The global engineering services market in 2015 was USD750billion, out of which 20% was outsourced (ESO), mainly within Research, Design and Development. The presentation shows why non-captive ESO companies should focus on Tier-1 suppliers rather than OEMs for outsourcing work.

1. Engineering Services Outsourcing (ESO)
Strategic analysis and business opportunities
Vikram Razdan
July 2017
(6 slides)

2. OEM
Design and
Engineering
Studies
Analysis
Drawings
Detailed Design
Tier-1
supplier
Engineering Services Outsourcing (ESO)
Product development Service support
Design and Engineering Design, Engineering and Manufacturing
>> offshore/remote >> onshore/onsite
Manufacturing
Specifications
Scope
Quality
Cost
Time
Design and
Engineering
Studies
Analysis
Drawings
Detailed Design
Sub-system/
Components
ComponentsVehicle
Manufacturing
Specifications
Scope
Quality
Cost
Time
Tier-2
supplier
Captive Outsourcing
(Internalisation)
Non-Captive Outsourcing
(Externalisation)
Global engineering services market size: USD 750 billion, 20% outsourced (ESO), CAGR 15%. R&D and Innovation outsourcing to
Western countries, CAD/CAE and GD&T to India and China (Duke University; NASSCOM; KPIT)
55% 45%
BPO (65%) BPO (35%)Comparative Offshore: Onshore ratio, 70:30
1

3. Automotive industry: convergence of technologies
Traditional
OEM
NewCo
(OEM)
Toyota
VW
GM
Ford
Tesla
BYD Qin
Geely
Lucid
Traditional
Supplier
NewCo
(Supplier)
Google
Apple
Samsung (Harman)
AT&T
Bosch
Denso
Magna
Continental
What’s happening? Challenges for Traditional OEMs
Connected vehicles Inadequate technical expertise, interface/integration issues
Electric vehicles Evolving technology, battery life and charging issues
Driverless systems New paradigm, regulatory issues
Remote diagnostics Inadequate technical expertise, implementation issues
Develop
Outsource
Acquire
3

4. Automotive industry dashboard and technology development
System integration
Brakes
Seating
Chassis control Safety systems AV systems
Engine Transmission
Exhaust
Chassis/Body
Suspension
Lighting
Steering Electrical
Electronics
Anti-collision
Fuel system
Glass Tyres
Thermal systems
Driverless systems
Design and
Engineering
outsourcing
OEM
OEM/Supplier
Supplier
Supplier
Supplier
OEM/Supplier
OEM Core competence
Opportunities for ESO companies (targets)
OEM/Supplier Future
Telematics
Technology Existing New Differentiating factors
Core/Developing OEMs NewCo 1) Analysis and Design capability 2) System Integration knowledge 3) Cost
Non-core Tier-1 suppliers NewCo and Tier-2 suppliers 1) Design capability 2) Cost
Core
Non-core
Developing
Automotive Tier-1 suppliers are likely to present more opportunities for engineering outsourcing, driven by cost considerations, lower
complexity and higher levels of standardisation, while giving the ESOs an opportunity to leverage the experience into other industries
(Common suppliers across automotive, aerospace, rail, marine, construction, mining, agriculture, material handling, machine tools etc.)
IoT systems
RCVs Mobile fuelling
Turbulent
Mature
3

5. Life-cycle Product Process
Research Concept, Layout, MVP QFD
Design CAD, FEA, PLM DFSS, APQP, VA
Development Prototyping, Testing DFM, FMEA, VE
Manufacturing Tooling, Machinery, Equipment DMAIC, QC, Lean, SCM, ERP
Logistics Packaging WMS
Service - CRM
Innovation
Outsourcing
OEM new product development and outsourcing
1990s 2010s
What are the
drivers?
Shorter product development cycles
Mass customisation
Technology advancements (Industry 4.0, advanced
materials, rapid prototyping)
Global production networks
Key drivers
Modular design
Process automation
Standardisation
e-Procurement
Engineering outsourcing
Components
Sub-systems
Electronics
Total (50%)
Automotive industry norm: around 50% of design and engineering work is outsourced. Example of one OEM in Europe achieving 85%, before
scaling back due to knowledge and competency erosion issues. Typically, there are 3,500 technical CAD drawings per car (Zirpoli and Becker, 2011)
OEM’s objective for outsourcing: Improve cost of performance i.e. cost of systems + system behaviour
Key issue: System Integration
Focus on
mature
technology
4

6. Automotive industry ESO opportunity matrix
Industry
participant
Technological competency (Scale: 1 to 5)
Core Non-Core Developing
Traditional OEM 5 3 2
Traditional Supplier 3 5 2
NewCo (OEM) 1 1 3
NewCo (Supplier) 1 1 3
Gap analysis
4
Core
NewCo (OEM and Supplier) Competitive Low Turbulence
Moderate to high
marginsNon-Core
3 Developing Traditional (OEM and Supplier) Low competition High Turbulence High margins
0
Core Traditional OEM Low competition Mature
Moderate to low
margins
Non-Core Traditional Supplier Competitive Mature Low margins
Best opportunity
Small market size High growth
Large market size Slow growth
Gap
5

7. Industry sectors for leveraging automotive ESO experience
(Common supplier focus)
Sectors Equipment Key markets
Aerospace Aeroplanes, Satellites, Drones USA and Europe
Construction Excavators, Concrete mixers, Diggers,
Compactors, Access platforms
Global
Agriculture Tractors, Harvesters, Sorting machines,
Loaders
USA, Asia
Rail Locos, Bogeys, Mechanical and Electrical
equipment (modules)
USA, Europe, Asia
Marine Ships, Boats, ROVs USA (premium), Europe
(premium), Asia
Mining Dumpers, Excavators, Boring machines USA, Europe, Asia
Material Handling Cranes, Forklifts, Conveyor systems Global
Machine tools Lathes, CNC, Grinders, Drilling machines Europe, Asia
• Engineering services outsourcing crossed its inflection point in 2011, driven by
successful offshore/onshore working models.
• Ensuring quality of work and controlling scope continue to pose challenges.
• Effective international project management remains the key to success, including
overcoming cross-cultural barriers while considering factors like motivation, cognition
and behaviour of engineers and staff (Kiznyte, Ciutiene and Dechange, 2015)
6

8. End of presentation
Thank You