“Marketing of Outsourced Engineering services”: With a focus on IT Engineering services

Prepared by:Himanshu Shah(51)

Shailendra Khiriya(27)

Guided by:Prof. Reshmi Menon

2011

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PREFACE

Engineering services outsourcing (parts of which are also referred to as engineering BPO) is the

practice of sourcing some or all of a company's design and engineering requirements from

external service providers.

Over the years, for instance outsourced product engineering (mechanical) services have

graduated from basic drawing conversions and CAD migration assignments, through 2D - 3D

modeling and digital mock-ups. In the field of IT and Electronics outsourcing is majorly done for

chip designing, product development, product testing, embedded systems etc.

Today, increasing levels of digitization have resulted in much of the product development

process being performed virtually using computing technologies. Further the development of

common enterprise management applications and technology platforms have driven information

integration across the value stream to facilitate more efficient planning, deployment and

management of capital assets and production.

Indian companies have successfully leveraged the skill-sets, tools and experience from

outsourcing IT software and services, to gain a strong foothold in outsourced product design and

engineering. Global spend on Engineering Services is projected to increase to $ 1.1 trillion by

2020. Of the $ 750 billion spent today, only a fraction of the total is being offshored ($ 10-15

billion).  The Value of work currently undertaken by India-based vendors in this space is

estimated at just 12 % of offshore market, highlighting significant untapped potential.

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ACKNOWLEDGEMENT

In the pursuit of management excellence, every student owes a great deal to the insights and

suggestions of others and we are no exception. We believe learning is a process that entails give

and take, exchange of ideas and value addition through discussion.

We begin by acknowledging our humble thanks to Prof Reshmi Menon for giving us this

opportunity to undertake this important assignment in our academic career and for her constant

guidance, constructive criticism as a project guide, which brought this challenging task to

success. We would also like to express our gratitude to the project managers of the IT companies

who responded to our survey.

Our unfathomable respect to our parents and other family members whose everlasting love, keen

interest and constructive suggestions made us confident.

Last, but certainly not the least, we would like to thank our friends and all who directly or

indirectly contributed in the successful completion of our project work.

Himanshu Shah

Shailendra Khiriya

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Table of Contents:

EXECUTIVE SUMMARY.............................................................................................................6

Part 1: Introduction to the Project study..........................................................................................8

1.1 Title of the project:................................................................................................................9

1.2 Objective of the study:...........................................................................................................9

1.3 Research Design:.................................................................................................................10

Part 2: Concept of Engineering Services Outsourcing (ESO).......................................................12

2.1 Introduction to Engineering Services Outsourcing (ESO)..................................................13

2.2 What are Engineering Services?..........................................................................................14

2.3 Market demand of Engineering Services Off shoring:........................................................15

2.4 Scope of Engineering Services Outsourcing in India..........................................................17

2.5 Major ESO vendors in India................................................................................................19

2.6 Difference between engineering and other outsourced functions........................................20

2.7 Framework of Engineering Services Outsourcing model which includes both on shoring

and off shoring...........................................................................................................................24

2.8 Rationale for outsourcing engineering services...................................................................26

2.9 Risks involved in Outsourcing Engineering services..........................................................28

2.10 Engineering services outsourced in various branches of Engineering..............................32

IT and Computer Engineering Services.....................................................................................33

Mechanical Engineering Services..............................................................................................34

2.11 Description of various IT Engineering services................................................................35

Part 3: Engineering Services Outsourcing in practice...................................................................38

3.1 Factors considered in selecting the activities to be outsources............................................39

3.2 Considerations used to determine Captive or Vendor:........................................................41

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3.3 Key pointers in selecting the right partner for providing engineering off shoring services:

...................................................................................................................................................41

3.4 Contractual issues in Engineering Services Outsourcing........................................................42

Part 4: Primary Research...............................................................................................................59

4.1 Exploratory research............................................................................................................60

