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The engineering services outsourcing market size is estimated to grow by USD 378.1 billion, at a CAGR of 25.74% between 2023 and 2028. The market's growth hinges on several factors, notably cost savings attributed to lower labor wages, shortened time-to-market, enhanced access to emerging markets, and an increased emphasis on core competencies due to a lack of in-house expertise. Digital transformation is not limited to any particular industry. These factors collectively drive IT service businesses to seek outsourcing solutions, enabling them to streamline operations, reduce overheads, and focus on their core strengths. Additionally, outsourcing offers scalability and flexibility, allowing companies to adapt to changing market conditions more efficiently. The trend towards outsourcing reflects a strategic shift in business operations, with organizations increasingly leveraging external expertise to drive growth, optimize resources, and remain competitive in an evolving global landscape.
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The market is experiencing significant growth, driven by Original Equipment Manufacturers (OEM) and Engineering Service Providers (ESP) leveraging cloud-based engineering software and integrated solutions. Artificial intelligence (AI) and machine learning (ML) are enhancing automation in computer-aided design (CAD), computer-aided engineering (CAE), and computer-aided manufacturing (CAM) processes. Digital twin technology is optimizing product development and manufacturing processes, while the Internet of Things (IoT) is enabling data security and digitalization in CNC machines and robotics. Platform-as-a-Service (PaaS) offerings are providing scalable solutions for digital transformation. 3D printing is also gaining traction, offering new possibilities in auto designing and electronic design automation (EDA). Our researchers analyzed the data with 2023 as the base year, along with the key drivers, trends, and challenges. A holistic analysis of drivers will help companies refine their marketing strategies to gain a competitive advantage.
Cost savings from lower labor wages is notably driving the global engineering services outsourcing (ESO) market growth. The expansion of the global economy has resulted in worker arbitrage focused on moving business processes to cheaper locations. Businesses benefit from labor arbitrage because they can maintain a lean workforce and spend less on hiring and retaining employees. Organizations with labor shortages also make use of outsourced engineering services, which provide easy and direct access to talent and advanced technology from other countries. Outsourcing also allows companies to scale their operations based on their needs and operational requirements.
Engineering services are mainly outsourced by companies and organizations in developed or developed countries where labor costs are very high. For example, the average hourly wage of a software developer in the US is more than 12 times his average hourly wage in India. Other countries with high labor costs include Denmark, France, Germany, and the United Kingdom. As a result, companies in these countries often choose to outsource their engineering work to low-wage countries such as India, Malaysia, Thailand, and Bulgaria. Therefore, cost reductions due to declining labor wages are expected to drive the growth of the global market during the forecast period.
Increasing digital transformation in organizations is the key trend influencing the engineering services outsourcing (ESO) market growth. Digital transformation of an organization is the adoption of digital technologies and modern innovations to accelerate business activities and processes and realize the strategic and operational benefits of these technologies. The new digital age in the global engineering outsourcing business is rapidly changing market behavior. This requires digital IT solutions that can quickly adapt to business needs. Outsourcing service providers recognize the benefits of using digital technology to improve business performance and provide superior service to their customers.
Therefore, it affects all industries, regardless of product or service offering. Companies that have introduced digital technology are bringing about major changes in their business performance and business models. This will support the growth of the markets we are focusing on. For example, in India, many IT service providers are supporting the digital transformation of global enterprises. Therefore, the digital transformation of organizations is expected to drive the growth of the market during the forecast period.
The risk of intellectual property theft and misuse may impede the growth of the engineering services outsourcing (ESO) market. The risk of intellectual property (IP) theft is a key challenge facing the global market. Most organizations keep their R&D activities private and have strict confidentiality policies and procedures when sharing or outsourcing activities. This helps prevent theft or leakage of key product designs and solutions. The risk of proprietary designs and information being stolen will discourage many companies from outsourcing work related to technical design and product development to other companies or countries.
Another factor that further complicates the protection of intellectual property is the different laws and regulations between the client company's home country and the service provider's location or agency. In such cases, intellectual property rights (IPR) infringement can be difficult to prove, and perpetrators often go unpunished, especially in countries with weak intellectual property laws. Techniques used in intellectual property infringement cases include forced technology transfer, corporate espionage, and outright data theft through hacking. Such loss of intellectual property and resulting competitive advantage is of great importance to customer companies and discourages them from outsourcing engineering services, thereby challenging the market growth during the forecast period.
The report includes the adoption lifecycle of the market, covering from the innovator's stage to the laggard's stage. It focuses on adoption rates in different regions based on penetration. Furthermore, the report also includes key purchase criteria and drivers of price sensitivity to help companies evaluate and develop their growth strategies.
Global Market Customer Landscape
Companies are implementing various strategies, such as strategic alliances, partnerships, mergers and acquisitions, geographical expansion, and product/service launches, to enhance their presence in the market.
Altair Engineering Inc.: The company offers engineering services outsourcing which helps in predictive simulation, optimizing performance, and saving time.
The report also includes detailed analyses of the competitive landscape of the market and information about 15 market companies, including:
Qualitative and quantitative analysis of companies has been conducted to help clients understand the wider business environment as well as the strengths and weaknesses of key market players. Data is qualitatively analyzed to categorize companies as pure play, category-focused, industry-focused, and diversified; it is quantitatively analyzed to categorize companies as dominant, leading, strong, tentative, and weak.
