The Future of Engineering Services Outsourcing: Driven by Access to Local Market
The dollar value of global outsourced engineering services will continue to grow at double-digit rates into the foreseeable future. It is expected to grow from $40 bn worldwide in 2007 to $80 bn in 2010, according to the 2005 Booz Allen Hamilton/Nasscom study.

By 2010, offshore engineering services will have sped opportunities to grow in non-traditional markets. India and Eastern Europe will continue to gain strength. Elsewhere, Brazil, Malaysia, Philippines and Vietnam are also becoming increasingly popular.

In the next three years, the big fiveTata, Satyam, Wipro, HCL, and Infosyswill continue to dominate the market. The rest will be divided among any number of small but growing niche players, such as Infotech and Quest, each concentrating on particular markets or processes.

Traditional vertically integrated industries such as automotive, aerospace, and marine engineering have been slow to make the move to outsourcing because of the lack of reliable technology linking engineering centers, the inherent complexity of the products being engineered, and competitive, legal or commercial issues. We expect to see that changing by 2010, as engineering collaboration technology improves and different industries come under increasing competitive pressure to develop products for worldwide markets. A greater variety of industries are beginning to offshore their engineering services in part because of the trend to outsourcing increasingly complex engineering processes. Areas such as integrated product development of highly engineered goods such as cars and planes have lagged. But, that is also changing as the engineering service offerings grow in complexity.

While US companies typically begin by outsourcing low-level, non-core services in hopes of cutting costs, then gradually move to more value-added processes as their confidence grows, European companieswhose outsourcing approach has been more strategic and less cost-drivenare also sending their engineering needs offshore.

The Future of BPO: $212 bn by 2010
The continuing implosion of the traditional organization and its underlying supporting management approaches, and the emergence of "virtualized" businesses, will result in the BPO market growing substantially over the next few years and by 2010 becoming a $212 bn industry. In the next three years, there will be few processes within businesses that will not be outsourceable, and where customers will struggle to find capable and willing BPO providers.

In none of the major BPO areas can customer satisfaction be regarded as well aligned with the primary driver of outsourcing, namely, reducing the cost of process execution and management. An exclusive focus (from both customer and provider sides) on cost is nave and will likely lead to disappointment. However, even with this caveat, providers must remember the simple mantra: The customer is always right (even when theyre wrong).

In trying to address these challenges, Gartner sees following themes that, if handled skillfully, can lead to better outcomes for all concerned by 2010:

• BPO customers and providers will have to embrace greater levels of process automation.

• It will be required to leverage more standardized, "configurable", pre-built solutions, rather than current fixation on using unique, one-off, "customized" ones.

• A major inhibitor enterprises face in leveraging BPO is their past technology investments. Often the desire to change the way a process is undertaken is hampered by the inability of an application/system to correspondingly change. Gartner sees much provider-side innovation emerging to address this complication, much of it based in the emerging Web-based technologies. Relatively immature, but Business Process Utility (BPU) is an important developing trend.

By 2010, more BPO customers will be looking for an outsourcer who can provide the next level of lower cost through the melding of global sourcing and automation.

Though the greater use of automation will eventually decrease the amount of labor involved in process execution, the use of non-domestic delivery, and not just services sourced from India, will be an important factor for the foreseeable future. As Thomas Friedmans "flat world" becomes more and more a reality, the globalization of resource pools, from Jamaica, Brail, Northern Ireland, Poland, and China, will become a key corporate competitive weapon. Huge re-invention will incur in first-world labor pools as skill sets rise exponentially all around the world.

These are excerpts, reprinted with permission from Global Services
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