valley may not be dethroned any time soon, but it should definitely be looking over its shoulder.