Engineering Services Outsourcing Market Analysis Report By Service, By Location, By Application, By Region And Segment Forecasts From 2020 To 2027

Industry Insights

The global engineering services outsourcing market size was USD 316.78 billion in 2019. It is projected that the market will exhibit a CAGR of 29.2% from 2020 to 2027. The major factor fueling the growth of the market is increasing collaboration between engineering services outsourcing (ESO) and Original Equipment Manufacturers (OEMs). Benefits such as globalization of research and development activities, technological disruptions, low-cost incurred, and talent scarcity are further projected to bolster the growth of the market.

From providing engineering services from headquarters to introducing key operations across different countries, engineering outsourcing services have evolved in the last couple of decades. Further, globalization has pushed industry players to focus on the adaptation of the global delivery ecosystem in their operations. The adoption of various technologies such as cloud, analytics, automation, and IoT has broadened the product portfolio of industry players. Moreover, service providers are upgrading digital capabilities to address the changing demand for consumers.

In the recent past, end-use industries have witnessed significant change as earlier products were mostly designed for mass consumption while companies are offering customized products to cater to consumers’ needs. Original equipment manufacturers aim at procuring engineering services that are not in their core competency. While choosing ESP, OEMs focus on factors such as domain expertise, previous projects, market value, and quality of service. The market poses a significant challenge for new entrants as they require projects expertise and a business network.

The advent of industry 4.0 that is aimed at advancement in services such as robotics, AI, automation, and smart manufacturing is positively driving the market growth. Further, major industries such as automotive and manufacturing are emerging as the leading sectors in terms of the adoption of engineering services. With the integration of automation technologies, the ESPs system is projected to gain more traction over the forecast period.

However, outsourcing involves risks such as security threats and confidentiality of intellectual property. These risks are estimated to restrain the market growth. The end-use industry transfers huge volumes of data that require data monitoring, load management, and quality assurance among service providers, OEMs and consumers. These stakeholders exchange confidential data regularly. OEMs take various measures such as maintaining the original source code and protecting critical data using access code.

Service Insights

On the basis of service, the engineering services outsourcing (ESO) market is segmented into prototyping, testing, system integration, designing, and others. Of them, the testing category held the largest share in the market in 2019 and the segment is projected to continue its domination. Original equipment manufacturers outsource components for software testing from ESPs as they have skilled individuals who ensure bug-free installation. Further, increasing demand for procurement of software solutions that reduces the manual intervention and turnaround time is anticipated to contribute significantly to the testing segment.

On the other hand, the designing category is likely to grow at a CAGR of 31.3% from 2020 to 2027. The growth of this segment is attributed to the increasing popularity of architectural design, industrial design, visual design, and graphic design along with increasing demand for software such as CAM, CAE, and CAD. Additionally, increasing demand for customized products is estimated to boost the growth of this segment.

The other segment, which includes repair, support, and maintenance, is also expected to grow at a considerable pace over the forecast duration. The growth of this segment is attributed to the increasing focus on extending the operational efficiency of machines and engines in the automotive, industrial, and aerospace sectors. Additionally, benefits offered by ESPs such as lower incurred costs, capital expenditures (CapEx), and low operating expenditure (OpEx) are further estimated to supplement the market growth.

Location Insights

In 2019, the onshore category held significant revenue and this segment is anticipated to dominate from 2020 to 2027. In onshore services, ESO offers outsourcing services from their home country. Outsourcing helps OEMs with the lower cost along with other benefits such as data privacy and information security. Onshore ESO is gaining traction as similar time zone and customs ensure enhanced understanding between service providers and OEMs.

On the other hand, the offshore segment is about procuring offerings from service providers depending on their international location. This segment is likely to grow at a CAGR of more than 26.0% over the forecast period. The growth of this segment is attributed to the easy and cost-effective availability of the workforce in countries like Russia, India, Brazil, Romania, Malaysia, and others.

However, service providers are required to abide by the rule imposed by the different countries while adhering to the outsourcing contracts. The regulations are based on different factors such as outsourcing scope, preferred structure, and political scenario. Moreover, individual governing bodies also impose restrictions thereby, making it tough for the service providers to outsource their service to overseas countries.

