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Engineering Services Outsourcing
www.engineeringservicesoutsourcing.com – Home of Engineering Services Outsourcing
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Engineering Services Outsourcing
What are engineering services?
Engineering services are those service functions that deal with or related to core engineering processes.
Examples are:
The distinction that needs to be drawn here is between engineering functions and engineering service functions. An engineering function could be auto engine manufacturing. A related engineering service function would be designing the engine. It is similar to the distinction between manufacturing and manufacturing support services.
What is engineering work?
Engineering work is unique in the sense that it is generally not considered a commodity; rather it is considered a value-added service. It is not something that can be automated as there are always different factors and emerging technologies. The engineer is in contact with the client at all steps. The user may also be brought in the process. This is an iterative process. Constant reevaluation of the process and the progress is required. This leads to modifications. Upon completion, the engineer may be involved in the operation, the sales, or may teach the use of the product.
Standards play a large role in engineering work as much of engineering results in the design of products. Standards serve to facilitate the reproduction and ensure compatibility between products. This could be in the form of standard software formats to guidelines for fitting screws or pipes.
IT is linked to the entire value chain but engineering
sits at the heart of it % of respondents considering their function as core /
strategic (BAH survey): How large is the engineering services domain?
Well, very large, because practically all core engineering functions will have an accompanying service / support aspect. In some industries, the support activity might be much less in scope than in some others, but in practically all engineering domains, the support element exists.
Some estimates put the engineering services industry to be close to a trillion $ in size. That is over 2% of the total world economy. Imagine!
Are engineering services prevalent equally all over the world?
Not really.
In the 1900s, engineering and engineering services were
primarily in some parts of western europe and north america. Currently, engg
extends to more parts of Europe, Russia, and Australia. In the near future
(2015), it will be in India and China as well. Top reasons for foreign R&D sites
Business Environment (9%) Can you name some top industries that involve significant amounts of engineering services?
Automotive, Aerospace, Telecom, Semiconductor, Consumer
electronics and Pharmaceuticals verticals
Why should engineering services be outsourced?
For pretty much the same reasons why many other services - such as traditional business processes such as accounting and software development - are outsourced. (1) Cost, and (2) Ability to get better quality, through a vendor qualified in and focused on a specific engineering service domain.
While cost was perhaps the most important aspect in business process outsourcing, in the case of engineering services outsourcing, the ability to get better quality from a domain focussed vendor is an equally important driving factor.
But ESO is much more complex than BPO because of the complex nature of engineering design. Engineering services delivery revolves around technical skills, domain expertise and good engineering judgment. Engineering design work centres on product IPs of manufacturing companies. Most of the services outsourced are related to design services around patented products, design specifications or customised interiors of a total engineering solution.
Can all engineering services be outsourced?
In theory, yes. In practice, no.
What types of engineering services are being outsourced?
Well, a rather wide range of engineering support services have been outsourced for many years, but most of these outsourcing assignments have been with onshore or nearshore partners/vendors. Offshore outsourcing of engineering services is a relatively recent phenomenon and only a small subset of services are currently being offshored - examples are CAD outsourcing for a variety of design intensive industries, automobile & other product designing, testing & analysis of products for various parameters and characteristics.
Many companies have begun to make a mark, successfully using the skill-sets, tools and experience from IT software and services, to evolve from providing basic data conversion, through 2D and 3D CAD/CAM/CAE, advanced simulation, prototyping, testing, PLM, product design (engineering), process engineering, plant automation and asset management services. Though most of the initial players in the segment have emerged from legacy IT services businesses, today the segment has matured with several of these firms having established an independent engineering services practice:
Offerings to US clients include concept modeling of products based on customer requirements, as well as the design and manufacture of:
CAD and design services in AutoCAD
Why can't some engineering services be outsourced in practice?
For strategic reasons and integration with other processes.
What are the engineering services that cannot be outsourced in practice?
There are many processes that limit the amount and type of work that can be offshore outsourced: proximity needs, expertise, licensure, and quality of work. Construction or manufacturing engineering requires proximity to where the project is being undertaken. U.S. engineers possess expertise in specific areas, making it undesirable to use foreign engineers. Certain types of engineering work require the signature of a licensed engineer. Thus far, it is difficult for a foreigner to become licensed or for licensed engineers to sign off on work that is not done under their direct supervision. Finally, if offshore outsourcing results in diminished quality, insurance companies may take notice and charge higher premiums. This added expense would make offshore outsourcing less appealing. (Source: http://www.wise-intern.org/journal/2004/WISE2004-LoriSimpsonFinalPaper.pdf Page 3)
How is it possible to offshore engineering services? Aren't there physical constraints to outsourcing engineering services, as against outsourcing IT or business processes?
