Outsourcing in engineering is not a new concept. Large companies in automotive, construction, manufacturing and other industry clusters within heavy engineering have been outsourcing part of their design and drafting work to third party vendors for quite some time. So have the consumer product companies. However, the nature and value of the outsourced business varies significantly in both cases.

It is generally the specialized engineering firms that these jobs are outsourced to. The fact that IT services companies are doing a large chunk of this work is by and large an Indian phenomenon. Almost all the large Indian IT services firms have a focused approach to engineering services, a practice growing in size.

TCS, the Maverick
In the late eighties Tata Consultancy Services (TCS), then a division of Tata Sons, was reselling engineering design software products primarily to Indian customers. TCS dealt in Unigraphics and some other products from McDonald Douglas. Providing support services was critical, and for that TCS had to build considerable expertise around these products. By 1994-95, TCS had developed significant skill-sets in these and similar areas.

Combining its traditional services strengths and newly acquired skills, TCS wanted to expand into the engineering design lifecycle space. An ambitious thought, considering such work had hitherto been done only by specialized engineering services firms. These being end-to-end engineering services companies and pure play design firms. For a generalized IT services firm like TCS, this was certainly a first. TCS tried selling the idea to an equally innovative and bold customer, GE, which at that time was its customer for IT services. GE, a pioneer in several areas including offshoring, saw value in the proposition and evinced keen interest. By 1999, TCS signed on GE for high-end analysis work on the abstract jet engines. That deal, though presumably small, was surely a giant leap for engineering offshoring business in general and the Indian IT industry in particular.

Since then TCS aggressively pursued this line-of-business and has been able to maintain pole-position till date. Today, with others joining in, engineering design services has become an integral part of IT services portfolio in the country.

A Heterogeneous Mix
Unlike services that target enterprise IT functions and areas, engineering services is not a horizontal by itself. So what exactly constitutes engineering services? While different companies follow different definitions for engineering services, in our study we have excluded a few services that are often classified by some companies as engineering design services. They include software product engineering, embedded software design, and any other semiconductor related design work. The primary reason for doing that is that today these services are far more integrated with other IT application development work, and hence there is a tendency to club them with application development.

This has resulted in the exclusion of most of the high tech industriessoftware, IT, semiconductor, telecom systems. High tech products that have become consumer products in their own rightlike mobile phonesare the only exceptions. They are included in consumer products.

There are various ways by which the industry can be classified. The three most common ways being: nature of work, verticals and provider types. Even this would result in some overlaps. Since engineering life cycles are so different across verticals, it is almost impossible to have a simple classification by type of work that will apply well to all industries. In our research and subsequent analysis, we have tried to study the market based only on classification by industry and by provider type.

The major outsourcers of engineering services, leaving the excluded categories mentioned above, are aerospace, automotive, construction, consumer products, industrial/medical devices, and manufacturing. By and large, they remain the major industries for engineering services. But the extent of offshoring is fairly different for each of these sectors.

The India Focus
In India, most of the third party players draw their revenues from three areasautomotive, aerospace, and industrial/plant automation. Consumer products are fast emerging as a major segment, though. Many other segments, that are globally big spenders on these services, are less visible in India.

Take construction, for instance, where globally, the spending on services is huge. But the revenue break-up of most of our top companies indicates otherwise. There are a few reasons for this. Firstly, a large chunk of engineering spend by the construction industry is onsite. But more importantly, this is an area where the traditional service providers are fairly organized and consolidated. Many of them are present in India, unlike designers in aerospace and automotive industries. Having sensed the opportunity well in time, most of them built large offshore services teams, which now cater to their global customers. Examples include big names such as Bechtel, Flour Daniel, Butler, and Lurgi. All these firms have fairly large offshore services teams. Also, many of them use India as a resource base for manpower, even for their onsite work.

Traditionally, the level of enterprise IT usage in construction is low. As a result, Indian IT services companies have had limited interactions with them. On the other hand, industries like automotive and aerospace are smart users of IT at the enterprise level. Indian IT services companies have leveraged these relationships to get an entry into their engineering departments.

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