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Optical/IP

Optical Vendors Turn to India

Earlier this week Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) became one of the latest big-name companies to announce a development facility in India.

The telecom equipment vendor announced plans to build a research and development center in Gurgaon, Haryana, to focus efforts on optical networking developments. The center is expected to increase Tellabs' research and development resources in India by more than 200 percent over the next year.

But Tellabs isn’t alone. Several other big players have recently beefed up their research and development staffs and expanded their facilities over the last several months.

Last August, Cisco Systems Inc. (Nasdaq: CSCO) announced a $150 million investment to expand its facilities and increase its R&D staff 300 percent over the next two years. The increased headcount will go mainly to filling the growing requirements for the facility in Bangalore, which today is Cisco's largest R&D facility outside the U.S. Engineers there will be focusing efforts on software, ASICs, and optical networking applications, according to a company press release.

In October, Nortel Networks Corp. (NYSE/Toronto: NT) announced plans to increase its operations for wireless applications. Lucent Technologies Inc. (NYSE: LU) announced a similar plan back in June.

Smaller concerns are also setting up shop in India. Allegro Networks, a stealth-mode startup, has a team of 15 working on software development in a Bangalore facility. Tejas Networks Pvt. Ltd., which has been bankrolled by Sycamore Networks Inc. (Nasdaq: SCMR) chairman and founder Gururaj "Desh" Deshpande, has set up shop in Bangalore and will partner with Sycamore to resell and develop optical gear in India (see Desh's Passage to India ). Amber Networks Inc. has also set up a branch office there.

So what is it about India that has companies large and small pouring big bucks into development centers there? For one, the labor force is much cheaper in India than in the U.S. or in Europe. For what it would cost to hire one engineer in Silicon Valley, a company can employ four or five engineers in India, says Shekar Nair, director of software engineering and head of India operations and co-founder of Allegro.

“The cost of living is a lot less comparatively, and $40,000 is a lot of money for someone in India,” he says.

What’s more, workers in India aren’t as demanding about negotiating equity. While this trend is changing as more multinational companies establish themselves in India, it still helps drive down the cost of operating there.

“Things are changing very fast,” he says. “I’m sure it’s only a matter of time.”

While cheap workers are definitely a benefit, the fact is that there is a lot of talent in India, especially when it comes to software development. And the Indian Government has worked hard to capitalize on that talent. It has established the Software Technology Parks of India (STPI) to promote the export of computer software from the country. STPI provides the communications infrastructure, which includes high speed broadband access and satellite links, to connect companies in India with the rest of the world, bypassing outdated local telephone companies.

Participating companies are also given tax benefits. For example, they are exempt from paying income tax until 2010, and they don’t have to pay taxes on equipment that is brought into India for testing.

“There are governmental incentives for folks being part of Software Technology Park,” says Nair. “And that is very attractive to some companies.”

But there are challenges involved in keeping a work force halfway around the globe. For one, communication between the home office and the satellite group in India needs to be managed carefully, says Nair who used to work for Xylan before it was bought by Alcatel SA (NYSE: ALA: Paris: CGEP:PA), which expanded its team in India to 40 employees.

For startups this can be especially difficult, since the video conferencing equipment and the infrastructure buildout that can support codevelopment can be very costly. Also, startups generally have one individual doing several different jobs, and when some of those people are 17 hours distant that can be difficult, he adds.

“In a startup environment, time is of the essence,” Nair says. “When you need someone to do something, you need it right then. There are many challenges, but we’ve done this before and we know how to manage it.”

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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