This whitepaper is based on a survey of over a 100 engineering leadership professionals to understand the latest trends in engineering outsourcing. The whitepaper addresses areas surveyed and interpretations with regards to why companies outsource their engineering, drivers, challenges, models of outsourcing, etc.

1. WHITEPAPER
Engineering Services Outsourcing
A research on drivers and trends

2. WHITEPAPER
Engineering Services Outsourcing
Drivers and Trends
INTRODUCTION THE RESEARCH COMPANY – QEDBATON
QEDbaton delivers high impact demand generation solutions to
technology companies across global markets. With a team of
100+ demand generation specialists, QEDbaton converses with
over 5000 technology decision makers & influencers monthly
while tracking over 15000 companies. QEDbaton has worked
with over 70 technology companies in the past 6 years. Its
experience spans verticals & horizontals in geographies such as
North America, Europe, Middle East, APAC and India.
QEDbaton's key services include:
· Research Services - Market entry and market
intelligence reports, list building and contact discovery
and B2B surveys
· Demand Generation Services - Lead nurturing, lead
qualification, appointment setting, event enrolment and
email direct marketing
THE RESEARCH SPONSOR – BWIR
Barry-Wehmiller International Resources (BWIR) is part of the
consulting platform of the $1.2 billion Barry-Wehmiller
Companies, Inc., a market leader in packaging, paper and paper-
converting capital equipment manufacturing, headquartered in
St. Louis, Missouri with global operations. BWIR brings the best
of both worlds - the dependability of a global billion dollar
company with the benefits of distributed operations. BWIR has
been recognized as a pioneer in outsourcing with a distributed
global network of talent and resources. ISO 9001:2008
certified, BWIR has validated systems and processes in place to
deliver superior services to their customers. In engineering
services, BWIR offers the entire gamut of services ranging from
product development, value engineering, sustaining
engineering, CAD services, controls and embedded systems
support. BWIR has over a decade pioneered setting up and
managing Global Engineering Centers (GECs) for a wide variety
of manufacturing companies, thereby helping them with faster
product development and reduce operational costs.
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3. WHITEPAPER
Engineering Services Outsourcing
Drivers and Trends
INTRODUCTION ABOUT THE RESEARCH
Engineering Services Outsourcing (ESO) has emerged as one of the major outsourcing
initiatives in the last decade among the engineering and manufacturing organizations.
With the growth of reliable communication systems the new globalization paradigm
has changed from products that can be manufactured anywhere to services that can be
rendered anywhere.
This research is intended to understand the primary drivers to engineering
outsourcing, the trends and cues from the practitioners. The broad parameters
surveyed and analyzed were:
Outsourcing trends
Top outsourcing destinations
Outsourcing partner selection criteria
Type of engineering work outsourced
· Prevalent engagement models
“The survey was conducted with a broad range of manufacturing companies
spread across geographies and revenues. The underlying idea was to get these
details from the practitioners and hence the survey was targeted at senior
engineering professionals in over a 100 manufacturing companies.”
Survey Demographics
17% 9%
13% 9%
4%
22% 43% 52%
16%
60% 30%
22%
Industrial Machinery Director/Head/ VP- Northern Europe
Equipment Engineering
Manufacturers Southern Europe
Director/Head Product
Oil & Gas Equipment Development and R & D Western Europe
Manufacturers
Engineering Manager North America
Consumer Electronics
Others
Rotating Equipment
Manufacturers
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4. WHITEPAPER
Engineering Services Outsourcing
Drivers and Trends
OUTSOURCING STATISTICS
It was observed that companies in the North American
Outsourcing Statistics
region were outsourcing more compared to the
European companies. It was also observed that a larger
percentage of mid-sized engineering companies (>$200
mn in revenue) were outsourcing engineering services
and setting up captives engineering centers in emerging
50% 50%
economies.
Another interesting observation was about 30% of the
companies surveyed ran their own engineering
centers in emerging economies, but also outsourced
Have outsourced engineering services to third party engineering service
Engineering
providers as a de-risking strategy and to build a global
delivery model. A large percentage of these captive
Have not outsourcing
Engineering engineering centers were setup as engineering centers to
support their manufacturing bases in emerging
economies.
DRIVERS TO OUTSOURCE
Reasons for outsourcing Contrary to popular belief, the primary driver for
outsourcing does not seem to be cost. While companies
Flexible arrangement to handle 4.13
sudden spikes of work do want to take advantage of outsourcing at a lower cost,
the priority is to maintain flexibility and outsource non-
Availability of skills 3.77
core tasks and augment engineering skills to get products
faster, better and cheaper to the market place. Some
Outsourcing non core activities 3.14
respondents even mentioned that there are some
services that they outsource at a premium since this
Cut down operational costs 2.65
model allows them the flexibility to convert fixed costs
into variable costs.
Reasons for not outsourcing
The biggest deterrent to outsourcing seems to be worries
with respect to IP concerns. The companies that have
Lesser volume of work 59.09%
chosen to outsourcing have dealt this by choosing the
Fear of losing
intellectual property 45.45% right partners and selectively outsourcing non-core
Work requires high degree activities. In some cases, if the work content was very
of domain expertise 22.73%
critical, the companies chose to take advantage of a global
Concerns with respect to
13.64% delivery model and executed it onsite, rather than
managing the external team
offshoring it.
