Infosys co-founder Kris Gopalakrishnan has advised Indian firms to prioritize external R&D via startup acquisitions and academic partnerships rather than relying solely on internal spending. This strategy aims to speed up innovation and improve cost efficiency. Investors may track how companies balance these inorganic investments with traditional in-house research to ensure value creation.
Kris Gopalakrishnan, co-founder of Infosys and Chairman of the CII Centre of Excellence for Innovation, Entrepreneurship & Startups, recently challenged the traditional approach to corporate research and development. Speaking at the CII Startupreneur Awards, he suggested that Indian companies need to rethink how they invest in innovation. Instead of measuring success only by the amount spent on internal R&D, he argues that firms should focus on external collaboration, including acquiring startups and partnering with academic institutions.
From a financial perspective, this shift reflects the need for speed and capital efficiency. In-house research often involves long gestation periods and high overhead costs. By acquiring startups, established companies can integrate proven technologies and talent immediately. This is a common strategy in the Indian IT sector, where majors like TCS, Wipro, and HCLTech frequently acquire niche firms to gain capabilities in cloud, artificial intelligence, and cybersecurity. For shareholders, this approach can reduce the time-to-market for new products, although it comes with its own financial risks.
The risks involved in this strategy are important for investors to consider. Acquiring startups often involves paying a premium, which can lead to goodwill on the balance sheet. If the acquired technology fails to scale or if the integration process is delayed, the anticipated benefits may not materialise. Additionally, there is the risk of cultural friction when a large, established company absorbs a small, agile startup. Investors often look for clear execution plans from management regarding how these acquisitions will contribute to margins and overall revenue growth.
Historically, the U.S. market has seen significant growth driven by the integration of young companies into established business models. Gopalakrishnan points to this model as a way for Indian companies to remain competitive globally. As Indian firms look to build their own innovation pipelines, the move toward external partnerships is likely to gain momentum. For investors, the key area to track will be the return on investment from these acquisitions. Monitoring whether companies can successfully merge new tech talent and assets into their core business without excessive debt or margin erosion will be crucial in assessing the long-term effectiveness of this strategy.