Questionnaire-1..........................................................................................................................61

4.2 Understanding the business model of Engineering Services Outsourcing (through

exploratory research).................................................................................................................63

4.3 Descriptive Research...........................................................................................................70

Part 5: Research Findings..............................................................................................................76

Part 6: CONCLUSION..................................................................................................................87

6.1 Critical success factors for Indian Engineering Services Outsourcing Industry.................88

6.2 Consideration in deciding the services to outsource............................................................89

6.3 Critical success factors for the ESO vendors.......................................................................90

BIBLIOGRAPHY..........................................................................................................................92

Internet sources:.........................................................................................................................92

Research papers:........................................................................................................................92

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EXECUTIVE SUMMARY

The major objective of the project is to understand the business model of Engineering Services

Outsourcing and understanding the critical success factors for India as an outsourcing hub and

significant factors which affect the success of ESO vendors. In order to do this study there are

certain pre-requisites which need to be fulfilled and hence are discussed in the report.

The concept of Engineering Services Outsourcing, market demand of various services,

engineering services outsourced in various field, risks involve in outsourcing engineering

services and scope of Indian ESO vendors is discussed in the report.

Also the dynamics of selection of services to outsource and the pointers for selection of

ESO vendors are detailed.

Various contractual issues involved in outsourcing and their impact are highlighted.

For the primary research firstly exploratory research was done to understand the business

model of Engineering Services Outsourcing with a focus on issues such as the countries

which contribute maximum clientele to the Indian ESO vendors, service outsourced,

pricing mechanism of the services, legal aspects of outsourcing, various channels of

getting orders and tools used for promotion etc. This was done by conducting a depth

interview of an experience project manager of one of the well established IT &

Electronics Engineering services outsourcing companies.

This is followed by doing a descriptive research through a survey of IT companies to

understand the importance of various factors in selection of ESO vendors, importance of

various factors considered in the selection of the services to be outsourced, effectiveness

of various tools of promotion etc.

The findings of the research are concluded in the final chapter.

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Part 1: Introduction to the Project study

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1.1 Title of the project:

“Marketing of Outsourced engineering services: With a special focus on IT Engineering

Services”

1.2 Objective of the study:

The primary objective of the study is to understand the current scenario of IT Engineering

Services Outsourcing industry in India, to analyze the strategic capabilities required for

successfully marketing IT engineering services and finding out the major international markets

for Indian IT engineering Services Companies.

Following are the research questions that the study addresses:

What is the basis for selection for the engineering services to be outsourced?

Which are the international markets which offer maximum growth potential to the IT

engineering services companies in India? What are the strategic strengths of India as an

outsourcing destination?

Which are the major IT engineering services outsourced in India?

What is the pricing mechanism of the outsourced projects?

Understanding the optimum promotional mix for engineering services?

What are the contractual issues involved in engineering services outsourcing project?

How are the process standards for performing a particular project decided?

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1.3 Research Design:

1.3.1 Exploratory research

Firstly secondary research was carried out to find out the scope of ESO sector in India,

major players of the sector, and services outsourced in different branches of engineering.

This was followed by primary research which was carried out by carrying out a depth

interview of a project leader in one of the reputed IT & Electronic services outsourcing

company based in Ahmedabad. The interview helped in understanding the business

model of IT Engineering Services Outsourcing.

1.3.2 Descriptive research

This was followed by descriptive research which was carried out by interviewing senior

engineers in IT services outsourcing companies based in Ahmedabad.

1.3.3 Scope of the research

This study would help one to understand the factors which are to be taken while considering a

particular service to be outsourced. One would be able to understand what capabilities are

required to qualify for being a vendor of IT engineering services. Report would help in

understanding the scope available in various markets.

Apart from this, one would be able to understand the crucial factors that affect the marketing of

these services.

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1.3.4 Research tool

A semi-structured open ended questionnaire was used for the exploratory research.

