My recent visit to one of India’s major engineering service providers was a truly rewarding experience. The place was abuzz with engineers, designing and developing products for renowned global automotive manufacturers. In fact, most of those designs were to be used by the OEMs in their global manufacturing facilities, signifying the increasing trend of engineering services outsourcing (ESO) to India.
ESO is touted as the next big opportunity for India after the IT and BPO waves. According to a Booz Allen Hamilton-Nasscom report in 2006, of the total US$ 750 billion global engineering services market, about US$ 10-15 billion was outsourced to low cost countries; India accounted for about 12 percent of the total engineering services outsourced. The automotive industry offers one of the biggest revenue opportunities for India in engineering and design, up to US$ 1 billion by 2010, from the current estimate of US$ 500 million.
Indian companies have come a long way from handling labour-intensive, simple drafting work to developing products involving complex engineering designs. Big names such as Ford, GM, Robert Bosch, Toyota, BMW and Delphi are already outsourcing some portion of their global engineering requirements to India through captive centres or third party vendors.
Cost arbitrage is no longer the only motivating factor for companies to outsource engineering work to India. India’s edge lies in its ability to combine skill with low cost. The availability of abundant engineering talent along with the burgeoning local market for automotives and growing competencies of Indian companies has made India the preferred destination. Having an engineering centre in India is now seen as a strategic move that gives access to new markets and increases productivity.
While foreign automotive manufacturers have set up captive centres in India, indigenous players like Tata and Mahindra & Mahindra, and specialist engineering services companies like Infotech, Neilsoft have set the tone for increased offshoring. However, the entry of Indian IT giants such as TCS, Satyam and Wipro has provided the much required impetus for the automotive engineering and design outsourcing industry. As designers of IT solutions for engineering companies, providing product engineering services was just the next step for them; leveraging on their IT expertise and global delivery models.
With pressure mounting on CEOs of auto majors in the US and Europe to reduce product development cycles and costs, they are ready to outsource critical activities such as R&D, plant design, enterprise asset management, process engineering and plant automation services, which have been confined to the boundaries of these companies.
Though India is seen as one of the major beneficiaries of this trend, lack of domain expertise and inadequate quality infrastructure might act as impediments to the growth of ESO. It is also important that the Indian government, which has already been informed of the requirements by the ESO industry, addresses issues affecting the industry and help it scale greater heights. On their part, Indian companies need to move up the value chain, provide complete product services and build long-term, value-driven relationships with their clients.
All in all, an exciting future for the Indian ESO industry.
