(Fortune Magazine) -- Past the lava lamps in the lobby and the cubicles decorated with cricket jerseys, a programmer sits in front of two flat-screen monitors touch-typing code. Another is plopped in a beanbag chair balancing a laptop on his knee. In a corner, near an electronic keyboard, a turbaned Sikh relaxes in a massage chair, eyes closed. Interspersed among the cubicles are a foosball table, billiards, darts, a chessboard, and a board game called carrom. A tent-shrouded chair sports a sign, FORTUNES TOLD HERE.
Oh, and there's A.C. Narendran, a former Microsoftie in the U.S. who defected to Google in California before decamping here, to the company's research center in Bangalore, where he thought up the idea for Google Finance. He sits in a cubicle like everyone else, near the free food - cans of Pringles, bags of chaat (fried snacks), and piles of candy bars, including one appropriately named Perk.
In the cafeteria, steam trays serve an array of Indian curries. "The key here is we are not just Google, but Indian," says Prasad Ram, who heads the research center and spent 18 years in the U.S., much of it at Xerox. "This is the perfect hotbed for finding the next set of ideas."
Google's experiment in replicating its Silicon Valley workplace indulgences and luring back the Indian talent that helped fuel the dot-com boom in the U.S. is a deliberate strategy. This is not outsourcing in the usual sense of seeking cheaper labor. Rather, it's a brain drain in reverse.
Google chose Bangalore in 2004 as the site of its first R&D center outside the U.S., says Sukhinder Singh Cassidy, who heads Google's Asia operations from the company's Mountain View, Calif., headquarters, in part "because so many Googlers who are Indian want to move back to India and participate in India's growth."
And with the U.S. now issuing half the H-1B visas for skilled high-tech workers that it did in 1999, combined with fewer foreign students coming to study at American universities, the newly minted versions of engineers like Narendran and Ram haven't been coming to the U.S. in the same numbers anyway. It used to be that you had to go to the U.S. to participate in technology's cutting edge. It used to be that Indians thought it was more prestigious to get a U.S. education and work in California. Not anymore.
Google is riding this trend, as are many other companies in India. Yahoo employs about 900 engineers at a research center in Bangalore, roughly nine times more than at Google's. And IBM has hired 53,000 people in India, becoming the nation's largest foreign employer. That's not to mention the 285,000 employed by India's four tech giants: Infosys Technologies, Wipro, Tata Consultancy Services, and Satyam.
But what Google has in India is the cool factor. Its online lure, "We're Hiring," is seen by everyone using Google's search engine - an estimated 75% of India's 25 million regular Internet users who prefer Google over Yahoo and local portal Rediff, according to online research firm JuxtConsult.
Those who work at Google speak of a halo effect. Landing a job at Google is said to increase marriage prospects in a culture where title and income are critical to the practice of arranged matchmaking. Google says it pays on average about three times the annual salary of a tech services company in India. Depending on experience, that means $13,000 to $30,000 a year, according to industry watchers, who say that Google engineers with five years of experience make $40,000, and those who have developed a patent can make up to $100,000 - plus stock options, taxi service to and from work, and health insurance that includes a worker's parents.
The result, says human resources director Manoj Varghese, is "thousands and thousands" of job applications a month and only one defection to another company so far. That's pretty unusual in a market where attrition rates for tech workers average 12% to 20% a quarter. As Ram puts it: "We get the cream of the talent that this market produces."
So does that really make Bangalore an innovation hotbed? Consider this: Part of what helped drive innovation during the dot-com boom in the U.S. was Silicon Valley's diversity, its confluence of people with various backgrounds and nationalities creating entrepreneurial networks. Ethnic Indians and Chinese started 2,700 companies in Silicon Valley during the boom. One-third of Valley engineers were foreign-born, and many of its luminaries were too: Yahoo co-founder Jerry Yang is Taiwanese; Google's Sergey Brin comes from Moscow; Sabeer Bhatia, who started Hotmail, is a former Indian army officer.
Another mother of innovation was the Valley's campus-like environment. All those beanbag chairs and flextime schedules and pets in the office weren't just perks, or so the theory goes. The idea is that given personal freedom, resources, and organizational motivation, smart people will create new things. "Anything that gets more folks talking to and working with each other improves creativity," says Narendran.
