Engineering Services Outsourcing (ESO) Market Analysis By Application (Aerospace, Automotive, Construction, Semiconductor, Pharmaceutical, Telecom), By Location, By Region, And Segment Forecasts, 2018 - 2025

Industry Insights

The global Engineering Services Outsourcing (ESO) market size was estimated at USD 145.26 billion in 2016. Cost reduction pressure on Original Equipment Manufacturers (OEMs), rising level of technical complexity across applications requiring high-level competency, increasing tie-ups between OEMs and ESO providers, and shorter product life cycles have been driving ESO business growth.

The changing role of engineering service providers from being a third party vendor to gradually becoming key stakeholders in product development is driving the industry’s growth substantially. Previously, services outsourced were limited to a lower degree of complexity, such as CAD drawings and designing; however, growing client confidence in ESO vendors over time has led to the increasing complexity of outsourced activities, including the delivery of end-to-end solutions for a product or technology.

U.S. ESO Market By Application, 2014 - 2025 (USD Billion)

• Majority of the assistance demanded by companies across various end-use segments includes:

  • System engineering - Prototyping, mechanical & electronic designing, manufacturing & support, and compliance testing

  • Embedded system software development - New Product Development (NPD), adaptation, sustenance, and testing & verification

  • Digital and mechanical engineering - Conceptualizing and designing, modeling, Computer-Aided Engineering (CAE) analysis, manufacturing support & testing, and obsolescence management;

  • User experience design

  • Hardware product services

  • Product Lifecycle Management (PLM) solutions

In the recent past, offshoring services from developed markets have increased manifold. Vendors present in emerging countries have gained client confidence by taking up tasks requiring core competency and providing specialized assistance for specific end-use segments. Companies find it cost-effective to outsource designing, architecture, development, deployment, automation, and other services to third-party vendors who possess the technological and labor expertise to undertake such tasks efficiently.

Application Insights

In 2016, the telecom ESO segment accounted for almost 25% of the global revenue share and is expected to witness substantial growth over the forecast period. This can chiefly be attributed to global telecom players expanding their presence in emerging countries such as China and India. Operators and telecom manufacturers demand a wide variety of assistance ranging from designing, implementing, and supporting to testing solutions.

The automotive engineering outsourcing market size is projected to grow at a robust rate which may be attributed to the software platform developers making technological advancements in the automobile sector. Powertrain electrification, connected cars, development of vehicles with piloted or autonomous driving system, and the use of lightweight materials for vehicle production & assembly are the most recent technologies which require proficient assistance. Automobile companies need to develop predefined strategies for outsourcing vendors in order to meet such core competencies.

Automotive manufacturers are facing increasing demand for capacity and skills due to growing present-day technological complexities. Developing embedded software and systems require core engineering proficiency and skill sets which may not be available in the automotive sector. In addition to traditional services, automakers are now focusing on suppliers providing supercomputing, advanced graphics, and high-skilled software development capabilities.

The consumer electronics ESO segment is anticipated to grow at a rapid CAGR of more than 30% over the forecast period. The industry is undergoing rapid changes, primarily driven by the concept of convergence. Users are demanding enhanced mobility, better entertainment, and interoperability of devices for data & media. Vendors are providing their services to semiconductor companies, OEMs, and technology providers for developing next-generation smart devices which can be controlled in real time without physical accessibility. Companies are outsourcing in order to address product localization needs, introduce new features and technologies, and leverage industry best practices to be globally competitive.

Location Insights

The onshore market estimates refer to the revenue generated within a country when a home company outsources its services to another domestic company within the national territory. For instance, a U.S. company outsourcing its requirements to another company in the U.S. will generate onshore revenue for the U.S. On the other hand, offshore market estimates refer to the revenue generated within a country by international sources. When a company outsources its requirements to a company based in a foreign location, the revenue generated in the country of the latter is a part of its offshore market. For instance, a Japanese company outsourcing its services to a company in India is considered to generate offshore revenue for India.

