Emerging world of Engineering services outsourcing in India - Kazim Ali Khan
Bill Gates once said “Success is a lousy teacher. It seduces smart people into thinking
they can't lose”.
Engineering; Destiny India - ESO
Taking cue from what Gates quoted, it is critical to note that sustaining leadership position is about constantly upgrading abilities to deliver smarter, faster and quicker. Equally important is scaling up the value chain by enhancing the customer experience thru innovation, process development and breath of service offering.
The emergence of engineering service outsourcing (more than just an engineering BPO) is one such area after ITO, BPO, KPO and LPO that is catching the attention of the world today. India with its strength in outsourcing business and a relative stronger position in Automobile, Hi-tech telecom and Aerospace industry is well saddled to become an indomitable force globally for Engineering services outsourcing work.
Various Industry surveys suggest that the current value of design services, which is US$700 billion, and the expected value of design services, by 2020 will be US1 trillion with Design, R&D, Product development and Innovation as some areas of focus.
For instance with R&D focus industries like IT, health life sciences, defense systems, telecom, aerospace, automobile and industrial engineering the opportunities are growing amidst major corporations setting R&D centers (even terming them as ODCs sometimes) in various offshore locations.
Mushrooming of such offshore business models, growth in number of patents, royalty agreements, transformation of global businesses with outcome based research focus etc., over the last decade is a strong signal of an underlying opportunity in R&D outsourcing market which in India is approximately about $8B (2008).
ESO as an emerging industry demands a great mix of skill, tools and experience akin to manufacturing support services in manufacturing industry. Harnessing such opportunities is only possible in creating an ecosystem that fosters process development, innovation and deployment of best-in-class technology to delivery complex products and services quicker, faster and smarter to worldwide customers.
Growing with times ESO – India
Engineering services outsourcing in India is in its fledgling state. Although with a relatively stronger position in industries like Aerospace, Automobile and hi-tech telecom, focus on industries like construction/industrial, utilities and others is equally required. Sourcing engineering services for design and engineering requirements started getting momentum way back in 1980’s and it high time that an inclusive approach is followed for developing capability in sourcing engineering services globally.
Service providers in India are expecting major opportunities in drawing conversions and CAD migration assignments, 2&3D modeling and digital mock-ups, conceptual design, analysis and validation; complete design outsourcing, manufacturing co- ordination, CPC / PDM; overall process quality improvement, e-engineering solutions, remote monitoring and system architecture development. Engineering services at the plant automation and maintenance level (enterprise asset management) also appears promising areas to focus for India.
Many major ES companies in India are not only expanding breadth of services but also reconstituting the scope of work while approaching customers. With the advent of cloud computing technology it is likely to gain traction and is expected to support many service providers to develop an integrated service offering across the value chain.
On the other hand, buyers of such services apparently are opting gradually to work with integrated service providers in long term relationships. Comfort with supplier, predictability of service, efficiency in planning, deployment and management of capital assets and production appear to be some of the reasons of doing it.
This is leading to maturity of the vendor landscape and evolution of the market that necessitates installed capacities of R&D services for far efficient services to the customers. Companies with strong technology play are likely to take leadership positions in gaining the market share.
Numerous industry reports present competition landscape of ESO comparing India with emerging destinations like China, South Korea, Singapore, Taiwan etc., on industry structure, talent, segment dynamics, market players and so on. So far, India appears on an overall basis to have specific and strategic advantages. However, it is noteworthy to understand that leadership in today’s time is about the “role” you play than mere ‘position’ on the global scene.
If that is the case so, gaining leadership position and sustaining it on a long term basis is possible only when we understand the emerging industry landscape, align with the same globally and develop capability in gaining leadership role.
To this effect, a road map at the industry level with a policy framework keeping competition and our strengths in consideration is necessary to gain momentum.
