Rapid growth in emerging markets and rising labor costs are among some of the reasons that are forcing Original Equipment Manufacturers (OEMs) and auto ancillaries to explore outsourcing and offshoring options in India, according to a recent report, “Offshoring Of Automotive Design And Engineering Services To India,” by ValueNotes, a provider of business intelligence and research.Shorter product cycles and dropping profitability are also cited in the report, which was based on extensive interviews with key people at various automotive design outsourcing companies in India.
Offshore Indian vendors stand to gain substantially, as outsourced engineering and design is set to witness double-digit growth for the next five years. According to the report, revenues from automotive design and engineering offshoring are expected to move from $270 to $300 million in 2005 to $1 billion by 2010.
Estimates also show that the industry employs 12,000 people in India and is likely to see 30 percent growth every year for the next three years.
“Auto design and engineering services is a huge emerging opportunity that India is well positioned to exploit, given the growing maturity of its automobile industry and proven offshoring capabilities,” says Arun Jethmalani, CEO of ValueNotes.
Rather than sub-contracting of design, engineering and manufacturing jobs, auto companies would prefer vendors offering end-to-end services. This provides an entry point for more Indian auto ancillaries to move from pure manufacturing to providing a complete range of solutions, from design to manufacturing to delivery.
Independent engineering and design firms will be prime targets for mergers and acquisitions, as companies with greater strength, like subsidiaries of Indian OEMs and ancillaries look to gain capabilities and clients.