Engineering services, especially in design, can easily be exchanged offshore
Engineering work is generally not seen as a commodity. It is seen as an iterative process of design and reevaluation. There are many stages—planning, design, manufacturing or construction, and then finalization. Each step requires the skills and expertise of an engineer in different ways. The final step may require an engineer to actually operate, teach the operation, or sell the product. While the entire engineering process does not seem conducive to offshore outsourcing, there are pieces that can be outsourced. Typically, a company outsources projects or engineering tasks to another company within the United States. However, some of this work is starting to go offshore. Larger engineering companies would actually set up divisions abroad where they would hire foreign engineers to work for their company. For example, Boeing has a Russian division designing airplane components. General Electric employs over 6000 engineers and scientists in Israel, Hungary, India and China to research and develop (source - http://www.wise-intern.org/journal/2004/WISE2004-LoriSimpsonFinalPaper.pdf )
Which are the major offshore sites being considered for ESO?
Sites Under Active Consideration for Engineering Services India leads the pack for engineering services, CURRENT Countries like China are formulating policies that are
aggressively geared towards attracting high value add services Comparison of
Incentives Offered by Countries for R&D/Engineering Services (Relative
Scale) Czech India China Mexico Russia Republic Poland Hungary Thailand
Philippines Tax Reduction (e.g. tax abatement in SEZs) Subsidies & Grants
(e.g. Subsidy on percentage of total cost) Infrastructure Improvements (e.g.
access to communication, power, water supply, roads, etc.) Training &
Education (e.g. grants to train employees for new roles, grants to R&D
institutes) Policy Support for Engineering Offshoring Strong Support Moderate
Support Passive Support 12
Are engineering services being outsourced to offshore centers such as India?
Yes, countries like India have just about begun to assist in providing outsourced engineering services, but this trend is expected to grow much faster in future.
Mkt potential for India - About 30 billion $ by 2020
What is the exact process of an engineering services offshore outsourcing assignment?
Some engineering fields are more technologically advanced and are utilizing current computer and technological capabilities. These firms are most prone to outsourcing as items can easily be sent electronically. This strongly affects the computer and electrical engineers first, and then the mechanical and chemical engineers. Civil engineers are the least prone to be affected due to the type of work and how the work is performed.
It is currently easier for large engineering firms to offshore outsource (examples of which were given previously in the section titled ‘Current situation’). Very large firms already have engineering and manufacturing sites offshore. So they outsource engineering work to their own engineers in another country. (Boeing currently has an engineering team in Russia.) Small firms are less likely to use outsourcing as it is costly to setup a counterpart in a foreign country at a small scale. After outsourcing consulting companies are setup, it will be easier for smaller companies to outsource the smaller quantities of work. Examples of such companies that offer globalization services (facilitates offshore outsourcing) is Genesys International and Continental Design & Engineering. Genesys International is an engineering consulting firm that offshore outsources. It sends abroad such services as “Detailed engineering for distributed generation, co-generation and tri-generation …Realtime Performance monitoring and Verification…Preventive Monitoring and Diagnostic Maintenance Training”. Its website outlines the following process for offshore outsourcing:
Source: http://www.wise-intern.org/journal/2004/WISE2004-LoriSimpsonFinalPaper.pdf , page 34
Process of Engineering Work Including Offshore Outsourcing
Source: http://www.wise-intern.org/journal/2004/WISE2004-LoriSimpsonFinalPaper.pdf, pg 35
An excellent offshore outsourcing case study - http://www.wise-intern.org/journal/2004/WISE2004-LoriSimpsonFinalPaper.pdf , page 36
What are the aspects that affect offshore outsourcing of engineering services?
The Progressive Policy Institute found that there are two factors that limit the offshore outsourcing of general service jobs: “1) the degree to which functions can be cost effectively transformed into electronic flows facilitated by telecommunications; and 2) the degree to which these new activities still require spatial proximity to suppliers, customers, competitors, or other unites in the firm
Other aspects
Who are the top ESO vendors?
Some of the top vendors include:
Other Questions, Issues & Challenges Confronting Engineering Services Outsourcing
Engineering Services Outsourcing News, Updates & Web Resources
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Engineering Services Outsourcing