Cost analysis of new entrants to the ESO market

Engineering services means creating new product or processes. Although this market is similar to ITO
or BPO sectors, ESO needs highly specialized talented engineers. Huge amount of engineering
services are outsourced to growing economies.

There are several factors that influence companies to outsource their engineering services to third
party service providers. Apart from low cost, companies outsource these services to get their products
better, faster and cheaper at the market place. Companies also outsource at a premium as it allows
them flexibility to convert fixed costs into variable costs.

Why to Outsource?
4.13 3.77
3.14
2.65

Flexible source for Skills Outsourcing of cut down

handling sudden non-core activities operational costs
spikes of work

Source: Barry-Wehmiller International Resources, ‘Engineering Services Outsourcing A research on

drivers and trends’

The engineering services market is classified into six major sectors which include Hi-Tech/Telecom,
Aerospace, Automotive, Utilities, Construction/Industrial and Naval. About 30% of the global
engineering companies spend on ESO. The major types of services, which are outsourced, include
the low-cost services.

Product designing •It includes concept development, analysis, desig, simulation,

production, testing and Product Lifecycle Management
& technology solutions
development

•Includes plant layout and designing for better production

Plant design & process
Automation •Help the organisation with faster decisions

•Includes utilization of several techniques and tools for

Process competence through optimized plant set-up and operational
engineering costs

•It includes maintaining, managin and monitoring the plant,

Maintenance and associated automation systems and equipments
Operations

Re-Engineering •Includes techniques to lower operational inefficiencies by

and Process using continuous performance assessment of the processes
evaluation and re-engineering them

Source: Tholons
Asian countries, especially India and China, have fierce competition to grab this growing
advantageous opportunity. The reasons are emerging local demand, strong manufacturing base, cost
arbitrage and large talent pool. Companies also have their own engineering centers offshore, but
these companies also outsource engineering services third party engineering service providers.

Others,
23

India, 54
China, 23

Source: Barry-Wehmiller, ‘Engineering Services Outsourcing A research on drivers and trends’

India is ranked as the top location offshore for the upcoming ESO market because of wide availability
of highly skilled engineers, English language skills and strong legal and political background along
with a strong protection of intellectual property (IP) and cultural compatibility with the West. Nasscom
and Booz Allen Hamilton foresee that India has potential to grab 25% of the total ESO market across
the world from the current share of 12%.

It is necessary that India dominates the ESO market worldwide as there is a lot of competition from
other low-cost countries. Many emerging economics are striving hard in ESO market and are doing
well. There are also substantial challenges that ESO vendors face. Undoubtedly, cultivation of talent
is the most crucial challenge. Not only UK - US English language skills, but engineers should have in-
depth knowledge of engineering fundamentals. Infrastructure is another challenge that India would
have to face.

To acquire USD 40 billion of the international ESO offshore market, India will need strategic and
rigorous efforts of the government and the business.
 Promotion of Indian engineering expertise

Improvement in domain expertise will help in attracting companies

looking for high-value and mission-critical engineering projects

Modernized infrastructure in less span of time is necessary

in some key cities. Create Satellite cities

Not only talent, but quality and quantity of work is of utmost importance

Government , along with the busoness, should see to it take further steps to ensure
that the ESO market in India grows to its full potential by implementing necessary
rules and regulations

The Government should also give perks to multinationals whishing to expand their
engineering presence in the country. At the same time, it should not underestimate
the desire of international companies to enter into the Indian market

India has a vast opportunity for ESO market offshore. However, it won’t stay for a longer time,
particularly in the advanced industries. Hence, India should grab this opportunity to become a
concrete economy for the ESO offshore sector. To begin, India should prefer outsourcing low-cost
services like CAD, CAM, CAE, etc. Like any other market, it will be difficult to tap the ESO market
gradually when cost is unlikely to be the most crucial aspect in sourcing a project design. Hence, India
should capture this market as early as possible and keep it. Service relationships in ITO and BPO, at
present, could have a great impact if India is unsuccessful in assisting the engineers to ascend the
value chain further. To maintain the existing hard-won relationships, outsourcing vendors should add
more value that a mature engineering services provider will offer.