Engineering services outsourcing to reach $40 billion by 2020

Written by R Ravichandran | Chennai | Updated: Sep 26 2009, 05:13am hrs
The engineering services outsourcing (ESO) market, which is estimated to grow at $40 billion by 2020 from the current level of $2.5 billion to $3 billion, presents huge potential for domestic IT companies, said ValueNotes in its latest research.

Domestic service providers has the potential to bring down cost in the range of 20% to 40% for the European and The US clients that too in a short period of around 24 months along with a dedicated team set up.

Companies such as Tata Consultancy Services, Tata Technologies, Infotech Enterprise would benefit from new opportunities unfolding in the sector, the research pointed out.

Quoting examples, the research said 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 million 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 dollars as compared to their previous forecast of estimated 24,300 planes to be sold over the period between 2007 and 2026.

According to ValueNotes, large aerospace and automotive companies are reeling under tremendous cost pressures across the entire product life cycle. Moreover there is constant pressure to innovate using newer technologies.

Cost saving is an immediate as well as long-term imperative for all these companies.

ESO has been in the news for the last decade with various projections being made by several known research companies. 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 there are silver linings visible; however they continue to be cautious in their approach.

The research said the environment is improving and despite temporary slack, the demand for engineering services is expanding and ESO is here to stay.