Bangalore: With newer customers, including automakers Renault, Volkswagen and Harley Davidson, seeking to outsource their complex design engineering projects to India, the engineering services outsourcing (ESO) industry in the country is set to achieve $55 billion in revenues by 2020.
As reported by The Economic Times, new outsourcers are seeking to reduce their costs by up to 30-40 percent and also shorten their lengthy design cycles. Traditionally, aviation and defence companies, such as Airbus, Boeing and Bombardier, have leveraged Indian suppliers, including TCS, Mahindra Satyam, Infosys and QuEST Global so far for outsourcing of design services, making it around $7-9 billion business for India currently. Also, for existing Indian suppliers, new customers offer an opportunity to move beyond aviation and defence projects. Mid-tier aviation and defence service companies, such as QuEST and Infotech Enterprises, have started diversifying in order to address these opportunities.
Meanwhile, IT is not the only expertise these customers are seeking. Many automakers are seeking to outsource projects for niche capabilities. "Some of the potential customers include French automaker Renault, which is working on its ultra small car for the emerging market and U.S. motorcycle maker Harley Davidson," said a senior official at one of the tech firms exploring such contracts. While car maker Volkswagen plans to establish an engineering centre, Japanese automaker Nissan is currently in discussions with both TCS and Wipro for a potential contract, the person added.
With manufacturing and auto firms in the U.S. seeing a revival in demand for their products, outsourcing of design and other IT projects is expected to gain momentum. Apart from auto, railways, heavy engineering and consumer electronics companies are also seeking suppliers. "In all of these verticals, large request for proposals are coming out from the US and Europe," said BVR Mohan Reddy, Chairman of Infotech Enterprises. "And they will come to India because of cost arbitrage advantage and on-time delivery."
TCS, for instance, is working on hybrid-battery technology for fuel efficiency, partnering with a U.S.-based automotive major. "TCS is expecting to grow the engineering and industrial services (EIS) business from 6-10 percent in the next three years," said Regu Ayyaswamy, Vice-President and Global Head (EIS) at TCS.
According to experts tracking the sector, design projects can be done at $25 per hour, compared with $75 per hour rates in the U.S. and Europe. "Many automobile majors have already set up plants here. These trendy, fuel-efficient automobiles incorporate a variety of electronic modules and the production of such modules locally, in proximity to the automobile plants, is a definite advantage," said MindTree Senior Vice-President and Technology Evangelist, R&D services, Padmanabhan SN.