Engineering outsourcing next on cards

NEW DELHI: After tweaking codes, testing software, answering calls and processing documents it’s probably time for India Inc to look at engineering services outsourcing (ESO). And with good reasons. Engineering services a $750bn-a-year global industry promises to be the next big frontier for offshore firms to tap.

While only $10-15bn of the $750bn is at present offshored, the potential is huge, it may reach $150-225bn by ‘20. Already global companies in the telecom, automotive, aerospace, utilities, construction and industrial machinery are looking at India to cut costs via ESO. India has the potential to corner a share of $12bn to $16bn by ’10, but the more likely scenario is a size of a mere $3bn to $5bn! To take a big bite into the ESO pie India has to fight off competition from Israel, China, Canada, Mexico and East Europe.

As in the case of BPOs, companies chasing ESO may be saddled with low-value, low-margin business, unless they aggressively fight for a share of the “high-value, high-margin product and systems engineering market,” says a Nasscom-Booz Allen Hamilton study on ESO.

When asked to elaborate on the reasons for the gap between potential market and what Indian may actually get, Nasscom vice-president, Sunil Mehta told ET, “The India brand name is not as strong in ESO as it is in IT services and BPO. India needs to build a significant manufacturing capability to tap the ESO space. If we miss it, lot of the ESO work could go to China particularly in the telecom and embedded software space.”

To support the engineering services market India will need about a quarter million engineers by ’20. While the current engineer graduate base is adequate it is not suitable for ESO tasks. Such services call for a good grasp of the engineering fundamentals. “To meet the demand we not only need to improve the quality of engineers but also the quantity,” says Mr Mehta.

Despite the hiccups companies like GM, Intel, Texas Instruments, Daimler Chrysler, Bosch, ABB, Bechtel, Caterpillar are sourcing engineering services from India via captive units or third party providers like Satyam, Wipro, Infosys.