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Labeling FY 09 a tough time would be a huge understatement. The automotive industry, traditionally one of the two largest verticals for the Indian engineering services exporters, was going through one of the most turbulent times in its history, with many large manufacturers queuing up to file for chapter 11. Quite a few of them ultimately did, though only in April-June 09 (and most of them came out of in surprisingly short time, but that is another story). The list included OEMs like GM and Chrysler as well as tier-1 suppliers like Visteon and Lear Corporationall significant practitioners of offshoring to India, both through the captive and outsourcing models.

It is in this context that the performance of engineering services exports has to be seen. So, while the rupee growth at 30% over last year actually saw acceleration as compared to 26% in FY 08, that was more due to the exchange rate fluctuations. The dollar growthprobably a little better indicator of the market realities at 13% was surely not spectacular, but surely modest, considering the turbulent times in not just the automotive industry but the global economy in general and developed market economies in particular.

CyberMedia Research    DQ Estimates

*DQ Estimates. Does not include revenues from telecom, IT, semiconductor segments Last Years #4, Satyam is missing from the list, while Infosys has come in as the new #3. The huge others includes Satyam revenues

Focus Re-branding
Ironically, this was a period in which engineering services received all the attention at homepartly due to the slowdown, and partly despite it. At the industry level, Nasscom also became more active and thought a little re-branding with a little more hype could helpnot just in attracting customers and more players, but also private equity, a key ingredient for healthy growth in an emerging opportunity area. The result is a new annual forum that Nasscom is organizing in Pune, which should be on by the time this issue reaches your hands. It is also releasing a new full study on the potential of engineering services, three years after it released the first engineering services study by Booz Allen & Hamilton.

CyberMedia Research  DQ Estimates

Even with most engineering segments severly affected by the downturn, engineering services to India acclerated, thanks to the increasing pressure on margins

At the individual company levels too, many IT firms finally decided to address it as a focus area. While for some it was a completely new target, many others had earlier addressed it in fragmented ways, often clubbed with traditional IT services in a vertical, and had never even measured it as a special horizontal, let alone do focused business development. Infosys is a case in point. It started measuring engineering services separately and the figures that it arrived at made it jump to third position in our ranking, just a little behind #2 HCL. In fact, Infosys response to our survey also reflected this change. For the first time in three years of this survey, Infosys returned our form filled in all respects, with all the information, something that it does usually when it comes to IT services and BPO.

CyberMedia Research    DQ Estimates

While the share of captives is falling in BPO and IT, engineering services still sees significant interest in this model

Interestingly, after keeping away from the area for a long time, large non-Indian IT services firms too started looking at this area seriously. IBM, which had the capability but hardly spoke about it, started focused activities. Accenture started building its capability in India while Perot Systems too announced its foray into engineering services. Some of them are looking at acquiring a specialized company and while the number of potential target companies is small, we may see one or two announcements this year.

If you thought that meant the game was fast being decided in favor of IT services firms, there was more zealous, though not as high profile, movement among the specialized services players tooowned by large automotive groups as well as niche independent companies. In the former category, Hinduja-owned Ashley, M&M-owned Mahindra Engineering Services stepped up their activities while Hindustan Motors entered the space. While Ashley went for a re-branding, Mahindra Engineering Services acquired an Italian motorcycle design firm Engines Engineering SpA to enter that space. Hindustan Motors, apart from its Chennai center, set up an onshore center in Japan, a market that has not been tapped in a big way by Indian companies. It is understood that Mitsubishi Motors, a partner of HM for selling its vehicles in India, is an initial client of the company.

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