ISG Research Shows Engineering Services Outsourcing Market Poised For Significant Growth

STAMFORD, Conn. ― Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, has announced research findings showing that the Engineering Services Outsourcing (ESO) market will grow significantly in 2014 and beyond.
Total spend on engineering services stood at $930 billion in 2012, ISG reports, and is expected to reach $1.4 trillion by 2020 – an increase of 50 percent in less than a decade. Total outsourcing spend on engineering services, meanwhile, was $325 billion in 2012 and is estimated to be growing at three to four times the rate of total spend on engineering.
“The key factors driving growth in ESO are long-term economic pressures to reduce costs, as well as the need to shorten product cycle time,” said Steven Hall, Partner, ISG. “At the same time, the increasing maturity of the ESO provider market is making outsourcing move viable and attractive for a growing number of client organizations.”
Additional factors driving the growth of ESO cited by ISG include access to global talent, increased pressure to localize production and shrinking research and development budgets.
ISG findings also show that the allocation of ESO spend is shifting from the mature to emerging markets, with Asia expected to gain the most from this shift. By industry vertical, the automotive sector is the major player, and accounts for a quarter of global engineering research and development (ER&D) spend. Consumer electronics and telecommunications firms are the next largest spenders. The proportion of ER&D by vertical is expected to remain stable through the end of this decade.
Captive operations have grown significantly, although the rate of that growth is slowing as clients focus on improving captive operations through benchmarking and exploring service delivery alternatives.
“ESO has expanded in recent years from very basic functions to include outsourcing of value-adding functions such as new product development and engineering consulting,” said Hall. “As service provider capabilities expand, companies are recognizing that outsourcing can be an effective strategy to improve global ER&D operations and address critical needs.”
A new ISG white paper examines ESO market trends in greater detail.
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