India needs to invest in R&D to eventually create jobs: Sridhar Vembu

Sridhar Vembu, founder and CEO, Zoho Corp.; Image Courtesy: Zoho

Born into a family of farmers at a village in Tamil Nadu’s Thanjavur district, Sridhar Vembu went on to study at Princeton University, New Jersey. He then worked at Qualcomm in San Diego, California. In 1996, along with Sreenivas Kanumuru and Tony G Thomas, Vembu founded AdventNet to make software products. In 2009, the company was renamed to Zoho Corp.

While Zoho has turned into India’s only billion-dollar software products company by revenue, Vembu’s vision remains the same—for Zoho to be one of the top five technology players in the world. In 2023, the company crossed 100 million users. Vembu continues to invest extensively in R&D. But, in doing so, he wants to ensure that R&D powers rural development. Over the last few years, Vembu has moved his base to a village in Tenkasi district, 650 km from Chennai, and continues to develop the area extensively.

The enterprise IT management division of Zoho Corp, ManageEngine, recently conducted its CIO Meet in Chennai. During the event, Vembu spoke to Forbes India about its semiconductor investment, solving for India’s employment problem and more. Edited excerpts:

Q. Recent news reports indicate that Zoho plans to enter the semiconductor manufacturing sector with a $700 million investment. Your comments?

We have an application pending with the government to set up a semiconductor fabrication (fab) plant. The Indian government is actively looking for fab manufacturing projects, since India doesn’t manufacture any commercial fabs yet. We are also looking to invest, of course not at the scale at which the Tata Group is investing. We are going after a different market, which would be power electronics and power regulation.

The technology for these is different, and the scale of investment is not as large as in the one needed in a digital fabrication unit. Since we don’t have the expertise for it, it would involve working with a foreign player and licensing that technology from them, to bring it to India.

So, we do have one application, but since it is pending, I cannot give more details. However, I can confirm that the number being reported in terms of investment is not accurate.

Q. What are some challenges that the tech industry in India is facing?

First, let’s talk about the SaaS industry. SaaS went through a bubble post-pandemic. Clearly, that bubble is deflating, and all that investment has moved to the new bubble—artificial intelligence (AI). Since, globally, the market is subdued in terms of investment, it is also reflects in India.

Second, India needs to invest in research and development (R&D)—whether it’s in semiconductors, drones, medical instruments, robotics, biotechnology and more. We need to create some durable tech-led growth across fields, and for that we need to invest in R&D. We have been weak in R&D by a lot. Slowly, the awareness that we need to master R&D is spreading. However, it has a long gestation period—if we invest now, it might take close to five years for the results to show.

Q. Does skill development remain a challenge?

Traditionally, that’s what the industry would have said. But I feel that the industry needs to flourish, first, for skilling to happen. For instance, it wasn’t that Taiwan University developed semiconductor talent, and then TSMC came up. It was the other way. Foundries started, and then they worked with universities to tailor curriculums and foster talent.

So, for India, we need to work with local colleges, bring in talent or experts from abroad, and, if necessary, send instructors abroad for training too. For instance, Thanjavur needs drone talent, which is why we are working with SASTRA University to formulate a curriculum to develop drone talent. Knowing that there is a need for drone-related jobs in the area provides context and motivates them to study the subject.

I think there has to be a push-pull model, where you first create some industry and then the education system will catch up, instead of saying people are not ‘industry ready’. Well, I feel there isn’t enough industry to be ready for.

We have Zoho Schools that is looking at rural skilling programmes for high school students, especially skilling them in software. We also have a manufacturing training programme in Tenkasi, for schools.

Also read: Sridhar Vembu's vision from the village

Q. Addressing employment continues to be a pressing concern in India. What strategies can effectively tackle this issue?

I have to confess these are some of the toughest problems to forecast in economics. However, I believe India should invest in R&D, which can create a multiplier effect and ultimately generate jobs. For instance, if, in Tenaksi, we create a thousand software development jobs, and a thousand mechanical engineering jobs, then there will be a few thousand more jobs created in the local ecosystem such as construction, hospitality etc. We are already seeing this trend in Tenkasi. There are new ice cream shops that are coming up.

Hence, I strongly believe that every region in India needs an economic engine. India wants to have one economic engine. I would say we need 800+ economic engines, one for each district. Then, we decide what kind of jobs are born from that area. We are trying to establish software as the engine for Tenaksi and for Thanjavur it might be drones. We are investing in Nagpur to build server technology in data centres, if that scales up, that might be the economic engine for Nagpur.

Q. But economic engines for the larger cities seem to be in place…

Are we globally competitive though? Can Chennai compete with Tokyo or Singapore in terms of industry? Probably not. Similarly, Coimbatore has reached a middle income economy. But it’s facing competition in the textile sector from Bangladesh, since we can’t compete with their labour costs. Again, while Bengaluru is our tech hub, can it compete with San Francisco? And can we create a future “Apple” from Bengaluru? That’s the question we need to ask.

Q. In that case, what’s missing?

Investment in R&D.

Instead of asking what’s missing, I would rather ask: How do we go about doing it? How do we create the next Apple from India?

Q. What potential does technology such as artificial intelligence hold?

Well, AI could itself be an economic engine in some regions. But it also reconfigures certain industries, with a lot of automation. Initially, for five years, it might create employment. But later, if everything is automated—lights-out manufacturing—we are likely to see these ‘dark factories’ that are operated with minimal human activity. But, even then, people are needed to run these AI-led technologies or a look at the services side. In either case, AI will need to work as an enabler.

Q. What is your long-term vision for Zoho?

The goal has been the same, which is to be one of the top five technology players in the world. And with the kind of talent pool that India has, we have the potential. For that, India must invest a lot in R&D, product and brand building.

As Zoho, we are investing extensively in R&D. But we want to link our R&D priority with rural development—R&D powering RD (rural development).

The reason is simple. The current trajectory that we’re on, it seems that we will empty the entire countryside and bring people to the city. This has been the approach so far, and the result is: Bengaluru has no water, Delhi has no water, Mumbai has no space. We can’t go on like this. If we don’t do this right, India’s population will move to the cities.

Hence, we have to figure out an alternative economic development path. Here, economic engines will play a key role. India’s population is 1.43 billion. The way I think about it is not 1.43 billion, but 22 million babies born a year. In China, it is only 9.5 million babies. That is a huge opportunity for India. Every technology known to mankind can be produced here, but we have to be willing to take up the challenge.