India Will Be the Global Hub for Engineering Services Outsourcing: Report 2013

India’s trade association of IT and BPO industry, NASSCOM expects that the engineering research and development industry in the country will touch US$40 billion by 2020 from the current US$10-11 billion mark. This will provide a significant impetus to the engineering outsourcing industry (ESO) and will position India as the hub of these services globally.

Short Product Lifecycles

According to Som Mittal, President of NASSCOM, what started earlier as outsourcing for cost reasons has changed. Customers are realising that markets are now shifted to emerging countries. Product lifecycles are becoming shorter; hence time to market is short. “So it’s no more about cost but adding that additional value to our customers across the segments. What has also changed is the fact that customers are talking about designing all the way up than just components”, Mr. Mittal said. He further added that the next phase of growth will be design led manufacturing.

Advanced Capabilities

India with its natural competitive advantage is likely to play a big role in various segments of the engineering services industry. The Indian engineering industry is rapidly growing as a major outsourcing hub with a CAGR of more than 30 per cent. Automotive, telecom, retail and aerospace industries are the major verticals that spend heavily on outsourcing engineering services for design and engineering requirements. All these industries are expected to outsource 40 per cent of their engineering activities to the engineering service providers by 2020. Service providers in India will acknowledge a huge demand for CAD migration assignments, 2D & 3D modeling, conceptual design, reverse engineering and architectural drafting.

Key Drivers

The Indian ESO market would be able to maintain its leadership position and sustain it on a long-term basis on account of the following growth drivers.

• Indian ESO companies embrace global sourcing model for strategic purpose of cost and efficiency management.
• Major engineering outsourcing firms are expanding their service offerings and reconstituting the scope of work to cater to different industries.
• Indian companies offer better business metrics.
• Cost arbitrage along with increasing skill-sets is a major driver in channelizing business to India.
• Most companies in India have advanced capabilities and skill-sets, and have invested in technology to take advantage of this opportunity.

Risks Ahead

Although Indian ESO market is attaining maturity and is moving in full swing, there are many reasons why certain things may prove a challenge to the Indian outsourcing firms. Competition from upcoming outsourcing destinations such as China, South Korea and Singapore, and concerns related to intellectual property could pose a major challenge to the growth of this market. Some of the issues like perennial economic slowdown and shutdowns may also impact the market growth significantly.

Outlook

India accounts for about 23% of the overall Engineering and R&D outsourcing market, according to a report, ‘Global R&D Service Providers (GSPR) Rating 2013’. The report stated that the total exports in the Engineering R&D outsourcing segment from India stood at US$16.3 billion. Going forward, the global ESO market is likely to grow at a CAGR of 25.8 percent through 2016. The report stated that the ESO market has been witnessing the emergence of India as key ESO destination and Indian outsourcing firms dominate this space considerably.

– Backoffice Pro