A structured closed ended questionnaire was used for the descriptive research

1.3.5 Sample characteristic

For these project senior engineers handling outsourcing project in the companies of Ahmedabad

will be surveyed.

1.3.6 Data Sources:

Magazines

Websites

Primary research survey of the companies

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Part 2: Concept of Engineering Services Outsourcing (ESO)

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2.1 Introduction to Engineering Services Outsourcing (ESO)

Companies, including engineering and construction contractors, have long been engaging

engineering and design firms and professionals for specialized services, particularly where

unique expertise was required that companies either did not have “in house” or did not want to

bring “in house.” On the other hand, routine functions were handled with internal resources. The

transaction costs of engaging engineering or design firms to perform those routine functions

outweighed the benefits of having that work performed by them. Moreover, the pool of domestic

talent available to perform routine engineering and design tasks was sufficiently affordable to

justify hiring and keeping that talent on staff.

With advances in communications technologies and a flattening world, things are changing.

Today, companies reviewing their internal operations are considering their engineering and

design functions on par with other internal business support functions that may have been or are

in the process of being outsourced. This examination moves past traditional contracting

structures for professional engineering and design work towards a more tightly integrated and

highly leveraged use of strategic relationships to discharge a higher volume of such work on a

more routine basis. Engineering and design services are becoming ripe for outsourcing –

transferring responsibility for the performance of an in-house task or function, usually routine in

nature, to a third party for some period of time. What are the business and legal issues that must

be addressed with respect to the outsourcing of such functions?

Outsourcing began with data centers but now extends to a variety of business functions.

Whatever the function, basic issues remain the same – scope of service, performance standards,

pricing, transition, intellectual property and remedies, among others. Many risks also remain

similar to other types of outsourcing, including poor (or merely mediocre) performance,

excessive costs, security, late delivery, regulatory compliance and others.

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2.2 What are Engineering Services?

Engineering services are those service functions that deal with or related to core engineering

processes.

Examples are:

CAD / CAM (computer aided manufacturing / design)

Auto design

Failure analysis of structural steel

The distinction that needs to be drawn here is between engineering functions and engineering

service functions. An engineering function could be auto engine manufacturing. A related

engineering service function would be designing the engine. It is similar to the distinction

between manufacturing and manufacturing support services.

Companies, including engineering and construction contractors, have long been engaging

engineering and design firms and professionals for specialized services, particularly where

unique expertise was required that companies either did not have “in house” or did not want to

bring “in house.” On the other hand, routine functions were handled with internal resources. The

transaction costs of engaging engineering or design firms to perform those routine functions

outweighed the benefits of having that work performed by them. Moreover, the pool of domestic

talent available to perform routine engineering and design tasks was sufficiently affordable to

justify hiring and keeping that talent on staff.

With advances in communications technologies and a flattening world, things are changing.

Today, companies reviewing their internal operations are considering their engineering and

design functions on par with other internal business support functions that may have been or are

in the process of being outsourced. This examination moves past traditional contracting

structures for professional engineering and design work towards a more tightly integrated and

highly leveraged use of strategic relationships to discharge a higher volume of such work on a

more routine basis. Engineering and design services are becoming ripe for outsourcing –

transferring responsibility for the performance of an in-house task or function, usually routine in

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nature, to a third party for some period of time. What are the business and legal issues that must

be addressed with respect to the outsourcing of such functions?

Outsourcing began with data centers but now extends to a variety of business functions.

Whatever the function, basic issues remain the same – scope of service, performance standards,

pricing, transition, intellectual property and remedies, among others. Many risks also remain

similar to other types of outsourcing, including poor (or merely mediocre) performance,

excessive costs, security, late delivery, regulatory compliance.

2.3 Market demand of Engineering Services Off shoring:

Today, over 150 MNCs are using the engineering expertise of Indian companies. A good number

of them are in the telecom and technology space. The other major business areas are automotive,

heavy machinery and construction. Some other areas where these services are used are electric

utilities and aerospace.

