Engineering Services Outsourcing Market Size, Share & Trends Analysis Report By Service (Designing, Prototyping, System Integration, Testing), By Location, By Application, By Region, And Segment Forecasts, 2021 - 2028

Report Overview

The global engineering services outsourcing market size was valued at USD 1.06 trillion in 2020. It is expected to expand at a compound annual growth rate (CAGR) of 22.9% from 2021 to 2028. The increasing collaboration between Engineering Service Providers (ESPs) and Original Equipment Manufacturers (OEMs) is expected to emerge as one of the primary factors contributing to the growth in the adoption of engineering services outsourcing (ESO). The globalization of R&D activities, the rising demand for integrating the latest technologies in the product offerings, and the growing need to shorten the product lifecycles and cut costs are also expected to contribute to the growth of the market. The ESO market has been evolving continuously in line with the strong emphasis of the clients on outsourcing various services as part of the efforts to cut costs.

The ESO model has also been evolving accordingly to deliver smart solutions to the clients. As such, the market has witnessed a paradigm shift from core-engineering services to embedded engineering solutions, including automation, analytics, and the internet of things (IoT), among others. Meanwhile, advances in technology have paved the way for products-as-a-service engineered with integrated IT solutions capable of scheduling maintenance and preventing unexpected outages by predicting those in advance. At the same time, the globalization of R&D activities has compelled the key market players to include global systems of delivery in their respective business strategies.

The market has been witnessing a paradigm shift in engineering service requirements from mechanical and non-core requirements to core competencies in niche markets. The changing approaches toward product lifecycle development are cementing the position of ESPs in the OEMs’ supply chains. As the ESO delivery continues to evolve, ESPs are creating service delivery models, which integrate much broader engagement portfolios, and an authorization framework, which facilitates innovation and accelerates both bottom-line and top-line growth.

The implementation of Industry 4.0 is encouraging smart manufacturing and driving the demand for the latest industrial solutions based on robotics, AI, and machine learning, thereby opening opportunities for IT integration in the service offerings of ESPs. End-use industries and industry verticals, particularly automotive, and aerospace, among others, which require dedicated hardware manufacturing capabilities, are emerging as potential clients for providers of digital transformation services. As such, the rising demand for automation mechanisms in the open system architecture is expected to open immense opportunities for ESPs. On the contrary, new entrants may find it challenging to establish a foothold in the market owing to a looming lack of project expertise, technology expertise, and business operations.

However, digitization also leads to cybersecurity issues. Incumbents of various end-use industries and industry verticals exchange large volumes of information, including data related to monitoring, load management, and quality assurance, with service providers, OEMs, and consumers. Similarly, service providers, OEMs, and suppliers also often exchange confidential information on technology, performance, and specifications of services or equipment to enhance collaboration on design, development, and support. Hence, manufacturers are undertaking preventive measures, such as assessing the network operations, protecting crucial information with access codes, and retaining the original versions of the design or the source code, as part of the efforts to protect the Intellectual Property (IP).

The impact of the outbreak of the COVID-19 pandemic and the subsequent lockdowns in various countries across the world on the ESO market varied depending on the end-use industries and industry verticals. Industrial facilities, manufacturing plants, and public transport were shut down temporarily as part of the efforts to arrest the spread of the disease. As a result, incumbents of industries and industry verticals, such as automotive and construction, had to confront a downturn in demand. However, sales of personal vehicles are expected to increase in the near future as people prefer avoiding public transport in the wake of the COVID-19 pandemic.

Service Insights

The testing segment accounted for the highest revenue share of over 30.0% in 2020 and is expected to continue dominating the market over the forecast period. The need to develop and redesign product models with higher compatibility and bug-free operations has been driving the growth of the testing segment over the past years. OEMs are particularly hiring software testing services from ESPs for installing user-friendly and bug-free software. Furthermore, the growing demand for outsourcing testing services to reduce manual intervention and turnaround time is also expected to contribute to the growth of the testing segment.

The designing segment is expected to witness significant growth and exhibit a CAGR of around 25.0% over the forecast period. The growth can be attributed to the growing complexities of designs and the need to cut costs by outsourcing designing to a skilled but relatively low-cost workforce. The growing popularity of industrial, visual, architectural, and graphic designing for next-generation mobility solutions and equipment is expected to trigger the demand for design engineering over the forecast period. The soaring demand for consumer-centric products is also expected to contribute to the growth of the segment.

Location Insights

The onshore segment accounted for the highest revenue share of over 55.0% in 2020 and is expected to continue dominating the market over the forecast period. Onshore services envisage the delivery of services to an OEM based in the country where the ESP is based. The political and geopolitical barriers, time zone barriers, and language & cultural barriers are some of the barriers that prompt OEMs to opt for onshore outsourcing of engineering services. Onshore outsourcing particularly annuls language barriers and helps in enhancing communication between OEMs and service providers, which further enhances the delivery of products and services.

