Experts’ Opinion on Engineering Services:
The Next Frontier in Global Sourcing
Engineering services is an exciting new offshore outsourcing opportunity, especially for India. The market is expected to grow ~40 percent over the next five years, based on demand patterns, but increasing resource constraints need to be addressed quickly through privately funded education and training programs
By Debashish Sinha, President, BNI Service Strategies, and Dr. Pradeep K. Mukherji, Strategy and Sourcing Advisor
Global sourcing for services remains a dynamic and fast evolving, area of strategic business activity. Over the last few years, the basic business model — offshore outsourcing of simple, stable and repetitive tasks, primarily designed to save cost of labor — has seen a transformation to where complex, intellectual capital intensive functions can be effectively outsourced. This, the third wave in the evolution of offshore outsourcing (after IT services and BPO), is broadly termed Knowledge Process Outsourcing (KPO).
Within the KPO umbrella, a key area gaining attention and interest among Global 2000 enterprises is ESO, where a significant part of the core IP development activities in industrial sector companies is outsourced to specialized offshore vendors with highly skilled resources.
ESO deals have moved fairly quickly from simple 2D and 3D drafting and architectural drawing services to high-value analysis and design services, including CAD/Engineering and finite element analysis that test the structural soundness of manufactured components; Computational Fluid Dynamics that test properties of fluid flow through manufactured components; and Noise, Vibration and Harshness analysis (NVH), that analyze external noise in automotive design. The chart below shows the typical trajectory of a Design Engineering Lifecycle.
As it stands today, ESO broadly covers the following:
- Product Design Services – Especially CAD and drafting, concept validation, finite element analysis, etc.
- Prototyping – Manufacturing prototypes and testing involving advanced simulation
- Process Design – Design and implementation of processes associated with product engineering, including core manufacturing processes
- Product Testing — Testing design, its execution and reporting
- Quality Control – QA checks and management of the QC processes
- Product Lifecycle Management (PLM) – Design and implementation of PLM applications for information management across the product lifecycle
- Plant automation and enterprise asset management
The Emerging Offshore Opportunity
Global spending on engineering services is currently estimated at $800 billion per year. By 2020, this figure is expected to increase to over $1 trillion. Of the $800 billion spending, however, less than 2 percent is currently outsourced offshore. Considering the growing imbalance between the demand for engineering skills and the availability of skilled resources within industrialized nations, and the active transformation of businesses into globally organized manufacturing centers, we expect to see a high rate of transition to global sourcing for Engineering Services over the next five years. ESO is expected to grow at an average annualized rate of ~40 percent over this time period.
Domains that have already started leveraging offshore outsourcing include mechanical, electrical and construction engineering design, embedded systems and chip design, instrumentation and controls systems, manufacturing processes and tools design, industrial design, product lifecycle management (PLM) and software product engineering.
The demand for ESO comes primarily from the six key sectors, which are stated below:
1. Hi-tech/Telecom (21%)
2. Automotive (19%)
3. Pharmaceuticals (13%)
4. Construction/Industrial Products (10%)
5. Aerospace (9%)
6. Consumer Electronics (9%)
These sectors together account for 81 percent of the ESO spend, with the remaining 19 percent coming from a wide range of other specialized verticals.