Fig1: Break up of Engineering Services Out sourcing (ESO)

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Presently, ESO forms only 3-4% of the world wide spends on Engineering R&D. If design

peripherals are taken at 20% of the total product, a potential growth of six times the current

growth can be envisaged.

The total expenditure of ESO is currently estimated at USD750bn per year. This is growing at a

steady pace and is expected to reach USD1tn by 2020. India is expected to get 10% share of this

which estimates the revenue to be around Rs 100,000 Cr. The major competitors for India are

China and former Soviet Bloc countries.

While this scenario is expected to change in the years to come, currently companies in the U.S.

are under relentless pressure to save costs and improve efficiency due to global competition.

There are additional factors that make U.S. companies the #1 outsourcers of engineering

activities. Some of these factors are:

Continuous pressure from Wall Street to cut costs and improve efficiency

Drive growth by tapping into emerging markets (especially BRIC countries);

Less stringent labor laws (than Europe);

Increasing confidence in supply base; and

Positive reputation of low cost engineers in the U.S.

India is currently the dominant choice for engineering outsourcing and off shoring. Key drivers

for this choice include presence of a large independent vendor base, access to one of the largest

pools of engineers and scientists, English speaking capability, significant labor arbitrage, low

macroeconomic risk and proximity to some of the fastest growing economies (China & India) in

the world. However, it is the success of many of these Indian suppliers in the provision of

business process and information technology outsourcing services that has provided the required

confidence to companies in the western markets to start sourcing engineering services from

Indian suppliers as well. Hence, it is fair to say that many of the vendors, with a few exceptions,

are known in the western markets for their business process and information technology

outsourcing capabilities but have since successfully ventured into developing their engineering

capabilities and delivery of off shore engineering and design services.

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2.4 Scope of Engineering Services Outsourcing in India

Indian companies have successfully leveraged the skill-sets, tools and experience from

outsourcing IT software and services, to gain a strong foothold in outsourced product design and

engineering. Engineering services is a growth market. Current spending on engineering services,

$750 billion is projected to increase to $1.1 trillion by 2020. Out of this engineering services

outsourced would come to 20% of this which comes to around USD40bn. Taking India’s share to

be 10-20% of this would be around Rs100,000 crore. Engineering services off shoring could help

create 150,000-200,000 additional jobs – up to 1,000,000 with multiplier effect. India needs to

invest now to yield the required number of engineers by 2020.

Major strengths of Indian engineering outsourcing industry include huge availability of

engineering talent, strategic expertise and the comparative advantage of outsourcing over

developing captive centers. Among developing countries, India has the largest engineering talent

pool required to take up outsourced jobs. The Indian workforce is fluent in English, flexible to

work in shifts, dedicated, and can work under pressure to meet project deadlines. However, there

is a perceived need to develop proper infrastructure and impart domain-specific specialised

training to this talent pool to enable them meet the outsourcing requirements of multinational

OEM and component manufacturers.

Indian companies have great expertise in forging long-term partnerships with international

organisations; they adapt quickly to changing global trends and business models to improve the

value proposition to their clients. In order to highlight the 'quality' aspect of services offered in

India, Indian companies are achieving quality certifications such as SEI CMM Level 5, COPC,

PCMM, ISO 9001:2000. These advantages position India ahead of other developing economies

such as China in the list of outsourcing destinations.

 

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 2.4.1 Strategies for success of India in the ESO market

To realize this opportunity, India needs to develop a multi-pronged strategy for success. Some of

the recommended actions are broader in scope, related to those required to sustain our lead in IT-

BPO exports – and are already at various stages of planning and execution. Others are more

specific, targeted at addressing the engineering services market.

i. Build the “Engineered in India” brand

ii. Build domain expertise through symbiotic relationships with experts

iii. Focus on infrastructure creation

iv. Undertake initiatives to improve workforce

v. Leverage local industry ‘offsets’

vi. Align government policy and incentives

 

Build the “Engineered in India” brand

Marketing India as a destination of choice by creating a division which specifically

addresses this segment.