The market share growth by the automotive segment will be significant during the forecast period. Growth in the global automotive industry is increasingly driven by changing consumer needs to accommodate the convergence of connectivity, electrification, and safety features. Automakers strive to develop smart, fuel-efficient vehicles that meet stringent emission standards. New products and variations such as electric vehicles, car electronics, and telematics are expected to further increase the demand for engineering services in this industry.
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The automotive segment was valued at USD 28 billion in 2018. The need to reduce costs, shorten time to market, and increase competition are some of the key factors driving the demand for ESO in the automotive segment. To survive in the highly competitive automotive market, automakers strive to develop cost-effective solutions. The complexity of automotive technology is growing rapidly. To implement these efficiently, manufacturers are constantly investing in research and development. The global automotive engineering services outsourcing market is technology-intensive. The global automotive industry is also seeing an increasing number of turnkey projects for which ESP provides end-to-end services, including manufacturing engineering. All these factors are driving the growth of the automotive segment during the forecast period.
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North America is estimated to contribute 43% to the growth of the global market during the forecast period. Technavio's analysts have elaborately explained the regional trends and drivers that shape the market during the forecast period. North America will remain the leading consumer of outsourced engineering services in 2022. This is because US-based companies have signed numerous ESO contracts with service providers in low-cost countries. The US is the single largest source of domestic and international outsourcing demand, and US-based companies have long relied on the technical support of offshore and nearshore outsourcing ESPs for cost and labor arbitrage. However, the importance of other factors, such as short product lifecycles and pressure to innovate more frequently, are expected to be the major drivers for the growth of the market in the region during the forecast period.
The automotive sector is expected to drive the ESO industry in the coming years due to the increase in US car factories. Despite strong customer demand for ESO in the Americas, increasing reluctance to offshore has adversely affected the regional market. The Trump administration has imposed tough restrictions on international trade and imports of goods and has already imposed billions of dollars in additional tariffs on its main trading partner, China. Such regulations were limited to foreign-produced goods, not services, and left unchecked, could have a significant negative impact on the region's engineering outsourcing market during the forecast period.
The market research report provides comprehensive data (region wise segment analysis), with forecasts and estimates in "USD Billion" for the period 2023 to 2028, as well as historical data from 2018 to 2022 for the following segments.
The market is evolving rapidly with the advent of 5G technology, enabling faster and more reliable Machine-to-Machine (M2M) communications and industrial automation. Original Equipment Manufacturers (OEMs) are increasingly leveraging offshore outsourcing for designing services and testing services, while also focusing on on-shore outsourcing for IT integration and control services. Enterprise asset management is becoming more efficient through Industrial Internet of Things (IIoT) and digital twins, enhancing mobility and smart product development. AI and analytics are driving insights for cybersecurity and servitization. Edge analytics and cloud solutions are transforming PLM/MES systems and customized services, while extended realities are enhancing digital collaboration tools for ESO providers.
In addition, the market is at the forefront of technological innovation, driven by the adoption of AI, IoT, and 5G networks. Original Equipment Manufacturers (OEMs) and Engineering Service Providers (ESP) are increasingly relying on offshoring to access specialized skills and reduce costs. Smart products development is on the rise, integrating cybersecurity measures to counter cyberattacks. Extended realities like AR/VR are enhancing collaboration and design processes, while IIoT and M2M communications are revolutionizing industrial automation. Software tools are evolving to support these advancements, providing future insights and market trends through various platforms.
Market Scope |
|
Report Coverage |
Details |
Page number |
195 |
Base year |
2023 |
Historic period |
2018 - 2022 |
Forecast period |
2024-2028 |
Growth momentum & CAGR |
Accelerate at a CAGR of 25.74% |
Market growth 2024-2028 |
USD 378.1 billion |
Market structure |
Fragmented |
YoY growth 2023-2024(%) |
20.12 |
Regional analysis |
North America, APAC, Europe, South America, and Middle East and Africa |
Performing market contribution |
North America at 43% |
Key countries |
US, China, and Germany |
Competitive landscape |
Leading Companies, Market Positioning of Companies, Competitive Strategies, and Industry Risks |
Key companies profiled |
Altair Engineering Inc., Alten SA, Capgemini Service SAS, Cyient Ltd., Deaton Engineering Inc., EPAM Systems Inc., FEV Consulting GmbH, Flatworld Solutions Inc., HCL Technologies Ltd., Hitachi Ltd., Honeywell International Inc., Infosys Ltd., Leedeo Engineering S.L., Mahindra and Mahindra Ltd., Quest Global Services Pte. Ltd., Siemens AG, Sonata Software Ltd., SSA Business Solutions India, Tata Consultancy Services Ltd., and Wipro Ltd. |
Market dynamics |
Parent market analysis, Market forecasting , market forecast , Market growth inducers and obstacles, Fast-growing and slow-growing segment analysis, Market growth and Forecasting, COVID 19 impact and recovery analysis and future consumer dynamics, Market condition analysis for forecast period |
Customization purview |
If our report has not included the data that you are looking for, you can reach out to our analysts and get segments customized. |
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1 Executive Summary
2 Market Landscape
3 Market Sizing
4 Historic Market Size
5 Five Forces Analysis
6 Market Segmentation by End-user
7 Market Segmentation by Sourcing
8 Customer Landscape
9 Geographic Landscape
10 Drivers, Challenges, and Opportunity/Restraints
11 Competitive Landscape
12 Competitive Analysis
13 Appendix
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