23 Sep 09 Engineering services outsourcing – Silver linings
In March 2009, Bombardier announced a deal worth $1.44 billion signed with Lease Corporation International Aviation for a firm purchase agreement for CSeries jetliners. Bombardier has decided to outsource $200 m worth of engineering services overseas. This deal is being vied for by Indian IT biggies- Infosys, Mahindra Satyam, Capgemini as well as specialists like Infotech Enterprises and QuEST Global.
Bombardier Aerospace has been in business in India with Capgemini and Mahindra Satyam since 2005. Other top aerospace companies; Airbus and Boeing have also been outsourcing to India-based engineering service providers over past many years, so have auto majors Ford and Rolls Royce. This year, Airbus revised their forecast for the period between 2009 and 2028 to sell 25,000 passenger and cargo planes with a total value of 3.1 trillion US dollars as compared to their previous forecast of estimated 24,300 planes to be sold over the period between 2007 and 2026.
What this means for Indian service providers?
Large aerospace and automotive companies are reeling under tremendous cost pressures across the entire product life cycle. Moreover there is the constant pressure to innovate using newer technologies. Cost saving is an immediate as well as a long-term imperative to all these companies.
Indian service providers that we researched typically provided customers with cost savings in a range of 20% to 40% in a period around 24 months along with a dedicated team set-up for the client. Several of these providers are tapping new opportunities unfolding in the sector:
What Indian ESO companies are busy with these days?
|Engineering service providers
|In the process of securing a full vehicle program for a major Asia-Pacific automotive OEM
|Focusing on auto sector for fuel efficient cars, clean technology based engines for aerospace, developing medical electronic devices
|Tata Consulting Services
|Working on hybrid battery technology for fuel efficiency in partnership with a US automotive majo
Engineering Services Outsourcing market or ESO has been in the news for the last decade with various projections being made by several known research companies. Figures usually differ due to difference in defining the services encompassed in ESO.
|US $1 billion by 2010*
|Frost & Sullivan
|US $40 billion by 2015 (Indian ESO market)
|US $7.5 billion by 2012-13 (Indian ESO market)
|Nasscom and Booz Allen Hamilton
|US $50 billion by 2020 (Indian ESO market)
*Only automotive design and engineering offshoring to India
Though the above estimates appear optimistic, major Indian IT biggies accept that there was a temporary lull in the business few months back. The economic downturn impacted the margins of most service providers. Most players believe that there are silver linings visible; however they continue to be cautious in their approach. We believe that the environment is improving. Despite temporary slack, given the fact that the overall demand for engineering services is expanding, ESO is here to stay.