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Large multinational companies in the automotive, energy, infrastructure and medical sectors are continuing to increase the amount of engineering R&D they outsource, with India becoming the destination of choice.
According to a study by management consultancy Booz & Company and India’s National Association of Software and Services Companies, India has become the dominant player in providing outsourced engineering R&D, with a growth of more than 40% in the last three years.
The study found that services firms in India and other emerging economies are increasingly being used as strategic partners by Western businesses, focusing on innovation rather than merely the maintenance of existing products. Engineering companies in automotive and consumer electronics lead outsourced R&D spending, but other sectors such as energy, infrastructure and medical are close behind.
Vikas Sehgal, partner at Booz & Company, said that for the last 10 years an increasing amount of engineering R&D had been taking place in emerging economies.
“The trend is accelerating across industry, from aerospace to automotive. The outsourcing is not just confined to hard assets but also soft assets – brainpower.
“Before the 1990s and the telecommunications revolution, it was very difficult to leverage those skills. Now with offshoring, call centres and the internet you can do engineering in any part of the world. You have this very large English-speaking population in India which also helps.”
The study found that overall spending on engineering R&D services increased by 12% in 2009 from $980 billion to $1.1 trillion. The total spend is expected to increase to $1.4 trillion by 2020, the study said.
Sehgal said the market for outsourced R&D would continue to grow. The sophistication of engineering work carried out overseas by Western companies would also increase, he said. “It will grow in terms of both quality and quantity.”
Sehgal said India was producing a very high number of engineering graduates each year – 350,000 as a conservative estimate.
“That dwarfs everybody else. The gap of higher capacity but lower demand is creating new avenues for those engineers such as engineering offshoring.”
Other countries that are building up outsourced engineering capabilities include China and Brazil.