1. Better business metrics
2. Creating time and skill utility – by embracing global servicing model
3. Vertical engineering companies embracing global sourcing model for strategic purpose of cost and efficiency management
4. IT Services firms spot significant value besides the existing operators
5. Investment and allocation of funds with the need to develop R&D and IT capabilities will also have a spin off impact
1. Customer acquisition costs and retention is high
2. Far greater risks in managing global teams than in ITO or BPO outsourcing
3. Strategic leadership time and effort is pre-requisite for success of ESO
4. Highly iterative standards and complexity of delivery
5. High level of domain knowledge leads to complexity in hiring talent
6. Retaining talent comes with super specialized work reducing opportunities of re-skilling
7. Knowledge transfer, application of know-how while at process transition stage or implementation stage leads costs over-run
Base challenges :
a. Engineering education is about knowledge, know-how, and character. Mushrooming of educational institutes in India couldn’t keep up the quality of education
b. With an intake of more than 5 lac students in bachelor programs, over 30,000 in masters and around 1200 in PhDs programs, the supply still seem to be insufficient considering future opportunities since ESO, manufacturing, IT and BPO industries showing signs of strong growth story
c. Research facilities mostly found to be either inadequate or misaligned with the industry needs
d. Dearth of well-qualified faculty and the student faculty ratio at Master or research level is at sub-optimal level
e. Amenities required providing quality education like laboratories, tools, machines etc., need a complete revamp across university and institution levels.
f. Facelift the status of various engineering related vocational courses by resurrecting the course curricula, industry interface and employability
a. Creation of ecosystem
b. Engineering work may get outsourced to captive centers significantly
c. Smaller companies and small work of outsourcing can continue for some more time
d. Enhancing skills to procure high end work in aerospace, automotive and hi-tech domain
a. Engineering expertise is core for many companies outsourcing of it at large scale is only a long term bet
b. If engineering process at its core strength then its integration with other core engineering processes/services is a real time challenge
c. Although piece meal outsourcing in design is happening for e.g. NPDI process, but it is still sometime before an integrated service model is proposed for enhancing it beyond design
d. Possibility of outsourcing will gain momentum, once it prepares to leave the shores but today the outsourcing of process is preferred in shores and mostly piece meal.
e. Legal & Policy / Governmental, Trade and Regulatory affairs
To conclude we need to understand that dynamism is in true reflection of ESO Industry globally. Today, it appears as one of the highly iterative, skill demanding, technology intensive sunrise industry that needs sharper focus on value creation, time to market approach, value added services and high quality service delivery.
After all as we see, India is at the inflection point to define its destiny to become a poster boy for the global engineering landscape.
Focus ESO India: Some references
1. Promoting Engineered in India concept - www.nasscom.com
2. India has a market share of 20-25 per cent in global sourcing market of engineering design and product research and development, which is worth around USD 150 billion in 2008
3. India comprises 28% of the suitable global talent pool for off shoring services; 12% of the total engineering workforce is currently in India - Booz Allen Hamilton study
4. While in FY05, only $10-15 billion of engineering services was off shored, the market is expected to grow to $150 -225 billion by 2020 - www.nasscom .com
5. Aerospace offers the greatest potential for expansion – though it is also one of the toughest opportunities to tap because of its close association with the defense sector – Booz Allen Hamilton
6. India's automotive engineering services outsourcing industry is expected to grow at a compounded annual growth rate (CAGR) of 32 per cent by 2012-13, with the potential to generate revenues worth US$ 2.2 billion over the next two years – Frost & Sullivan
7. The US$ 3.25 billion semiconductor design services market in India is expected to reach US$ 14.4 billion by 2010, according to a report by ISA-Frost and Sullivan.
8. Close to 200 semiconductor companies operating in India, about 120 of these are into chip-designing - iSuppli Corp.
9. India's chip design industry is on an accelerated growth curve, with market revenue expected to reach US$ 2.1 billion by 2010, rising at a Compound Annual Growth Rate of 29 percent, up from US$ 596 million in 2005 - iSuppli Corp.
10. Aerospace domain is a key component of engineering outsourcing and India’s potential to become a significant global competitor with presently around $1B of offshore outsourcing currently happening out of India in aerospace in the areas of mechanical engineering and design, embedded systems/avionics and components manufacturing put together, this has the potential to double or even triple in the next few years. www.livemint.com
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ABOUT THE AUTHOR
Author: Kazim Ali Khan Site Head & Head Account Management – ITeS Ma Foi Management Consultants Limited ( A Randstad group company)