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The new high-growth sector

B.V.R. Mohan Reddy

A concerted effort is required by all concerned to realise the potential of engineering services outsourcing.

ONE DAY in 1911, a single event began the modernisation of the Indian manufacturing industry — the production of the first steel ingot by Tata Steel in Jamshedpur. Since then, Indian manufacturing has evolved into a self-sustaining industry, producing a variety of hi-tech products from jet aircraft to semiconductors. The emphasis on self-reliance and the associated government policies after Independence in many ways provided the impetus to many companies to design and produce indigenously. Almost 100 years later, we have developed world-class manufacturing in many industries. What does this mean for the country's offshore information technology industry?

The domain knowledge developed over the last 100 years by the manufacturing industry, along with the outsourcing process knowledge of the IT and business process outsourcing industries, has enabled Indian companies to make significant inroads into engineering services. This field involves the design of products and processes using the principles of engineering design such as mechanical, electrical, electronic, and civil engineering. Over the last three decades much of this design methodology has become electronic. Further, the Internet and Product Lifecycle Management (PLM) software have enabled engineers in diverse locations to cooperate on engineering design projects. The maturity of engineering design outsourcing and India's intrinsic strengths, such as domain knowledge, availability of skilled engineers and outsourcing process capability, make the country a preferred destination for engineering services outsourcing. In 2005, it is estimated that about $2.2 billion worth of engineering services were outsourced to India. A recent study by the National Association of Software and Service Companies (NASSCOM) and management consultants Booz Allen and Hamilton concludes that by 2020, engineering services will represent a $40 billion opportunity for India — which make engineering services outsourcing the next frontier of outsourcing of services to India.

There are certain key advantages India has in this field. The first is domain expertise. Public sector companies, defence research establishments, and private organisations continue to be in the forefront of engineering design and innovation. This is enabling Indian industry to develop a significant amount of the domain knowledge being used to service global clients. The second is the availability of engineering talent. Engineering design tends to be extremely collaborative and communicative due to the complexity and interdependencies within a project and constant changes in specifications. Hence the communications skills of engineers, beginning with English language, become very important. The Nasscom-Booz Allen study reports that qualified Indian engineers represent 28 per cent of the global engineering talent. This is greater than the next two countries — Russia (11 per cent) and China (10 per cent) — combined.

The third advantage is the existing process capability, infrastructure, and customer relationships developed over the last 20 years of IT services and business process outsourcing (BPO). Today, a significant majority of the world's largest corporations outsource their IT work to India. Indian companies not only hold a cost advantage, but are also considered technically strong. Many of these customers are manufacturing companies who after the success of IT and BPO are looking to outsource engineering services.

Though engineering services outsourcing presents a large potential, there are a few challenges we need to overcome to realise this. The first of these is the continued availability of engineers. To achieve the target revenue of $40 billion by 2020, India would require 250,000 qualified engineers. The challenge to the 1,400 engineering institutions is to continue to develop the technical and communicative skills that the industry requires to service global clients. The second challenge is the physical infrastructure. The Government needs to continue to focus on building roads, ports, and airports. Engineering design will also require the import and export of physical parts, components and machinery. The government needs to define a robust process in which there is a seamless transfer of goods that are required to deliver world class engineering services from India. The third challenge is the cooperation among public sector manufacturing firms, engineering services providers, and education institutions. A large amount of domain knowledge that exists in India today is with PSUs. It is imperative that these firms collaborate and cooperate with educational institutions and engineering services firms to ensure that this knowledge is passed on to the next generation of engineers within the country.

A concerted effort is required by industry organisations such as NASSCOM, the State and Central Governments, and private companies to address these challenges and be in a strong position to realise engineering outsourcing potential. NASSCOM has formed the engineering services forum, which comprises a wide cross-section of engineering services companies in India. The objective of the engineering services forum is to ensure we build a significant brand for India in engineering services outsourcing. Initiatives which would ensure that we can deliver world class services in large volume include increasing domain expertise in India, continuing the creation of world class infrastructure, improving the quality and quantity of engineers in India, and leveraging the local demand for engineered goods and services. Our long-term objective is to ensure that the "engineered in India" brand carries pride, credibility, and demand in the global market space.

(The writer is chairman of NASSCOM's Engineering Services Forum and Chairman & Managing Director of InfoTech Enterprises Limited.)

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