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The engineering services outsourcing market size is estimated to grow at a CAGR of 18.75% between 2022 and 2027. The market size is forecast to increase by USD 203.04 million. The growth of the market depends on several factors, including cost savings from lower labor wages, reduced time to market and improved access to emerging markets, and the growing focus on core competencies/lack of in-house expertise.
This engineering services outsourcing market report extensively covers market segmentation by end-user (automotive, consumer electronics, telecom, semiconductor, and others), sourcing (offshore and onshore), and geography (North America, APAC, Europe, South America, and Middle East and Africa). It also includes an in-depth analysis of drivers, trends, and challenges. Furthermore, the report includes historic market data from 2017 to 2021.
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Cost savings from lower labor wages is notably driving the market growth, although factors such as the risk of intellectual property theft and misuse may impede the growth. Our researchers analyzed the data with 2022 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 ESO 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.
Digital transformation is not limited to any particular industry. 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 global engineering services outsourcing 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 engineering services outsourcing 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 Engineering Services Outsourcing (ESO) Market growth.
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 Engineering Services Outsourcing Market Customer Landscape
Vendors 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 vendors, including:
Qualitative and quantitative analysis of vendors 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 vendors as pure play, category-focused, industry-focused, and diversified; it is quantitatively analyzed to categorize vendors 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 23.87 million in 2017 and continued to grow until 2021. 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.
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North America is estimated to contribute 42% 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 engineering services outsourcing 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 engineering services outsourcing 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.
This report forecasts the contribution of all the segments to the growth of the market. In addition, we have included the COVID-19 impact and the recovery strategies for each segment. In 2020, the regional market could not withstand the negative impact of COVID-19 as the demand for outsourced engineering services in the region decreased. The US was the hardest-hit economy in the world. Demand for engineering services decreased due to the suspension of factories and ongoing projects. However, in 2021 after the vaccination campaign, the government lifted lockdowns and travel restrictions in the region. This restarted global markets and industrial activity. Additionally, in December 2020, the US government announced a USD 900 billion stimulus package to combat the crisis caused by the pandemic. Additionally, the reopening of global markets provided an environment in which North American companies can expand production to compete with their competitors in regional and global markets. All these factors supported the growth of the ESO market in North America.
The engineering services outsourcing market report forecasts market growth by revenue at global, regional & country levels and provides an analysis of the latest trends and growth opportunities from 2017 to 2027.
Technavio categorizes the global engineering services outsourcing market as a part of the global IT consulting and other services market within the global IT services market. The super parent global IT services market cover companies offering IT consulting and system integration services, application services, electronic data processing services, business process outsourcing services, infrastructure services, and Internet services. The parent global IT consulting and other services market covers companies that provide information technology consulting and information management services. Our market research report has extensively covered external factors influencing the parent market growth during the forecast period.
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Engineering Services Outsourcing Market Scope |
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Report Coverage |
Details |
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Page number |
184 |
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Base year |
2022 |
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Historic period |
2017-2021 |
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Forecast period |
2023-2027 |
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Growth momentum & CAGR |
Accelerate at a CAGR of 18.75% |
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Market growth 2023-2027 |
USD 203.04 million |
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Market structure |
Fragmented |
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YoY growth 2022-2023(%) |
18.25 |
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Regional analysis |
North America, APAC, Europe, South America, and Middle East and Africa |
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Performing market contribution |
North America at 42% |
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Key countries |
US, China, India, Germany, and Poland |
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Competitive landscape |
Leading Vendors, Market Positioning of Vendors, Competitive Strategies, and Industry Risks |
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Key companies profiled |
Altair Engineering Inc., Alten SA, Capgemini Service SAS, Cyient Ltd., Deaton Engineering Inc., EPAM Systems Inc., FEV Consulting GmbH, Flatworld Solutions Pvt. Ltd., 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. |
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Market dynamics |
Parent market analysis, market growth inducers and obstacles, fast-growing and slow-growing segment analysis, COVID-19 impact and recovery analysis and future consumer dynamics, and market condition analysis for the forecast period. |
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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 Trends
11 Vendor Landscape
12 Vendor Analysis
13 Appendix
Research Framework
Technavio presents a detailed picture of the market by way of study, synthesis, and summation of data from multiple sources. The analysts have presented the various facets of the market with a particular focus on identifying the key industry influencers. The data thus presented is comprehensive, reliable, and the result of extensive research, both primary and secondary.
INFORMATION SOURCES
Primary sources
Secondary sources
DATA ANALYSIS
Data Synthesis
Data Validation
REPORT WRITING
Qualitative
Quantitative
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