Engineering Services Outsourcing Market

Market Overview

The global engineering services outsourcing market size was valued at USD 1.28 billion in 2021. It is projected to reach USD 9.27 billion by 2030, growing at a CAGR of 24.6% during the forecast period (2022–2030).

Engineering services outsourcing is outsourcing nonphysical engineering functions, such as prototyping, design, and testing, to a third party. These services are required from the beginning of the product development and design process and utilize a variety of IT-based databases and tools.

Engineering services outsourcing is utilized in the communications and networks industries to obtain network design services, inventory management, and geographic data analytics. Remote device monitoring, industrial automation, product cycle management, and supply chain management are further applications. Specific engineering activities and duties are delegated to an external team or individuals. Numerous organizations consider outsourcing a safe method for entering the low-cost offshore market. New product development, frequently referred to as R&D, is one of the most outsourced design services. Research and development entail presenting a concept to a group of highly experienced engineers and allowing them to transform it into valuable final products.

Market Dynamics

Global Engineering Services Outsourcing Market Drivers

Increasing Partnership Between Engineering Service Providers (ESP) and Original Equipment Manufacturers (OEM)

It is anticipated that the expanding partnership between Engineering Service Providers (ESP) and Original Equipment Manufacturers (OEM) is expected to be one of the major drivers driving the acceptability of engineering services outsourcing (ESO). Worldwide R&D operations have prompted key ESO industry participants to include global delivery systems in their business strategy. The market has witnessed a significant transition in engineering service requirements from mechanical and non-core requirements to place-based core competencies. The new strategy for product lifecycle development emphasizes the position of ESPs in the supply chains of OEMs. As engineering services outsourcing continues to deliver and evolve, ESPs are establishing service delivery standards that combine much more complete engagement portfolios with a licensing framework that stimulates innovation.

Lower Labor Costs Result in Cost Savings

The decrease in expenses brought on by more affordable labor will be a primary factor propelling the expansion of the market for outsourcing engineering services. Companies are increasingly outsourcing their engineering processes to places where labor is significantly less expensive due to the high labor cost in developed and industrialized countries. By outsourcing engineering services, firms can reduce costs connected with extra office space, staff, infrastructure, and operations. This enables the businesses to delegate tasks to a workforce with a lower cost of labor. It is anticipated that because of these benefits, countries with higher labor costs will outsource their engineering services to those with lower labor costs.

Global Engineering Services Outsourcing Market Restraints

Risk of Exposure to Confidential Information

The risk of losing secret information and sensitive data is the most significant disadvantage of outsourcing engineering services. It is essential to have perfect procedures and checks regarding data loss and confidentiality contracts while one is in the process of negotiating arrangements involving outsourced work. As a result, the possibility of revealing private information is acting as a barrier to expanding the market for engineering services outsourcing over the next time.

Global Engineering Services Outsourcing Market Opportunities

Technological Advancements

Engineering services outsourcing has undergone similar changes in recent years to keep up with changing client needs and better serve end-users. As a direct consequence of this development, the market for engineering services outsourcing has witnessed a shift away from core engineering services and toward embedded engineering solutions like the internet of things. Similarly, technological developments have made it possible to provide products as a service. These products are created with integrated information technology solutions that can schedule maintenance and anticipate problems in advance. Consequently, the development of new technologies is producing profitable chances for expanding the market for outsourcing engineering services during the forecast period.

Regional Analysis

The global engineering services outsourcing market is divided into four regions, namely North America, Europe, Asia-Pacific, and LAMEA.

Asia-Pacific is dominating the global engineering services outsourcing market and is anticipated to experience strong growth during the forecast period. The region is home to manufacturing industrial items and highly skilled engineering specialists providing cost-effective hiring aid. Additionally, the region serves as the hub of significant software outsourcing service providers. The rising need for technological innovation and the continued incorporation of embedded software into existing models are anticipated to propel the growth of the Asia-Pacific market.

North America is anticipated to experience the most growth, growing at a CAGR of 28.7% during the forecast period. The region has become one of the favorite offshore outsourcing locations for U.S.-based manufacturers and suppliers. Consequently, numerous multinational corporations strive to establish a foothold in South America. Another crucial factor contributing to expanding the South American local market is the constant wage rise in other offshore regions. In addition, the paperwork required for outsourcing in the region is extensive, which is an advantage that makes it an attractive market for both sides.

Segmental Analysis

The global engineering services outsourcing market is segmented into Service, Location, and Application

Based on service, the market is segmented into designing, prototyping, system integration, and testing.

The testing segment is predicted to generate the most significant revenue. In recent years, the need to build and modify product prototypes with more excellent optimization and error-free processes has driven the expansion of the testing sector. OEMs mainly employ ESPs to aid with software testing to provide user-friendly and error-free software. In addition, the rising demand for outsourcing testing services to facilitate manual intervention and face-to-face interaction is anticipated to contribute to the segment's growth. The designing segment is projected to increase at a CAGR of 26.7% during the forecast period. The growth can contribute to the increased sophistication of designs and the need to minimize costs by outsourcing design to competent but relatively inexpensive labor. The growing popularity of industrial, graphic, and architectural design for next-generation logistics systems is anticipated to stimulate the demand for innovation engineering during the forecast period.

Based on location, the market is divided into onshore and offshore segments.

The onshore segment is the most dominant and is anticipated to dominate the market during the forecast period. Political and geopolitical boundaries, time zone, and linguistic and cultural barriers are a few of the difficulties that encourage OEMs to outsource engineering services onshore. Onshore outsourcing eliminates language barriers and facilitates better communication between OEMs and service providers, increasing the delivery of products and services. The offshore segment is anticipated to grow more slowly than the onshore segment due to foreign inflation rates, high mix rates, training costs, and a growing preference for outsourcing to onshore partners. In addition, ESPs must accept diverse rules in outsourcing contracts while serving international clients. In nations such as China, India, Malaysia, and Mexico, the availability of optimal cost resources and the effortless adequacy of a competent talent pool can fuel segment expansion.

Based on application, the market is segmented into aerospace, automotive, industrial, consumer electronics, semiconductors, healthcare, and telecom.

The industrial segment is the most dominant, and it is anticipated that it will continue to dominate the market during the forecast period. Various probing services are progressively adopting digitalization, including drilling, blasting, crushing, and tunneling. To modernize their information technology-driven infrastructure, drive automation, and streamline inherited processes via the execution of private and public. Hybrid cloud manufacturers of industrial goods are embracing cloud architecture significantly. It is projected that the performance of the industrial internet of things to reduce downtimes, detect and control defects, and reduce supervision costs will fuel the expansion of the industrial segment. The healthcare segment is anticipated to increase at a CAGR of 21.1% during the forecast period. Ambitious investments in state-of-the-art medical technology, laboratories, and pharmaceuticals can fuel the expansion. In recent months, the healthcare industry has preferred ESPs to produce drugs and vaccines that would counteract coronavirus's harmful effects.

Recent Developments

• June 2022- Accenture Opens Advanced Technology Center in Indore, India.
• May 2022- The MIT Initiative on the Digital Economy (IDE) welcomes Akkodis to collaborate on innovation projects and support the development of tomorrow’s tech talents.
• June 2022- Infosys Foundation to Launch Mobile Medical Services in Karnataka.
• June 2022- ITC Infotech and PTC Create One of the Industry’s Largest Organizations of Windchill Services Expertise with Expanded Alliance.