Engineering services outsourcing demand by location, 2016 (%)

The offshore segment accounted for a larger revenue share in 2016 as compared to the onshore business. The revenue share for the onshore outsourcing segment is expected to increase over the forecast period. However, by 2025, offshore outsourcing is projected to gain prominence, owing to the availability of skilled and cheap labor in offshore countries which makes them attractive outsourcing destinations.

Major engineering service providers (ESPs) have proactively invested in modern industry processes and assets. These ESPs are present across global business centers, which benefits them by being in proximity with the client and helps them build strong professional relations and acquire domain-specific experts who can also work at client locations. Post-Brexit, there have been restrictions on the movement of skilled labor from European countries to the UK. It is anticipated that the UK may look out for other lucrative offshore outsourcing destinations.

The decision of the current U.S. government to discourage American companies from outsourcing assistance from offshore locations is expected to impact the global ESO market negatively. For countries such as India, where around 60% of the total outsourcing revenue is generated from U.S. clients, the government’s decision is anticipated to impact the ESO offshore business to some extent.

Regional Insights

Following the success of the Information Technology Outsourcing (ITO) and the Business Process Outsourcing (BPO) industries in offshore destinations, the ESO market in emerging countries is expected to witness rapid growth. The ITO service has the largest market size followed by the BPO and the ESO segment. The total estimated engineering services outsourcing market revenue for 2020 is expected to be USD 415.74 billion. Out of this, around 50% is projected to be generated by offshore activities. Competitive pricing, quick turnaround time, software development capabilities specific to end-use and project needs, domain expertise, vendor infrastructure, and proximity to the manufacturing units and customers are the key criteria taken into consideration for ESO vendor selection.

In 2016, the Asia Pacific region accounted for the highest revenue share of the global ESO business. Cheap labor, skilled talent pool, and conducive government regulations in countries such as India, Malaysia, and the Philippines make the region an attractive ESO destination. The Asia Pacific region is expected to witness the fastest growth rate of around 33.5% from 2017 to 2025.

Some global product manufacturers operate their captive centers in Asian countries for cost optimization. As a recent trend, to minimize operation cost and acquire a skilled talent pool, captive centers have been on a decline while the share of ESO vendors in the region has been on the rise.

The U.S. and the European region are expected to grow at a lower rate as compared to the Asian region. However, they are projected to witness steady growth over the forecast period. Within the North American region, Mexico is expected to witness the fastest growth. Japan, Germany, and the U.S. are the top three global R&D outsourcing markets. India competes with countries such as France, U.S., and Germany for onshore services whereas for offshore delivery it competes with countries including the Philippines, Vietnam, China, Mexico, and Eastern European nations.

Competitive Insights

HCL Technologies, Infosys Ltd., Tata Consultancy Services, Tech Mahindra, and Wipro Ltd. are some of the major global ESO providers. The companies operate a wide range of business activities spanning the various stages of a product lifecycle and usually provide end-to-end product solutions.

Certain companies including RLE International, Inc., Altair Engineering, Inc., and Alten GmbH provide niche automotive and aerospace industry expertise. Other prominent market players include PM Group, Fareva, Deaton Engineering, Inc., Aricent Group, Cybage Software Pvt. Ltd., EPAM Systems, Inc., GlobalLogic, Cyient, and Pactera Technology International Ltd.

Report Scope

Segments Covered in the Report

This report forecasts revenue growth at global, regional, and country levels and provides an analysis of the industry trends in each of the sub-segments from 2014 to 2025. For the purpose of this study, Grand View Research has segmented the engineering services outsourcing market on the basis of application, location, and region:

• Application Outlook (Revenue, USD Billion; 2014 - 2025)

  • Aerospace

  • Automotive

  • Construction

  • Consumer Electronics

  • Semiconductor

  • Pharmaceutical

  • Telecom

  • Others

• Location Outlook (Revenue, USD Billion; 2014 - 2025)

  • Onshore

  • Offshore

• Regional Outlook (Revenue, USD Billion; 2014 - 2025)

  • North America

    • U.S.

    • Canada

    • Mexico

  • Europe

    • Germany

    • France

    • UK

  • Asia Pacific

    • China

    • India

    • Japan

  • South America

    • Brazil

  • Middle East & Africa (MEA)