Offshore services envisage cross-border delivery of engineering services. The offshore segment is anticipated to witness sluggish growth as compared to that of the onshore segment owing to the global inflation rates, high churn rates, training costs, and growing preference for outsourcing to onshore partners. Additionally, ESPs need to abide by various regulations mentioned in the outsourcing contracts while catering to clients present in different countries. The nominal growth of the offshore segment can be attributed to the availability of cost-effective resources and easy availability of a skilled talent pool in countries, such as India, China, Malaysia, Mexico, and the Philippines.

Application Insights

The industrial segment accounted for the highest revenue share over 60.0% of the overall market in 2020 and is expected to continue dominating the market over the forecast period. Digitization is increasingly being adopted in various exploration services, including drilling, blasting, crushing, and tunneling. Industrial goods manufacturing enterprises are particularly adopting cloud infrastructure to modernize their IT infrastructure, drive automation, and streamline legacy processes through the implementation of private, public, and hybrid clouds. The implementation of the industrial internet of things (IIoT) to reduce downtimes, detect and prevent faults, and cut maintenance costs is particularly expected to drive the growth of the industrial segment.

The healthcare segment is anticipated to register the highest CAGR of 30.0% from 2021 to 2028. The growth can be attributed to the aggressive investments in advanced medical equipment, laboratories, and medications. The ESPs witnessed an upheld in their sales as they are rigorously favored by the healthcare industry, especially in the past few months, to develop drugs and vaccines that will eliminate the harmful effects of coronavirus. Healthcare companies are increasingly collaborating with the ESPs to enhance clinical proficiency and cut operational costs. Several healthcare organizations are striking strategic alliances with the ESPs to augment their market presence and provide services to improve the client-contractor rapport. For instance, in August 2020, PRA Health Sciences' data solutions division, Symphony Health, expanded its data services worldwide by striking an alliance with Close-Up International, a provider of sales audits and medical prescriptions.

Regional Insights

Asia Pacific dominated the engineering services outsourcing market with a revenue share of around 40.0% in 2020 and is expected to witness significant growth over the forecast period. The Asia Pacific happens to be a hub for industrial goods manufacturing and for hiring cost-effective services delivered by highly skilled engineering professionals. The region also serves as an epicenter of prominent software outsourcing service providers. The growing need for technological innovation and the continued integration of embedded software into the existing models is expected to drive the growth of the Asia Pacific regional market.

South America is forecast to witness significant growth over the forecast period. The region has emerged among the most preferred offshore outsourcing location for manufacturers and suppliers based in the U.S. As a result, several key market players are trying to gain a foothold in South America. Another critical factor driving the growth of the South America regional market is the stable wage inflation as compared to other offshore locations. Additionally, the paperwork required for outsourcing activity in the region is extremely detailed, which acts as a benefit, thus making it a lucrative market for both parties.

Key Companies and Market Share Insights

Key incumbents of the market include Infosys Limited; Tata Consultancy Services Limited; ALTEN Group; Altair Engineering, Inc.; Boston Engineering Corporation; and Altran. Prominent industry players have been aggressively developing solutions that can potentially help manufacturers in implementing state-of-the-art technologies in their engineering projects. The changing consumer preferences have increased the pressure on the OEMs for accurate and quicker delivery, thereby making it necessary to include outsourcing in their operations. ESPs strive to cater to the requirements of the clients beyond the latter’s core competencies as part of the efforts to develop enhance customer loyalty and maintain long-term collaborations.

OEM-supplier partnerships help in coordinating the business processes and activities while reducing the overall costs by streamlining work processes and encouraging diversification. For instance, in July 2017, Akka acquired CTP SYSTEM SRL of Italy and Edelway of Switzerland. The two engineering firms specialize in the life sciences and pharmaceutical industry verticals and the acquisitions have strengthened the position of Akka's life sciences business as an engineering affiliate in the healthcare industry. Additionally, leading ESO vendors are also making a foray into full-time consulting and establishing strategic relationships with the end-users by assisting them in their product offerings, thereby enhancing their operational performance. Some of the prominent players operating in the engineering services outsourcing market are:

• Infosys Limited

• Tata Consultancy Services Limited

• ALTEN Group

• Altair Engineering, Inc.

• Boston Engineering Corporation

• Altran

Engineering Services Outsourcing Market Report Scope

Segments Covered in the Report

This report forecasts revenue growth at the global, regional, and country levels and provides an analysis of the latest industry trends in each of the sub-segments from 2016 to 2028. For this study, Grand View Research has segmented the global engineering services outsourcing market report based on services, location, application, and region:

• Service Outlook (Revenue, USD Billion, 2016 - 2028)

  • Designing

  • Prototyping

  • System Integration

  • Testing

  • Others

• Location Outlook (Revenue, USD Billion, 2016 - 2028)

  • Onshore

  • Offshore

• Application Outlook (Revenue, USD Billion, 2016 - 2028)

  • Aerospace

  • Automotive

  • Industrial

  • Consumer Electronics

  • Semiconductors

  • Healthcare

  • Telecom

  • Others

• Region Outlook (Revenue, USD Billion; 2016 - 2028)

  • North America

    • U.S

    • Canada

    • Mexico

  • Europe

    • Germany

    • U.K.

    • France

  • Asia Pacific

    • China

    • India

    • Japan

  • South America

    • Brazil

  • Middle East & Africa