ENGINEERING SERVICES OUTSOURCING MARKET SIZE AND SHARE ANALYSIS - GROWTH TRENDS AND FORECASTS (2024 - 2031)

Engineering Services Outsourcing Market Size and Trends

The Global Engineering Services Outsourcing Market is estimated to be valued at USD 1,834.9 Mn in 2024 and is expected to reach USD 9,254.1 Mn by 2031, exhibiting a compound annual growth rate (CAGR) of 26.1% from 2024 to 2031.

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Engineering services outsourcing involves third-party assistance for design, development, testing, and maintenance of various services and products. Companies outsource such services to maximize productivity and focus internal resources on core business areas. The market is expected to witness significant growth during the forecast period. Growing emphasis on reducing operation costs and maximizing profits is propelling the outsourcing of engineering services. Additionally, access to advanced technical expertise at lower costs compared to in-house resources is augmenting demand.

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Insights, By Services - Creativity and Precision Drive Design Segment Leadership

By services, the designing segment is expected to contribute the highest share of 43.1% in 2024 owing to the high demand for creative design solutions combined with precise engineering skills. Outsourced design firms occupy a crucial role in the product development process by conceptualizing new ideas, translating customer needs into technical specifications, and creating blueprints, schematics, prototypes and other design documents.

Insights, By Application - Complex Requirements Fuel Aerospace Sector Leadership

By application, the aerospace segment is expected to contribute the highest share of 41.2% market share in 2024 due to the complexity of engineering challenges in this sector. Developing aircraft, engines, avionics, and other aerospace technologies involves surmounting immense design constraints while achieving the highest safety and reliability standards. Aerospace projects entail expertise across diverse domains like aerodynamics, materials science, embedded systems, fluid mechanics, thermodynamics, and structural analysis.

Insights, By Location - Talent Access Drives Offshore Model Leadership

By location, the offshore segment is expected to contribute the highest share of 55.6% market share in 2024 due to easy access to lower cost engineering talent in diverse global locations. While certain activities have become commoditized and suitable for offshoring, more complex work continues to be performed onshore where needed. However, for standard design tasks and product testing, an offshore model provides compelling benefits.

Regional Insights

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Dominating Region: North America

North America is a dominating market and is expected to account for 48.1% of the market share in 2024. The growth can be attributed to the presence of developed economies like the U.S. and Canada that invest heavily in technology and innovation. The governments in the region promote research and development through favorable policies. Additionally, several leading technology companies such as Kanda Software, Flatworld Solutions, Coherent Solutions, and others are headquartered here which drives the demand for outsourced engineering talent.

Fastest-Growing Region: Asia Pacific

The Asia Pacific region is expected to exhibit the fastest growth accounting for 32.3% of the market share in 2024. Countries, such as India, China, Japan, Singapore, and Malaysia, have built skilled workforces and a business environment conducive to technological development. Providing cost-effective solutions, these countries have emerged as top outsourcing destinations, attracting global companies to their large talent pools and business ecosystems.

Engineering Services Outsourcing Market Outlook for Key Countries

High Technology Demand across Several Sectors

The U.S. engineering services outsourcing market continues to be a global leader driven by new technology demand from various industries including automotive, healthcare, and aerospace. The trend of increased offshoring of engineering services from the U.S. to lower cost countries has significantly impacted the engineering services outsourcing market in recent years. There has been a substantial rise in the number of engineering projects that are being handled by outsourcing companies based in countries like India, China, Mexico, and others.

Technological Trends and Government Initiatives

India engineering services outsourcing market is supported by the government's 'Make in India' initiative and a skilled English-speaking talent pool. The India engineering services outsourcing market is undergoing significant changes driven by various technological and business trends. One of the major trends currently shaping this market is the move towards digital transformation and the adoption of emerging technologies by client companies. More and more organizations globally recognize that to stay relevant and gain competitive advantage, they need to embrace digital technologies and business models.

Leadership in Automation and Smart Manufacturing

China continues to lead in automation and smart manufacturing. Growing concerns around intellectual property remain a challenge for outsourcing players to address. Over the past decade, China has built a strong ecosystem for engineering services outsourcing. Chinese firms like Pactera, UTS, and Zensar have significantly scaled up their operations by taking on large outsourcing contracts from American and European firms. They offer competitive costs due to favorable business regulations and a large talent pool of low-cost engineers. This has put pressure on Indian firms to remain competitive.