"These games and lounge chairs clearly send the message that folks are not expected to do any work here, and software engineers being contrarian in their thinking go and do the opposite - which is to work all the time." Ram attests to this: When he arrives for his typical 12-hour workday at 4 A.M. to talk to colleagues in Mountain View, "people are just leaving. This office works around the clock."
Management theory also holds that a diverse group of people will be more creative than one that isn't because of the greater variety of ideas, perspectives, and approaches to solving problems. Now consider that in the context of what Google is doing in Bangalore, at a larger facility in Hyderabad, and at two smaller offices in Delhi and Mumbai, where it has hired more than 1,100 Indians, almost 10% of its global workforce.
There may be no Chinese or Russians in these offices. But there is a wide range of diversity nonetheless. These Googlers aren't just Indians. They're Sikhs, Hindus, Muslims, Buddhists, Christians, and Jains. As the cream of India's talent crop, they speak English, but they also speak Hindi, Tamil, Bengali, Telugu, and several more of India's 22 officially recognized languages. "In the U.S., because you live in a fairly segregated society, you have to do something explicit to build diversity," Ram says. "We don't."
So if the management studies are true, it means that Google's R&D center in India has the potential to produce greater innovations than its other research centers in China, Korea, Japan, and Australia, where populations are more homogenous.
And so far that's been borne out by Google Finance, Google's first innovation born in a foreign R&D center. It started as a 20% project - a companywide attempt to tap the innovation potential of employees by asking them to spend a portion of their time chasing a personal project. Gmail came out of one such project in Mountain View.
As Narendran recalls, one day soon after he moved to Bangalore, he was talking with Krishna Bharat, a classmate from the Indian Institute of Technology and the originator of Google News (another 20% project). Bharat had also come back to India to work in Bangalore. "Having lost a lot of money in the market during the days after 2000, I had wanted to do something to help other folks make better decisions around stocks," Narendran says. "Krishna was working on figuring out information about companies and their industry memberships, and it became obvious to us that combining this with news and stock market data would be priceless."
And so Google Finance was born. It still has a lot of catching up to do with first-mover Yahoo Finance (comScore Media Metrix ranks Google Finance almost last among the 20 finance and business news sites it monitors). But Google Finance pegs relevant news to points on stock charts. Yahoo Finance doesn't.
In addition to tapping India's talent pool to develop the next Gmail, Google has two other main goals in India. One is as a customer-support center for the AdWords business in the U.S. and Britain: those pay-per-click sponsored links on Google search pages that are the company's primary source of revenue.
That's what the majority of the young hires in Google's Hyderabad office, drawn from liberal arts colleges rather than tech schools, are doing: approving ads before they go live and providing technical support and e-mail customer service. Google execs are quick to say these Googlers are not just back-office functionaries.
"The jobs are complex, and they change rapidly, so we need really smart people," says Roy Gilbert, Google's online sales and operations director in India, who notes that Googlers have the freedom to move around within the system. Many do - Gilbert included. He used to run Gmail back in Mountain View.
Google's other goal involves India as a market. The country's online advertising industry, though puny at $53 million last year compared with $16.8 billion in the U.S., is forecast to grow to $563 million by 2009, according to ZenithOptimedia. "Revenue growth here is some of the highest we've seen," says Shilesh Rao, a Canadian-born, U.S.-raised Googler with funky eyeglasses and family roots in Bangalore who moved to Delhi six months ago to head Google's advertising and government relations.
Equally important is the development of products to serve emerging markets. Google is trying to reach the 5.5 billion people in the world who aren't yet on the Internet. In India, eight times more people have mobile phones than have Internet access, and even that market is fragmented into users who talk, users who text, and users who let the phone ring once and hang up. (Hang-up callers can communicate an arrival at a designated meeting place or the completion of a service without having to speak - and incur charges.)
That makes developing web applications not only complicated but also important to Google's future, particularly if a significant portion of the population never buys a PC. What they want from the Internet is going to be different. "If you think about the rest of the 5.5 billion people," says Rao, "they're interested in livelihood services, things that generate income."
