Outsourcing of Engineering Services Set to Surge

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Friday, January 31st, 2014
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A study by a leading US consulting firm projects surging growth in the market for the outsourcing of engineering services through the end of the decade.

According to the study by Nasdaq-listed market consultancy Information Services Group (ISG), spending on the outsourcing of engineering services was around $325 billion in 2012, comprising nearly 35 per cent of global engineering expenditures, which were pegged at approximately $930 billion.

Offshore expenditures on engineering services were approximately $100 billion in the same year, accounting for nearly 11 per cent of total global spending.

Industry members are showing an increasing propensity to turn to external suppliers for their engineering needs. While global expenditures on engineering services are expected to rise by 50 per cent throughout the remainder of the decade, which would see them $1.4 trillion by 2020,  ISG estimates that the rate of growth in spending on engineering outsourcing will increase at between three and four times this rate.

Jim Routzong, ISG’s manufacturing vertical director, said the Engineering Services Outsourcing (ESO) market is set to enjoy continued growth beyond the end of the current decade, pointing to its increased appeal for companies striving to reduce costs in more challenging market environments, as well as continued evolution in the capabilities of service providers.

India continues to occupy the dominant position in the ESO market, as evidenced by the presence of a plethora of multinational corporations at the three-day India Engineering Outsourcing Show held in Calcutta last week. Attendees included Japan’s Toshiba, Swiss power and automation giant ABB, US power systems company Cummins, and Danish mechanical components provider Danfoss.

The engineering sector continues to be one of the top contributors to Indian exports, accounting for around $56 billion in the last financial year. In December, engineering exports logged year-on-year growth of 15 per cent, comprising almost 40 per cent of manufacturing exports.

ISG sees India’s leading position gradually diminishing, however, as other developing economies, such as China, Russia, Brazil, Mexico and the Philippines emerge as key rivals on the ESO market.

In terms of industry verticals, the automotive sector leads spending on engineering services, comprising around a quarter of total global expenditures as a result of its extensive Engineering Research and Development (ER&D) needs. Consumer electronics and telecommunications are second in terms of spending on ER&D, motivated by the imperative to reduce product lifecycles and pursue technological innovation.

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