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 have moved up with equal alacrity. Only a small number of companies with the right resources have been able to tap this opportunity, but overall the prospects for the industry look bright.

Traditionally the growth in outsourcing 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 India and China as their focus markets as well, the trend to outsource is set to move only one way – up.

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.

The Slip Between the Cup and the Lip

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. The Indian service providers have not been able to match their efforts to scale up as rapidly as the need, and probably even stay one step ahead. 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.

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.

With east Europe and the Philippines looking to compete with India, it is evident that the ESO providers need to take some fast measures.

Tiding Over the Challenge

So what is it that the ESO players can do? One very widely discussed option is a corporate-academia partnership that starts to train students even before they complete their education. If companies could participate more in developing course curriculum, 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 internship. While efforts around these are already on, they are limited. Though the education system can be blamed endlessly, what is more likely to work are 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. If service providers can attain the balance by ‘right-skilling’, each one of the opportunities can be utilized.