Establishing industry specific international trade bodies, conducting regular trade shows

and leveraging Indian consulates for educating local and international governments on

benefits of off shoring. Build domain expertise through symbiotic relationships with

experts.

Acquiring design houses in the US, Europe and Japan to gain requisite expertise and

hiring experts from other countries

Focus on infrastructure creation

With an islands of infrastructure approach for physical infrastructure and consortium

based approach for engineering infrastructure

Undertake initiatives to improve workforce

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Address quantity issues with investment in academic institutions, special national level

technical diploma programs, allow for private spend to increase quantity

Address quality issues by standardizing curricula, training and certification programs,

investment in long-term internships and solicit government help in retention

Leverage local industry ‘offsets’

The government should take a structured approach to leveraging industry – for e.g. large

imports in Aerospace, Defense, and Utilities should be leveraged through offset programs

Align government policy and incentives

Policies towards facilitation of adequate visas is available for professional services,

conducive bilateral relations, investment in infrastructure and strengthen law to enhance

IP protection.

Incentives for investing in R&D and innovation

2.5 Major ESO vendors in India

ESO vendors can be divided into following categories:

Majors (those who are firmly in the field)

Middlers(those who have forayed into the field and are growing rapidly)

Aspirers(those who have entered the field and can be expected to grow in the future)

2.5.1 The majors:

TCS (Automotive, aerospace, industrial machinery and construction. Current revenue

around Rs 1000Cr)

Tata Technologies (Automotive. Current revenue around Rs 900 Cr)

HCL (Aerospace, Current revenue around Rs 500 Cr)

Infosys (Manufacturing, Current revenue around Rs 300 Cr)

2.5.2 The middlers:

Patni (General Engineering Services, Revenue around Rs 250 Cr)

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Infotech Enterprises Aerospace, Revenue around Rs 250 Cr)

Rolta ( Ship Design, Revenue around Rs 225 Cr)

2.5.3 The Aspirers:

Quest (Aerospace, around Rs 150 Cr)

Wipro (Telecom & Semi-conductor design, Revenue around Rs 150 Cr)

L&T Infotech (Construction and Manufacturing. Revenue around Rs 140 Cr)

Neilsoft (Construction & Automation, Revenue around Rs 70 Cr)

Geometric Software (Automotive and Consumer Products, Revenue around Rs 50 Cr)

2.6 Difference between engineering and other outsourced functions

Companies generally outsource in order to save money. The opportunity for labor arbitrage in

the offshore provision of engineering services is significant. Indian and Chinese engineers cost

less than similarly trained and qualified U.S. or European engineers. In addition, engineering

service providers can specialize in the delivery of engineering services and leverage that

specialization across a larger customer base than just a single customer. This leverage may also

provide opportunities for cost savings. Accuracy, competency and compliance are, of course,

crucial, and outsourcing may be an agent of transformation, through consolidation or process

changes; but saving money is usually the sine qua non. In light of the current demographics

around the availability of skilled engineering labor, the outsourcing and off shoring of

engineering and design functions will likely continue to be a source of cost savings going

forward.

In the context of engineering and design services, there may be other reasons, such as access to

skilled labor pools, access to emerging markets, capacity growth, lowering time to market,

driving innovation, and increasing productivity and quality. Engineering services are different,

though, as compared to other services, like business process outsourcing or information

technology. There are unique constraints on engineering services that make

these services less amenable to outsourcing or off-shoring than other

functions. Understanding these differences is important to not only realizing

the expected efficiencies and savings from outsourcing but also for the long-

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term health of the companies engaging in it. The key differences between

engineering and other services can be summarized across the following

multiple factors.