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5. WHITEPAPER
Engineering Services Outsourcing
Drivers and Trends
PREFERRED OUTSOURCING DESTINATIONS
India, followed by China have clearly emerged as the
most preferred destinations when it comes to
offshoring engineering services or to setup captive Preferred outsourcing destinations
engineering centers. The respondents attributed the
reasons for this as cost arbitrage, strong
manufacturing base, emerging local demand and a
large talent pool. 23% 23%
While India (ranked as the top offshoring location)
has the advantage in terms of English language skills,
cultural compatibility with the West, a robust
political and legal system, and a better perception of 54%
protecting Intellectual Property (IP), China (the
second ranked offshoring location) has much better
infrastructure and a well-developed manufacturing India China Others
base. Other emerging destinations include Taiwan
(Computing Systems), Ireland (Medical Devices),
Poland and Brazil (Construction/Heavy Machinery).
OUTSOURCING PARTNER SELECTION CRITERIA
It was observed that availability of skills is the Outsourcing partner selection criteria
primary driver for selecting a partner. Ease of Domain expertise /
4.19
communication and cost are secondary drivers for Product knowledge of the
selecting a partner. It was also observed that most Ease of Communication 3.90
manufacturers chose their outsourcing partners
Cost 3.80
without bias of offshoring destination except in cases
Infrastructure available
where manufacturers chose partners based on with the vendor 3.16
proximity to manufacturing base.
Customer references 2.89
Proximity to production plant 2.43
Proximity to customers 1.30
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6. WHITEPAPER
Engineering Services Outsourcing
Drivers and Trends
TYPES OF SERVICES OUTSOURCED
Product development & value engineering emerged as
the top service outsourced correlating with the fact that
Engg. services outsourced to partners the top partner selection criteria was availability of skills.
But it is intriguing that the top reason for outsourcing
New Product Development 77.78% was flexibility to handle sudden spikes of work, which
CAD Technologies 50.00%
did not seem to correlate with the type of services
38.89%
outsourced. In discussion with a random set of
Sustenance Engineering
re s p o n d e n t s , m o s t a c k n o wl e d g e d t h a t
Controls Engineering 27.78%
p ro d u c t development initiatives usually take a back
Value Engineering 27.78%
seat when they are filled with sustenance engineering/
order fulfillment jobs and this extends their product
development lifecycles.
PREFERRED ENGAGEMENT MODELS
Most respondents indicated that project based
engagement models were favored more than Resource
Based engagement models. To derive the benefit of a
long-term relationship and knowledge retention, most
manufacturers had dedicated teams retained with their
Preferred engagement models
outsourcing partners. But, to maintain accountability
and to demonstrate value they were running project-
based engagements within these retained dedicated
teams to maximize output. The Service Level
30%
Agreements in these cases were clearly based on hours
allocated for task completion.
10% The average satisfaction level with the quality of services
60% provided by their existing outsourcing partners stood at
4 on a scale of 1 to 5. Manufacturers that gave lower
ratings cited the main reasons as not being happy with
the amount of time being spent on training & partner
interaction and a few quality concerns.
Project based
It was also observed that most manufacturers had
Resource based
multiple outsourcing partners as a de-risking strategy.
Both The large manufacturers echoed that once they reached a
large scale and steady state of operations with a
particular partner, they felt it is necessary to diversify to
other partners.
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7. WHITEPAPER
Engineering Services Outsourcing
Drivers and Trends
CONCLUSION
Based on the survey analysis, it is clear that Engineering Services Outsourcing is a
practice that is fast catching up with manufacturers. Almost all manufacturers are faced
with typical engineering challenges of reducing budgets and pressures of faster, better
and cheaper product development. With the availability of advanced communication
technologies, global delivery of services has been made much easier, which is evident
from the continuous growth of outsourcing of services from the manufacturing
industry. Most small and mid-market manufacturing companies are also talking about
outsourcing and it is no longer a service accessible only by the large companies.
While outsourcing presents a huge opportunity beyond doubt, it also comes with its
share of challenges such as IP security and communication. The more established
service providers have clearly defined processes and systems to handle these and that is
what manufacturing companies are looking for. The expectation is that the service
providers will lead them into a smooth outsourcing relationship through a process
based approach.
Most manufacturers acknowledge that their outsourcing relationships have been
successful because they believed that outsourcing is a long-term strategy for their
organizations and have taken the right steps to ensure that these relationships grow and
prosper.
The following are some criteria that stand out for evaluating suitable engineering
outsourcing service providers among others.
1. Availability of customizable engagement models with scalability to offer
flexibility to manage sudden spikes
2. Availability of a global delivery model for better communication and ease of
operation
3. Access to large pool of appropriate skills
4. A process driven approach to outsourcing
5. The ability to drive SLA based engagements
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8. About BWIR
Barry-Wehmiller International Resources (BWIR) is part of the consulting platform of the $ 1.2
billion Barry-Wehmiller Companies, Inc., a market leader in packaging, paper and paper-
converting capital equipment manufacturing, headquartered in St. Louis, Missouri with global
operations. BWIR brings the best of both worlds - the dependability of a global billion dollar
company with the benefits of distributed operations. BWIR has been recognized as a pioneer in
outsourcing with a distributed global network of talent and resources. ISO 9001:2008 certified,
BWIR has validated systems and processes in place to deliver superior services to our customers.
USA INDIA
8020, Forsyth Boulevard, St Louis, MO 63105 MPL Silicon Towers, 23 - 1/B3, Velachery-Tambaram Road
Phone: +1 (314) 862 8000 | Fax: +1 (314) 862 4154 Pallikaranai, Chennai - 600 100
Toll free: +1 (800) 862-8020 Phone: +91 (44) - 4390 9100 | Fax: +91 (44) - 4390 9211
Email: info@bwir.com | Web: www.bwir.com