Application Insights

The construction category is projected to account for a considerable share of the market over the forecast period. The increasing penetration of digital transformation in smart city development across the world is anticipated to contribute to the growth of the construction service. Further, the emergence of AI-based intelligent buildings, which are capable of optimizing their operations by themselves, is projected to drive the growth of the segment.

In 2019, the automotive category accounted for the largest revenue and the segment is anticipated to reach more than USD 450 billion by the end of the forecast years. The automotive industry requires highly skilled individuals to tackle the challenges faced by technological advancement. Technologies such as connected cars, autonomous driving systems, and the growing use of lightweight materials require highly efficient engineering solutions.

On the other hand, the aerospace sector is likely to witness moderate growth owing to the growing number of technically advanced and fuel-efficient aircraft. Further, development in ecological concern is forcing OEMs to make a considerable change in aircraft components.

Regional Insights

In 2019, APAC dominated the ESO market and projected to continue its domination over the next few years. Countries like India and China are the leading service providers of outsourcing services. Moreover, the easy availability of a cost-effective and skilled workforce in these counties is projected to offer a lucrative opportunity for the market players.

The Latin America region is expected to grow at a CAGR of more than 30.0% over the forecast period. Growing infrastructural development is a major factor driving regional growth. Considering the growth potential the region offers, several leading service provider is focusing on expanding its operations.

On the other hand, North America is estimated to grow at a considerable pace over the forecast period. The United States is one of the major manufacturing hubs for aerospace, construction, and automotive. European countries like Poland, the Czech Republic, Russia, and Ukraine are emerging as lucrative destinations for software testing.

Impact of COVID-19

The outbreak of COVID-19 has stalled various projects including construction, manufacturing, and automotive, thereby, severely affecting the engineering outsourcing service market. Various governments across the globe announced the lockdown that led to an abrupt decline in construction projects and delays in ongoing projects. Additionally, COVID-19 has led to the economic downfall, which, in turn, affected consumers’ purchasing patterns. Low spending by people on non-essential commodities led to the downfall of the manufacturing industry. Low demand resulted in low production, which, in turn, adversely affected the engineering services growth. However, few countries have been able to slow the spread of the coronavirus and this is expected to fuel the demand for onshore engineering outsourcing services.

Engineering Services Outsourcing Market Share Insights

The leading players operating in the market are Alten GmbH, HCL Technologies, Tata Consultancy, Tech Mahindra, Wipro Limited, Infosys Limited, Infosys Ltd, and Altran Technologies among others. These companies collaborate with OEMs and offer solutions based on budget. For example, Altran collaborated with Wirepas in December 2018 to reduce its wastage on inventories along with enhancing safety. Additionally, Bertrandt tied ups with SGL in November 2017 and developed a concept for superior interior structure using composite materials. Thus, increasing collaboration between service providers and OEMs is likely to augment the market growth.

Report Scope

Segments Covered in the Report

This report forecasts revenue growth at global, regional, and country levels, and provides an analysis of the latest industry trends in each of the sub-segments from 2016 to 2027. For the purpose of this study, Million Insights has segmented the global engineering services outsourcing market report based on services, location, application, and region:

• Services Outlook (Revenue, USD Billion, 2016 - 2027)
    • Designing
    • Prototyping
    • System Integration
    • Testing
    • Others

• Location Outlook (Revenue, USD Billion, 2016 - 2027)
    • Onshore
    • Offshore

• Application Outlook (Revenue, USD Billion, 2016 - 2027)
    • Aerospace
    • Automotive
    • Construction
    • Consumer Electronics
    • Semiconductors
    • Pharmaceuticals
    • Telecom
    • Others

• Regional Outlook (Revenue, USD Billion, 2016 - 2027)
    • North America
        • The U.S.
        • Canada
        • Mexico
    • Europe
        • Germany
        • The U.K.
        • France
    • the Asia Pacific
        • China
        • India
        • Japan
    • Latin America
        • Brazil
    • Middle East & Africa