06 Oct 10 Bridging the divide: Demand for ESO and shortage of talent
- Meggitt, a specialised extreme environment engineering company, signed a $50 million engineering management outsourcing contract with HCL. As part of the deal HCL will provide engineering services for Meggitt’s global operations.
- Rolls-Royce, the global power systems company, and Tata Consultancy Services (TCS), the leading IT services, business solutions and outsourcing firm, announced a global engineering services partnership. As part of this deal, TCS will provide many engineering services across the product life-cycle. The services include support from TCS so that Rolls-Royce strategy to expand its engineering services footprint in India can be implemented. TCS is to establish an engineering centre in Bangalore, India to cater to Rolls-Royce design and engineering.
The last few years have seen many changes in the engineering outsourcing market. From basic services such as CAD, CAM and recreating digital images of documents, the industry has moved to providing end-to-end services. The companies that are providing engineering outsourcing services are increasingly adopting a partnership model and are getting involved in the processes right from conceptualization, to innovation, designing, development and creating prototypes. The fast growth augurs well for the industry that has been able to chart out a fast move up the value chain. This is of course not to say that all the players in the engineering outsourcing industry has moved up with equal alacrity, but the point is that some select companies with the right resources have been able to tap this opportunity and prospects for the entire industry look bright.
The brimming cup
This fast growth now needs to be developed into a model that can be replicated across the industry. Traditionally the growth has been led by industries such as aerospace, automotive, telecom and consumer electronics; and this trend is expected to continue in the foreseeable future. Outsourcing is increasingly being accepted as a strategic move, and considering most of the large companies see emerging countries such as Indian and China as their focus markets as well, the trend to outsource is set to move only one way – up.
As companies across the global battled recession over the last couple of years, the prime objective was to stay afloat, which mandated tremendous cost cutting. As outsourcing has already proved its mettle in that respect, the choice was seemingly obvious; the biggest challenge of course came in the form of locating the right fit to outsource.
The ESO market size is estimated to be worth more than $60 billion according to various industry estimates. This opportunity extends across verticals such as aerospace, automotive, defense, heavy equipment, telecom, consumer electronics, energy and others. This diverse set of sectors also demand an extremely diverse set of services that include, civil engineering, design automation, drafting and 3D modeling, electrical, instrumentation and control systems, embedded systems development, engineering analysis, manufacturing engineering, plant design engineering, re-engineering, technical publications among others. These services that require specialization in design, research and development, IT, etc. are in great demand from markets such as the United States, the United Kingdom, parts of Europe, and Japan.
That there is absolutely no dearth of opportunity is for all to see, yet the reality is that the industry is facing challenges in achieving growth. As service providers across the world understand the opportunity, their efforts to scale up as rapidly as the need, and probably even stay one step ahead have been found lacking. The Indian service providers in spite of their experience in the outsourcing industry are no different. So why are they struggling?
Engineering outsourcing is not just about cutting costs, what it equally demands is constant innovation, better processes, top-notch quality, research and development, state-of-the-art infrastructure and rapid scaling up. An important aspect that affects almost each one of the parameters mentioned above is manpower – not just availability but also their qualification and competence. This critical aspect of availability of qualified and professional employees and with domain knowledge is a pre-requisite for any service provider to cater to the growing demand.
The slip between the cup and the lip
While India with its on-paper strength of over 1 million engineers looks suitably qualified to meet this opportunity head on, there is a slip between the cup and the lip. The biggest industry challenge at this point is definitely the lack of resources – or to put it more accurately, lack of employable resources. This industry needs individuals that are not just equipped with domain knowledge but also have adequate exposure to global best practices, trends and are equipped to think innovatively. Most of the fresh graduates are merely wired to follow set processes, with no attention whatsoever on ‘thinking innovation’. So as these ESO providers look to move up the value chain, the likelihood of finding talent that matches up to the requirements are remote.
According to industry experts less than half of the engineers that graduate from engineering colleges are employable. Companies that are operating in this industry have also echoed similar thoughts. While the situation is bad at entry level, it’s even worse at the middle-level management. The task ahead for these companies is huge when it comes to bringing these prospective employees up to the mark. Not only do they have to train these employees in specifics as demanded by the client, they need to take a step back and re-train them on basics that will bring them up to the minimum employable criteria.
Another challenge that these companies face is lack of awareness. Not many engineers look at an ESO provider as a viable career option.
Tiding over the challenge
So what is it that the ESO payers can do? One very widely discussed option is a corporate-academia partnership that starts to train students even before they complete their course. If companies could participate more in developing course curriculum so that it manages to stay abreast of the developments in the real world, the students stepping out with degrees would be better equipped to deal with realities. This involvement in academia can continue where students can do live projects as part of their internships. While efforts around these are already on, they are very few and far between. While the education system can be blamed endlessly, what is more likely to work are thoughts and efforts to improve the situation.
Another approach that would work well is – partnerships. Service providers are already trying to move to this model by partnering with the end customer, if they develop a similar model for the supplier side as well, it could go a long way in improving the talent crunch. Partnerships among niche providers, or other providers in competitor destinations and partnerships with engineering companies may go a long way in improving scalability.
An industry already reeling under squeezing margins, demanding customers and competition from other destinations, the service providers are in a dire condition and need to scale up fast. China, the Philippines and some eastern European countries are fast scaling up, and the workforce in these locations seems to be well equipped to deal with the challenges that the engineering outsourcing segment throws at them. Unless India works at procuring these pre-requisites fast, chances are that these destinations will overtake it as preferred destinations.