Focus on Advanced Engineering Domains

The U.K. engineering services outsourcing market focus on advanced engineering domains presents opportunities for offshore partners to contribute niche expertise. The U.K. engineering services outsourcing market is facing immense change owing to current global trends. With increasing digitization across sectors, the demand for advanced technical skills from engineering service providers has surged over the past few years.

Market Concentration and Competitive Landscape

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Top Strategies Followed by Engineering Services Outsourcing Market Players

• Established Players- Established players focus heavily on research and development to launch innovative solutions. They aim to develop cutting-edge technologies and products through extensive research. Many leading players also pursue strategic alliances and partnerships. For example, major companies, such as WSP Global, TCS, Infosys, and Accenture, will continue leveraging acquisitions to expand their service portfolios and geographical reach. Such collaborations help companies leverage each other's technical expertise and manufacturing capabilities. They also strengthen market position and global distribution networks.
• Mid-level Players- Mid-level players survive through competitive pricing without compromising on quality. Many medium-sized firms are expanding into consulting and design services to offer more comprehensive solutions. These firms will likely strengthen their presence in high-growth regions such as Asia Pacific and Eastern Europe, leveraging lower costs and local expertise.
• Small Players- Small outsourcing providers minimize risks by niche specialization. They leverage specialized expertise in areas like mechanical design, product prototyping, or embedded systems. Business organizations adopt the latest technologies such as additive manufacturing or cloud-based engineering to differentiate their service offerings. Local partnerships and associations give them access to enterprise customers and projects.

Emerging Startups in the Engineering Services Outsourcing Market

• Innovation- Several startups are introducing groundbreaking technologies. Aerospaceship develops smart sensors and IoT devices for aeronautical engineering applications using nanotechnology. ConstructionBotics utilizes drone imaging and AI to automate architectural and structural design validation process.
• Sustainability- Such innovative startups will transform industry workflows through tools like augmented reality, robotics, and AI-powered simulations. They also offer sustainable alternatives - EcoPrototypes produces metal prototypes from recycled materials while Reactify specializes in reusable packaging design for e-commerce shipment.
• Niche Specialization- Some startups fill existing gaps in fragmented markets. PowerPlantz focuses exclusively on plant engineering for renewable energy sectors. MediShield targets the rapidly growing field of medical devices engineering. They collaborate with research institutes and hospitals to build specialized domain expertise.

Key Developments:

• In September 2024, TCS reported that the integration of generative AI significantly boosted productivity in its engineering research and design sector, accelerating product development cycles by up to 20%. This advancement benefited high-profile clients, including Rolls Royce and Jaguar Land Rover.
• In August 2024, WSP Global, a Canada-based engineering and professional services firm, announced plans to acquire U.S.-based, POWER Engineers, for US$ 1.78 billion. This acquisition aimed to enhance WSP's consulting capabilities amid growing investments in energy transition globally.
• In June 2024, Colliers International Group agreed to acquire a controlling interest in Englobe, a Canada-based multi-discipline engineering and environmental services firm, for USD 475 million. This move marked Colliers' entry into the Canada engineering services market.
• In May 2024, Keywords Studios, originally focused on localization services, expanded into the engineering sector through a series of acquisitions, enhancing its position in the video game industry.

Key Takeaways from Analyst

• The engineering services outsourcing market appears poised for steady growth over the next five years. Key drivers include the ongoing need for engineering expertise at relatively lower costs compared to in-house resources. Additionally, access to diverse global talent pools allow companies to supplement their internal capabilities.
• While North America and Western Europe continue to dominate spending on engineering outsourcing, the Asia Pacific region, led by India and China, is anticipated to see the fastest gains. Lower costs coupled with expanding capabilities around new technologies are helping Asian markets capture a growing share of global spend.
• On the other hand, high switching costs and concerns around loss of intellectual property if projects are not properly managed remain a restraint for some companies considering outsourcing engineering work. Identification of the proper partner also requires careful due diligence to ensure technical skills as well as compatibility with company culture and ways of working.
• Opportunities exist for service providers able to demonstrate deep domain expertise in specialized verticals like automotive, aerospace, or medical devices. Emerging technologies centered around AI/ML, IoT, and Blockchain also represent areas of rising demand from clients seeking expertise that may not be readily available in-house. Overall outsourcing is expected to play a strategic role for many companies as they focus resources on their core offerings while leveraging external talent for engineering needs.

