Emergence of Engineering Services Outsourcing
The outsourcing of engineering services first emerged in the 1970s when large multinational companies started outsourcing their IT services to reduce costs. However, it was not until the 1990s that engineering services outsourcing started gaining widespread acceptance. Several factors contributed to its rapid growth during this period, such as advances in technology that enabled seamless collaboration across geographies, emergence of low-cost destinations like India with a large pool of skilled engineering talent, and the need for companies to optimize costs and focus on their core competencies.
By the late 1990s and early 2000s, IT services outsourcing was in full swing with large deals becoming commonplace. Companies realized they could leverage offshore outsourcing not just for software development and maintenance but also for product design, R&D activities, and other engineering functions. This allowed them to reap greater benefits from outsourcing. Leading IT outsourcing firms like TCS, Infosys, and Wipro strengthened their engineering capabilities during this period to tap into this growing market. Today, engineering services outsourcing is a multi-billion dollar industry with countless specialized pure-play firms and large conglomerates providing a diverse range of services globally.
Cost Optimization through Scalable Global Delivery Model
One of the primary motivations for companies to Engineering Services Outsourcing
functions has been to optimize costs. Leveraging low-cost offshore locations with a favorable currency exchange allows outsourcing firms to offer 30-50% lower rates compared to in-house capabilities or onsite contractors of clients. Additionally, an outsourcing firm's delivery model is designed to deliver services round the clock with teams based in different geographies and time zones. This allows for better resource utilization across projects through continuous work shifts.
The scalable delivery centers of outsourcing firms allow companies to scale up or down their engineering workforce quickly based on project requirements rather than being saddled with fixed infrastructure and employee costs. During periods of low demand, outsourcing reduces commitment costs while retaining critical skills. It also eliminates issues related to hiring/firing employees during upturns/downturns in business cycles. All these factors contribute significantly to cost optimization for client companies.
Access to Specialized Skills and Global Talent Pool
While cost optimization may be a primary driver, access to specialized skills is another major factor attracting companies to engineering services outsourcing. outsourcing firms have invested heavily to build specialized practices around diverse domains like automotive, aerospace, semiconductor, telecom and more. They also foster niche skills in new technologies like AI/ML, IoT, cloud, etc.
This allows client companies to leverage a wide array of technical and domain skills that may be unavailable or inefficient to maintain in-house. It also helps companies in resource augmentation during transitions to new technology stacks or product development programs without making permanent staff additions. Tapping into the talent pool of a global outsourcing firm extends the potential skills and resources that a company can access almost limitlessly.
Focus on Innovation through New Delivery Models
Traditionally, engineering outsourcing involved offshoring well-defined projects and workstreams on a time and material or fixed bid basis. However, outsourcing providers now offer novel techniques that blur geographical boundaries and promote innovation.
Offshore development centers have transitioned to more flexible, collaborative workspaces resembling client premises with regular interactions. Virtual and augmented reality tools bridge physical distances. Integrated global delivery models mix onsite, nearshore and offshore talent for round-the-clock work. Outsourcing firms are deploying specialized innovation labs and co-innovation centers near client facilities to foster constant collaboration.
All these facilitate greater ideation, experimentation, and conceptualization in a risk-free environment. Clients can assess concepts early and make informed investment decisions. They gain faster access to newer technologies while concentrating on strategic growth. Well-crafted global delivery and shared service models have thus expanded the role of outsourcing beyond execution to driving innovation for businesses worldwide.
Knowledge Transfer and Talent Development
While access to talent and skills is a major advantage of outsourcing, clients also want guarantees around intellectual property protection, security, and risk mitigation. Outsourcing providers address these concerns through stringent NDAs, standardized information security practices and by integrating knowledge transfer into their delivery approach.
For long-term engagements, knowledge transfer becomes an ongoing process rather than a one-time event. Outsourcing firms impart deep technical and domain knowledge to their engineers through structured training programs. Over time, this ensures a steady upward curve in the capabilities of service delivery teams matching client expectations. It also allows the outsourcer to adapt quickly to changing technological or business landscapes.
Rather than just developing skills for project delivery, many outsourcers also focus on the overall development of client company talent who work alongside their teams. Effectively, outsourcers play the role of a catalyst in enhancing engineering competencies both within their own organization and that of clients. This furthers the strategic partnership between the two entities.
Rise of Engineering Services Outsourcing
From just pure-play cost arbitrage in the past, engineering services outsourcing has today emerged as a strategic lever for global organizations. It helps optimize engineering investments, access best talents worldwide, foster regular innovation, rapidly gain expertise in new technologies and flexibly scale resources.
Rather than replace internal teams, outsourcing extends their potential by creating collaborative global execution environments. With evolving delivery vehicles, outsourcing has become an effective co-creation tool for enterprises. As organizations transition to digitalization and productization, their dependence on such externalized engineering support systems will only deepen further. The outsourcing industry too will continue refining its capabilities to act as a seamless augmentation of client innovation drives.
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About Author:
Money Singh is a seasoned content writer with over four years of experience in the market research sector. Her expertise spans various industries, including food and beverages, biotechnology, chemical and materials, defense and aerospace, consumer goods, etc. (https://www.linkedin.com/in/money-singh-590844163)
