Global engineering process outsourcing (EPO) is growing rapidly, with companies establishing captive centers and working with service providers in emerging markets like the Philippines. Businesses and engineering professionals in various industries are feeling the pressure to bring better quality products to market faster, while keeping costs down. Service providers are helping organizations achieve these goals and address challenges unique to each industry.
In 2012, the automotive industry recorded the largest engineering spend among all industry verticals. The number of new products in this segment is increasing, fueling the demand for engineering services from third party vendors. Both established and new companies in the auto industry benefit from third parties that offer design and other services to support new products such as electric cars and electronic parts. The outsourcing of engineering services in this sector helps companies gain about 20 to 50 percent cost savings while improving quality. Because responsibilities are well-defined and communication is clearer between individuals, team members are better focus on the task at hand. Lower rates associated with offshore services can also help expand the number of products that a supplier or manufacturer can make.
New devices and products are being introduced faster than consumers and the market can keep up with them. As a result, companies in the consumer electronics sector feel the pressure to innovate and create "smart" products for differentiation. Service providers shorten the product lifecycle and bring the necessary technology and expertise to help companies achieve competitive advantage. Speed of deployment is one of the top reasons consumer electronics firms outsource engineering services. A service provider can quickly bring in necessary expertise as needed, including senior-level talent and executive roles, without the need to go through a lengthy search and recruitment process. Engineering services outsourcing in the consumer electronics segment can also facilitate transfer of core knowledge to new staff.
Oil and Gas
The discovery and exploration of large oil and gas fields worldwide has led to an increase in outsourced engineering services. Oil refineries, petrochemical plants, gas processing plants and other oil and gas companies reduce costs, improve process efficiency and access engineering talent by outsourcing rig design and support, refinery design and support, engineering integration and support, program management, on-site and offsite training, and technical documentation.
Engineering services outsourcing is also gaining traction in the utilities sector. Instead of building in-house engineering capabilities, utilities companies work with vendors to access skilled labor and advanced technology such as smart grid design and support.
Construction, Industrial and Civil Engineering
Companies in the construction industry outsource engineering services to access offshore talent, reduce costs, and accelerate time to market. Engineering services in this sector encompass everything from planning to actual construction of residential and commercial buildings, environmental infrastructure, transport infrastructure, and water distribution channels. The construction sector in developed economies demands improvement in infrastructure and new construction activities. Engineering service providers are offering their expertise in design, project management, and product lifecycle management (PLM) to ease the cost burden on construction companies, independent contractors, and building owners.
Engineering professionals have always been in demand, but new technology has raised the demand in a way that leave many companies struggling to fill key positions, even in developed countries like the United States. Service providers around the world are filling the talent gap by sourcing skilled people from different locations. Locations like Eastern Europe, Mexico, the Philippines, and Vietnam are increasingly being tapped for talent as demand for highly-skilled engineers continues to grow.
Engineering outsourcing has helped software engineers, architects, structural engineers, mechanical engineers, electrical engineers, landscape architects, interior designers, environmental engineers, civil engineers, general contractors, subcontractor, quantity surveyors, and other STEM professionals (especially those based in emerging economies) get better jobs, training and experience at international firms. The creation of engineering jobs fosters the creation of other jobs, which helps improve economies and raise the standard of living in these areas.
Small and Midsize Businesses
Small and midsize businesses are leveraging outsourced engineering services to compete with the big players. Product development or R&D is commonly outsourced because it often takes significant financial investment (huge fixed infrastructure costs, for example), time and effort to put together development teams that will bring a product to market. All this can reduce the flexibility of startups and organizations that are expanding into a new market.
Some service providers specialize in providing R&D services to SMBs in specific sub-segments, like the machine-to-machine (M2M)/Internet of Things market. Outsourcing delivery models are often flexible and suited to the changing needs of SMBs and companies working with tight budgets and deadlines. For example, the vendor may charge only for the actual hours of work. Flexible pricing plans from engineering outsourcing vendors help small businesses break even in only a few months instead of many years.
