Knowledge@Wharton has a special report about India developing as R&D hub. One of the contributions has been an interview with Vivek Paul - ex-CEO of Wipro. He has some good insights into what works and what not for aspiring entrepreneurs in India.

"Aron: In the absence of such an entrepreneurial ecosystem, would funds such as yours be looking to incubate businesses in India?

Paul: I talked about the fact that pharmaceuticals are being pushed in two directions, but I just focused on one. The second is generics and the ability to operate in an environment where drugs are going off patent in record numbers. So if you look at the opportunities to play in India, I think they're in the process area rather than in innovation. Now that doesn't mean that you can say "never"; of course there will be anomalies. But I think the play will be more along the lines of: Can we create a mega-generics pharmaceutical company that can have both the production capability, the cost position, and give them the branding so they're readily accepted? There's a lot of stuff you can build out of India. Then you have all the other stuff like contract research outsourcing, and clinical process outsourcing - that's also interesting.

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Aron: Where do you see high-end R&D opportunities in general? For instance, there's a lot of R&D being done in China, in Ireland and in Finland by American companies. Do you see those kinds of captive R&D centers coming up, or better still, ones that give R&D projects to a third party and say "I want you to come up with a new circuit board for my cell phone?" Do you think that kind of thing could happen?

Paul: It's already happening. The stuff that's been done in India is staggering in terms of range and depth. I don't think that anyone can say that the work we're doing is trivial. But the work we're doing is under somebody else's direction. Let me put it this way: For an engineer, there's a big difference between discovering something, versus discovering something that you know somebody else says can be done. That difference is the difference between the service business and the products business. In the service business, what you're doing is great stuff, but it is in some sense something that someone else told you to do.

Aron: The Indian diaspora [in the U.S.] is at least 1.6 million strong. In the last 20 years it's essentially been skilled people like you who have come here and become senior executives with a lot of decision-making ability in many companies. Do you think that could have an impact on the willingness to start and fund enterprises in India?

Paul: People are doing that, but the notion of an enterprise in India is questionable. What do you call a Silicon Valley company that has two people in the U.S. and 12 in India? Is it an Indian company or a U.S. company? The Indian diaspora is already in some ways investing in India, but not in the classic, "incorporate an entity in India and hire people" way. Instead, it's more like, "Boy, in my next startup in the [Silicon] Valley, I'll make sure I have an India piece." If I am going to set up something for India, I'm going to put it in a tax haven. A lot of that is going on, but it's difficult to measure and track."