Taking the Lead
“The demand for engineering talent is growing, and emerging market countries such as India will play a vital role in expanding capacity,” said Kevin Dehoff, VP, Booz Allen Hamilton.
Interestingly, India’s outsourcing rivals such as China and Taiwan, in the engineering services market, are no way near India because domain expertise is a key component in this space. But some Eastern European countries, especially Russia is one offshore destination that is very attractive for such work. Almost 50 percent of the student population in the country majors in technology, science or engineering, which is far more than in China, India, Japan or the U.S. Moreover, Russian science graduates spend between five and six years at university before entering the workforce, ensuring a more thorough training, according to Russoft, the Russian IT association.
Currently, more than 1.3 million degreed professionals are circulating in the economy, with an estimated 2.35 million more in the university system. If the numbers and studies seem too academic, the actions of global technology leaders speak of the strength of the Russian talent pool. Across the region, independent research and development centers owned by Sun Microsystems, Intel, Alcatel, IBM, HP, and many others have been springing up.
“The advantage [of ESO] is in the combination of cost and value, which make certain types of high-end, analytical work very relevant to Russia,” says Alexei Miller, EVP, DataArt. “While cost is comparable to destinations like India, the quality of easily available R&D talent [in Russia] is higher. Russia has the resources to offer for advanced mathematical research, quantitative analytics, etc.”
Even smaller Latin American countries like Argentina are proving to be a good destination for such services as the country has another major advantage of being near-shore, along with having skilled and cost effective labor.
The U.S. is the largest contributor, accounting for about 75 percent of the total services offshored, followed by Europe (Germany, the U.K., France and Italy), according to ValueNotes.
Japanese auto majors are much more conservative when it comes to offshoring. The small amount of work they offshore are either to their own centers or a dedicated partner. They rarely work with third-party providers.
Challenges
“Unlike IT, engineering services requires specific domain knowledge (for eg, aeronautical engineering) and experienced people rather than fresh graduate engineers. Unlike IT and ITeS where data security is the primary concern, this industry is dominated by concerns on intellectual property,” said Anup Sable, VP - Automotive and Allied Embedded and Tools Line of Business, KPIT Cummins.
The dynamic nature of the automotive industry also poses as a challenge. Being in any technology industry you don’t know what you want to make exactly. You start implementing it and then you make the corrections as the process goes further. It is important how you manage the process. “It is important that customer engineers sit with us,” said Sable. “Working closely with the customer to establish a relationship will help in solving problems to a great extent. It is also important to know how to communicate the changes to the customers.”
Also intensified consolidation in this market space will be a major threat to combat, which will make the independent engineering and design firms more attractive acquisition targets.