Market Report Scope

Market Dynamics

Market Driver - Access to Advanced Technologies

For many companies, especially smaller to medium-sized enterprises, developing advanced technologies in-house requires huge investments of both time and capital. This has become one of the primary drivers for outsourcing engineering services to specialized firms. These firms have access to advanced technologies that client companies may not be able to develop or afford. Through outsourcing, companies are able to leverage cutting-edge technologies at a fraction of the cost of developing them in-house. Engineering service providers continuously invest in research and development to stay at the forefront of emerging technologies. They maintain collaborative partnerships with technology leaders and academia to gain early exposure to innovations. As a result, they have technological capabilities such as AI, robotics, 3D printing, IoT, and Blockchain that are revolutionizing product development.

Market Challenge - Intellectual Property Risks

One of the key challenges for the engineering services outsourcing market is the risk of intellectual property theft. When companies outsource their engineering work, there is always a risk that their proprietary designs, plans or secret sauce technologies could end up in the hands of competitors if the outsourcing firm or its employees fail to maintain credibility. Companies have to invest heavily in auditing their vendor partners and ensuring watertight contractual agreements and penalties for misuse of confidential data. However, complete elimination of such risks may not be possible. Firms also have to accept a certain level of risk as the nature of outsourcing work overseas entails less control and oversight compared to an in-house setup. This IP protection challenge puts pressure on pricing and discourages organizations from outsourcing more strategically important engineering tasks.

Market Opportunity - Emerging Technologies to Create Novel Opportunities

The engineering services outsourcing market has substantial opportunities arising from new and emerging technologies. As technologies advance rapidly in areas like artificial intelligence, machine learning, automation, IoT, and 3D printing. They unveil novel possibilities for engineering and product development. Outsourcing service providers that make early investments and build strong competencies in these new fields will be well placed to benefit. They can offer cutting edge solutions to client companies and industries across automation, data analytics, simulation, and virtual/augmented reality. This will help them tap into new streams of projects and larger, more complex deals. It can also help reduce dependence on traditional outsourcing of design/testing services and commoditize some of those offerings.

Key Stakeholders of Market

What does Growth in the Engineering Services Outsourcing Market mean for Different Stakeholders?

The engineering services outsourcing market includes several players and offers multiple opportunities based on their operational scope and diligence. The table below illustrates and interprets growth aspects for different stakeholders involved.

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Market Segmentation

• Services Insights (Revenue, USD Mn, 2019 - 2031)
• • Designing
  • Prototyping
  • System Integration
  • Testing
  • Others
•  Application Insights (Revenue, USD Mn, 2019 - 2031)
• • Aerospace
  • Automotive
  • Semiconductors
  • Healthcare
  • Others
• Location Insights (Revenue, USD Mn, 2019 - 2031)
• • Off-shore
  • On-shore
• Regional Insights (Revenue, USD Mn, 2019 - 2031)
• • North America
    • U.S.
    • Canada
  • Latin America
    • Brazil
    • Argentina
    • Mexico
    • Rest of Latin America
  • Europe
    • Germany
    • U.K.
    • Spain
    • France
    • Italy
    • Russia
    • Rest of Europe
  • Asia Pacific
    • China
    • India
    • Japan
    • Australia
    • South Korea
    • ASEAN
    • Rest of Asia Pacific
  • Middle East
    • GCC Countries
    • Israel
    • Rest of Middle East
  • Africa
    • South Africa
    • North Africa
    • Central Africa
• Key Players Insights
• • AKKA
  • Alten Group
  • Capgemini Engineering
  • Entelect
  • HCL Technologies Limited
  • Infosys Limited
  • Tata Elxsi
  • Tata Consultancy Services Limited.
  • Tech Mahindra Limited
  • Wipro Limited