[ENGINEERING SERVICES] Engineering Services Outsourcing: Growing Demand, Untapped PotentialSmita Vasudevan
Technology-led innovations, global expertise and broad vertical capabilities will be high priority areas in the clients' demand list this year.
Engineering Services - An Outsourcing Evolution
An increasingly competitive market for engineering services has made outsourcing indispensable to the industry, more so following the downturn.
Runa Mookerjee , Analyst , ValueNotes Sourcing Practice
Engineering services outsourcing is likely to skyrocket from $15B in 2010 to around $200b by 2020. In a recent ValueNotes survey1 we found that traditional design and manufacturing services make up the largest portion of outsourced engineering services. An increasingly competitive market for engineering services has made outsourcing indispensable to the industry, more so following the recent global economic downturn.
An increase demand for engineering services is leading to a corresponding increase for outsourced services. Current spending on engineering services of $750B is expected to increase to $1.1T by 2020.Industry sources expect India to play a large part in the outsourced engineering services sector.
Growth drivers include
Changing demographics among western countries - as a ‘dominant engineering service employed’ baby boomer generation reaches retirement, the availability of skilled engineering workforce is on the decline in the west.
Outsourcing helps clients concentrate on core services – the availability of specialised talent that can deliver regular processes helps the firm to focus on its core competencies or development of newer technologies.
During the 2008-2009 global financial recession, several engineering manufacturing companies had to cut back on their costs and downsize in terms of operations, processes and employees. This benefited the outsourcing industry as more was outsourced, and the trend is expected to continue through 2020.
Certain regions which are also among the favoured outsourcing destinations are more popular for engineering service buyers. Besides, led by rapid industrial growth some of these Asian countries form the client base as well as provide outsourcing services.
Going beyond traditional outsourcing
Our survey findings indicated that outsourced engineering services are popular in aerospace manufacturing, industrial and automotive domains. A decade ago, the nature of engineering work being outsourced involved lower end services like creating digital models and drawings and sending these back to the buyer who then incorporated these in his designs. However, engineering work currently undertaken involves a substantial portion of the actual design activity. This has come as a result of buyers realising that to have a competitive edge, they need to realise the full value of outsourcing rather than just cost savings. Subsequently, service providers have evolved into providers of specialised services with a better understanding of their customer product lines. They have also had to build new competencies, such as knowledge based engineering, life cycle management, technical publication - to adapt to changing customer needs that allow them to support complete product development.
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