More engineering services outsourcing

Outsourcing consultant ISG has some upbeat projections for the engineering services outsourcing market. At the same time that reshoring is bringing some manufacturing back to the U.S., the trend is to ship more engineering and R&D overseas. According to ISG, roughly $325 million of the $930 million spent on global engineering services in 2012 was ‘outsourceable’, and of that $100 million was spent on engineering outsourcing. The engineering outsourcing spend is growing at three to four times the rate of engineering spending overall.

The top three industries for engineering outsourcing, both today and as projected for 2020, are the automobile, consumer electronics, and telecom sectors. The primary forces behind this are the shortening of product life cycles and the need for cost reduction, but the search for global talent, technology convergence, and the demand for more localization are among other factors driving the trend. India’s dominance in the market is slipping as emerging markets from China to South America, Russia and Brazil play an increasing role. Another trend is the growth of captives, or wholly-owned subsidiaries, which are the norm in China and have become half of the Indian market.

ISG’s report on the topic has a couple of nifty graphs showing which engineering services are typically the best–and worst–candidates for outsourcing by type of company, with the ranking largely based on complexity of interaction. Manufacturers need to predict and account for this trend in planning their engineering, ERP, and engineering support services.