Engineering services outsourcing (ESO): 2010 and beyond

Wednesday, 03 February 2010

With the gradual recovery of economic conditions globally, the engineering services industry saw some large deals being signed in past few months. Some of the recent deals in the past six months are:

The Infotech Enterprises-Hamilton Sundstrand Corp. four year multi-million dollar avionics contract announced in Jan 2010
Mahindra-Satyam Saab deal worth $300 million signed in Nov 2009
QuEST Global- SABCA 10 year $100 million deal announced in Nov 2009
General Electric’s multi-million dollar three year contract extension with Mahindra Satyam announced in Sep 2009
Bombardier’s decision to outsource engineering services worth $200 million overseas over the next few years announced in Aug 2009

Such deals indicate the prospect of a strong growth potential in the ESO industry in the coming years. With several deals being signed and umpteen market size estimates being thrown by research firms, as mentioned in our earlier article ‘Engineering services outsourcing - Silver linings ’ on the industry, ValueNotes decided to do a reality check on the situation by conducting an industry-wide survey ESO survey 2010: 'How does the engineering industry feel about outsourcing? ”. The purpose was to assess the global reaction to outsourcing in the engineering services segment. The analysis helped us understand the level of satisfaction of the industry in terms of sourcing, quality, cost savings, delivery, etc. The survey also provided us insights on the future of outsourcing in engineering services.

The survey was taken by over 200 participants globally across industries. The participants included engineering service buyers (manufacturers), service providers and industry analysts. The break-up of the respondents is provided in the exhibit below:

Source: ValueNotes Research

The survey results discuss the buyers vs. service providers’ perceptions on key issues like challenges, outsourcing as an alternative to mitigate challenges, favored outsourcing destination, cost savings, etc.

Cost savings conundrum

We can see a significant disparity between opinions of buyers and service providers on cost savings via outsourcing.

Source: ValueNotes Research

Some other key findings on buyer vs. service provider perceptions are listed below:

Parameters	Buyer perception	Service provider perception
Role of outsourcing	Outsourcing can address cost pressures and lack of in-house capabilities	Pricing offered is one of the least competing parameter to attract buyers and domain expertise is one of the key strength
Cost savings	One-fourths of the survey respondents do not believe that they achieved any cost savings via outsourcing	A majority of the service providers believe that they offer 25-40% cost savings to their customers
Growth	Most of the buyers opine that they already outsource and will continue to do so and will even increase outsourcing by 25% in the future	76% service providers claim that their customers are repeat buyers
Customer satisfaction	A majority of buyers believe that there is still scope for improving the overall service experience	Most service providers claim that they are the best in quality, understanding customer need and domain expertise

Source: ValueNotes Research

Most of the survey participants including buyers, service providers and industry analysts believe that outsourcing will increase by at least 25% in the next two to five years. India, China and Eastern Europe will be the most favored outsourcing destinations. However, the reasons for outsourcing are not purely the perceived cost savings but also quality of work delivered. Buyers who are not keen on outsourcing said that ‘inability to maintain the promised quality standards’ is one of the key issues behind their decision to not outsource.

Overall, the recent deals in the industry coupled with the responses of the stakeholders in the industry lead us to believe that engineering services industry is here to stay and will grow at around 20-25% in the next two years and beyond.

Please click here to download a copy of our survey findings.

Based on survey responses, we will release a detailed industry-wide report - Engineering services outsourcing: Perception vs. Reality . We have used cross tabs to analyze the responses to provide comprehensive insights into buyer behavior and service provider perception.

With this report, service providers will be able to:

Understand buyer satisfaction levels across industry and geography
Identify concerns of buyers around operational aspects such as quality, delivery, etc.
Offer stronger value proposition to prospective clients by understanding the challenges they face
Generate inputs to their marketing strategy by understanding, which geography and which service areas are likely to see an up-tick in outsourcing

This report will be released in March 2010. To view the table of content of the report and to book your copy, please click here . You can avail an attractive discount on the report price as part of our pre-release booking offer, which is valid till 15th March 2010.

For any other queries email us at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or call 91-20-6623 1793 /717.

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