In developed markets, much Internet use is about lifestyle conveniences, such as driving directions and movie showtimes. In India that information doesn't even exist. Google now offers search functions in five Indian languages and is working to bring it up to ten, but online content in those languages is limited. Google Maps has launched in just 57 Indian cities so far. While the pictures from space exist, sending people to find out the name of a lake or a road - and then figure out how to write it - takes time. Indian Googlers know these things, and they interact with people of different income levels on a daily basis.
"The fact that they come from this culture, the fact that they've seen the population of the world that's not on the Internet," says Ram, "that puts them in a fairly unique position that allows them to transcend both worlds and be creative about emerging-world products."
That's the point where diversity and Valley-style freedom come together. "The instinct here is to be entrepreneurial, to take risks, to be aggressive," says Rao. "But there hasn't been a culture that allows that to take root. If you create an environment that encourages it, that comes out."
Veterans of India's talent wars say they've been emulating Silicon Valley all along. "The best practices of Indian technology companies have always been strongly influenced by the Valley culture," says K.S. Raghunathan, head of the Indian design center that InSilica, a chip-design firm in Santa Clara, Calif., started in 2003, a year before Google set up shop in India.
The Infosys campus in Bangalore also reflects a California consciousness: It has 43 state-of-the-art buildings, including a replica of the Louvre pyramid, a putting green, an orchard for guava and figs, a 14-cuisine food court, a shopping mall, and an outdoor swimming pool. "We had a casual culture even before Google was formed," says co-chairman Nandan Nilekani. "We allow casual dress at the end of the week. We're on a first-name basis. It's been our culture for 25 years now."
But Infosys employees dress in business attire Monday through Thursday, unlike the jeans and casual shirts seen on most folks at Google all the time. Employees can't swim in the pool before 5:15 P.M., and there aren't many beanbag chairs. In part it's because Japanese and European clients expect some formality when visiting the campus, says CEO Kris Gopalakrishnan. But it's also because chaos doesn't work when you're managing 80,000 people.
At Google, any regimentation is a turnoff. Googlers, according to Varghese, are hired precisely for not being straitjacketed, for being risk takers with an entrepreneurial spirit. "At Infosys you're just one in 80,000 people," he says. "Here we can work on something we create rather than something others created."
One such young entrepreneur is Zubin Nalawalla, a 23-year-old from Mumbai with movie-star looks. He joined Google in Hyderabad in February after first starting his own travel company. Things were going fine, he says, but then he saw the "We're Hiring" link on Google and decided to click on it. Now, in addition to his job answering e-mail queries from AdWords customers in Britain, he also runs Google's Adventure Club, which takes Googlers on weekend trips. "Those trips really help people to get to know one another," he says. He also likes to take advantage of Google's free gym and after-work sporting activities: "There's so much food around, I need to work out."
Nicolette Sharma, 35, an online services manager in Hyderabad, agrees that Google gives people more freedom than other companies. "Other people don't understand what they're doing, what their company is doing," she says. "We're always told why you do what you do, why your share of work is important." But at times Googlers seem to be drinking the Kool-Aid. Says Kalpana Behra, 27, who works on the training team in Hyderabad: "Everyone knows they're changing the world."
The transplanting of Silicon Valley culture is increasingly visible in India. In an upmarket neighborhood in Bangalore where high-tech professionals live, there's an entire store dedicated to selling beanbag chairs - in case workers can't get enough bag time at the office. At the Central department store in downtown Bangalore, customers waiting for the elevator sit on - what else? - beanbag chairs.
But there are other, more serious consequences. Competition for talent is fueling the kind of rampant salary and compensation increases reminiscent of another era. High-tech firms report having to increase salaries up to 18% annually just to keep pace. There's a rising sense of confidence in India, also akin to the U.S. tech bubble.
"The attitude of people looking for jobs here is like it was in Silicon Valley in 1999," says Rao. Employees are starting to ask what companies can do for them rather than the other way around. In a country that wants to create innovations of its own, that's not necessarily a bad thing. Costs may be rising, but that may mean innovation is about to take off too.
"We have tremendous ambitions for what we can do here," says Rao. "What we can create in Google is the best of India playing itself out." If he's is right, Google is well-positioned to take advantage of India's transformation.
Reporter Associate Sufia Tippu contributed to this article.