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Juniper Networks Plans Major R&D Expansion in India - Is Offshoring Best for Innovation?

Juniper Networks is planning a major expansion to its “India Excellence Center (IEC),” a research and development center in Bangalore, India. The company announced this week that it would add 750 seats and 450 equipment racks at a new site in Bangalore over the next two years. The company currently has 1,800 staff members and 300 development partners working at its existing campus in Bangalore. The new office will be located at Bangalore's new Prestige Exora Business Park and is being developed in two phases.

Disadvantages of Offshoring

While Jupiter Networks has chosen India as a key component of its R&D and support initiatives, competitor Palo Alto Networks has taken the opposite approach and has kept its entire development team in the United States. “We have a strong belief that the synergies of keeping all product groups co-located far outstrip the perceived advantages of moving resources to low-cost locations. We believe that productivity, innovation, and customer satisfaction aren't related to the size of the development team, but are directly influenced by how well the team collaborates and is focused on the customer,” said René Bonvanie, Vice President of worldwide marketing at Palo Alto Networks. Palo Alto Networks’ entire development team, which numbers approximately 90 engineers, all work together in California.

Nir Zuk, founder and CTO at Palo Alto Networks, has focused on keeping development in the United States from the start. Zuk, who interestingly served as CTO at Jupiter Networks for a short time following the acquisition of NetScreen, in a recent interview with Sramana Mitra, said he wanted to make sure the company would be 100 percent U.S.-based. “It was very important for me that we did not offshore or outsource. We do all our development and manufacturing here. That was important to me for several reasons. I am a U.S. citizen, even though I did not grow up here. I want to support the United States, not India and China,” Zuk told Mitra. “I believe that it is a social responsibility of entrepreneurs who were educated in the United States, or learned how to be entrepreneurs in the United States, to give back to the United States. They should not take their skills to China or India. The second side of that is that I just do not believe in offshoring. In the early days of a company, everybody needs to be in the same building.”

For Juniper Networks, its operations in India are responsible for a full spectrum of activities including hardware and software development, test engineering, field trials, program management, quality assurance, technical documentation and product line management. It also provides 12-hour-a-day global customer support covering all Juniper products and operates a Finance Shared Services Center, which delivers functions to Juniper Finance organizations across the world.

“This expansion reflects our ongoing commitment to increasing the depth of experience and expertise in the India region, which is becoming increasingly important not just as a source of engineering talent but also as a fast-growing market for Juniper Networks," said Sridhar Sarathy, managing director of IEC at Juniper Networks.

India is known to pump out a mass of software engineers from its universities each year. These software engineers can work cheaply and quickly, but many question the quality. In the past, Microsoft’s Chief Research and Strategy Officer, Craig Mundie has been critical of the quality of software engineering talent coming from India. During a visit to India, Mundie was quoted, saying “India does not produce enough good computer engineers, and those it does are good at theory but not very well equipped to handle the practical aspects.” That visit was several years ago so perhaps that perception has changed. (Note that Microsoft does have a presence in India, including a research center).

There will always be a debate over the effects offshoring has on the domestic economy and on U.S. jobs, but how does it affect the quality and pace of innovation for technology companies? Does it bring a competitive advantage? Again, Palo Alto Networks doesn’t think so: “Today, our team of about 90 engineers has out-innovated and out-delivered in the network security space and we are convinced that this is in large part due to our belief of having them all work together in California,” said Bonvanie.

It’s important to realize that we’re not comparing apples to apples here. Juniper is a much larger company with over 7,000 employees worldwide with annual sales over $3.5 billion, and a broad portfolio of products from firewalls to routers, switches and software. Just last week Juniper acquired virtualization security firm Altor Networks for $95 million. Palo Alto Networks, on the other hand, is a much smaller, but fast growing company in a hot space. It has only been selling a product since August 2008 and the company now has over 2,500 customers and is exceeding a $100 million annual sales run rate that the company plans to at least double in 2011. As Palo Alto Networks grows, will it be able to keep all its development teams and resources in the United States? Perhaps its next CEO will influence that decision? The company is likely to go public sometime in the next few years, and that may be challenging as investors pressure for rapid growth and profits, combined with increased demand for customer support from a larger customer base. Not to mention, a current shortage of top grade engineers and cybersecurity talent in the United States has been challenging many industry vendors and government agencies.