Large organizations that have the resources to develop and test products in-house may opt to outsource some engineering processes to gain a competitive advantage while reducing costs. Most large businesses have captive centers in multiple offshore locations, but they continue to work with third parties to access highly skilled, but less expensive resources. Large companies are more likely to adopt end-to-end engineering process outsourcing engagements, wherein the service provider is responsible for the entire engineering process, from design and prototyping to manufacturing in some cases.
The fast-growing engineering services outsourcing market is being driven by many disruptive changes. The rise of intelligent products, convergence of third platform technologies, and faster speed-to-market are fueling growth and pushing companies to seek partnerships with engineering process outsourcing providers. Analysts predict that EPO will continue to evolve and mature in 2015, setting the stage for future growth. Significant market growth is expected as EPO is expected to help improve process efficiencies and give organizations the differentiation they seek.
This has often been described as the age of intelligent products and services. Companies are investing heavily in R&D due to the demand for embedded electronics and software, which are needed to create "smart" devices. Smart devices are popular because they give firms a competitive edge. To keep up with demand, EPO providers are extending capabilities in terms of R&D and embedded software development. Some industries that are increasing their use of outsourced engineering services include high tech, consumer electronics/software and automotive.
Third Platform Technologies
The convergence of social mobility, analytics and cloud are further transforming products and services. Intelligent products generate large amounts of data that provide valuable insights to both consumers and manufacturers. EPO providers are beefing up their analytics services to turn these insights into value for their clients.
Faster Speed to Market
Faster speed to market is one reason companies outsource engineering services. Today's products come to market at a breakneck pace, increasing the demand for EPO services. New products in turn make old systems obsolete, fueling the outsourcing of engineering services to support legacy systems. Changing customer behavior has also forced companies to innovate faster and develop new products.
Pressure to Reduce Costs
Cost reduction remains a major driver of ESO growth. Companies realize that they can improve and extend internal capabilities by working with outside specialists. Outsourced engineering allows organizations to maximize their resources and divert them to more critical and strategic tasks.
Needs of Emerging Economies
Companies in emerging economies have their own unique product development needs, and EPO providers are stepping up to provide flexible and frugal engineering solutions. Both developed and emerging countries are increasingly outsourcing engineering services to access skilled engineering talent, access innovative technologies and processes, take advantage of investment-oriented political climates, and reduce costs. Asia-Pacific was the ESO leader in 2013, contributing over 50 percent to the overall market. The region is expected to experience the highest growth until 2020. Europe is also set for the rise of ESO, as many European companies prefer to outsource engineering services within the same country or region for better regulatory compliance.
Needs of Various Industries
Telecommunications, consumer electronics, automotive, pharmaceuticals, semiconductors, construction and aerospace are industries that outsource specific engineering tasks. A study published in 2014 showed that original equipment manufacturers (OEMs) in the aerospace and automotive industries are strengthening their partnerships with ESO vendors because of the crucial need for R&D and other related activities. Third parties provide aerospace companies avionics, aero engines design, aero systems and interiors, aero structures design, and manufacturing services.
Engineering outsourcing in the consumer electronics sector will experience the fastest growth due to reduced product life cycles and a need for faster product innovation. Demand will also increase in the pharmaceutical sector for outsourced services like prototyping, value analysis, and preclinical testing. Meanwhile, telecoms firms continue to depend on engineering service providers for business support systems, infrastructure, and back-end expertise. Specific services include geographic information systems (GIS) systems, cloud engineering services, network testing, design and implementation, and product lifecycle management (PLM). In the construction segment, CAD, structural design, building information modeling, and project management continue to be in-demand.
Learn more about outsourced staff leasing and the Philippines as an outsourcing destination.
Talk to an expert today. Contact Sourcefit to learn more about the possibilities and opportunities of building your dedicated team of professionals in the Philippines.