2.6.1 Product Uniqueness:

Engineering services tend to be unique. Processes and sub processes vary by company, industry

and the products supported by the engineering services. For example, the process to design an

automotive component will be different than that of designing a paper rolling machine or

packaging layout for a cell phone. The sequence of steps and testing requirements are different

and often unique for each product-line. Comparatively, one can expect synergies in processes

relating to financial transactions. For example, bill payment processing or the process for

completing a customer service call through a call center may offer greater opportunities for

leverage than many engineering functions. Back office business process functions tend to have

more common steps across customers and industries. Once such a process has been established,

barring minor tweaks, it can often be replicated across a customer base. Engineering services, on

the other hand, require focused skill sets and capabilities from suppliers. As an illustration, a

supplier that is proficient in designing automotive components might not be proficient in

designing or calibrating paper press rollers.

2.6.2 Collaborative Nature of Engineering:

Unlike other 0utsourced services that may fit within particular organizations, engineering in most

companies is a collaborative effort between various functional areas. Product development and

research engineers work closely with sales, marketing, business strategy, procurement and

information technology groups, for example. These functions work together in order to

successfully deliver products to customers. This aspect of engineering is an important factor to

be assessed before a decision for outsourcing or off shoring is taken. In contrast, many business

process or information technology outsourcing activities can be segregated to a single function or

an entity within an organization. The impact of changing the source of engineering services is

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felt across the company, and the cross-functional synergies and coordination required are highly

complex.

2.6.3 Domain Knowledge

Due to its critical requirement for technical knowledge and expertise, engineering requires

special training and background. In the context of designing and analyzing products, in addition

to fundamentals of engineering, ‘tribal knowledge’ or domain expertise plays a very important

role. There are many aspects of engineering that engineers can only learn by doing. For example,

consider the application of just the right constraints while performing a Finite Element Analysis

(FEA) versus over-constraining the computer model - both approaches might give identical

results in the area of failure to pass the analysis, but the latter approach also delivers multiple

spurious failures resulting in over-designing and increased costs. Defining the difference starts to

look more “art” than “science.”

The more exposure an engineer gets towards designing, analysis and testing within a particular

environment, the more knowledge that engineer gains about engineering within that

environment. Similarly, like gaining knowledge through hands-on work, the development of

best-practices and the transfer of expert knowledge to successive generations of engineers add to

the complexity of externally sourcing engineering functions. These attributes of engineering

also place limits on the tasks that newly minted engineers can perform.

While business process and information technology outsourcing may require specialized

training, domain expertise may not be as critical in the context of these other services as it is for

outsourced engineering services. For example, while an IT programmer requires knowledge of

specific software or computer languages and programming experience in order to succeed, that

programmer probably does not need to acquire as substantial a domain knowledge of the

company’s business or industry as a product development engineer. Back office functions like

payment processing and call center operations may not even require a college degree. In contrast,

specific degree credentials may be required for the performance of outsourced engineering

services and the performance of these services requires extensive and in-depth knowledge of the

customer’s business and industry.

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2.6.4 Market Demands:

The requirements of customers for outsourced engineering services are different across various

regions of the world. For example, left-hand versus right-hand drives in automobiles, sizing of

products, packaging requirements and consumer safety standards differ across North America,

Europe and Asia. Products need to be engineered differently for these different markets. In

addition, the processes, sub-processes and testing criteria required to introduce products into the

market vary. Differences between various markets are less significant for other services, like

business process outsourcing, primarily because an average consumer doesn’t touch and feel the

deliverable. A typical consumer neither knows nor cares about how a credit card transaction is

processed. On the other hand, customers can touch and feel the products derived from outsourced

engineering.

2.6.5 Vendor Capability:

Due to these unique factors and the importance of domain knowledge, the capability to provide

engineering services is not easy to find in off-shore locations. It takes a long time to develop

strong engineering capability for service providers with delivery centers in emerging markets.

This is partly because the needs of the customers in emerging markets are very different than in

mature markets. As a result, these service providers are at the lower end of the learning curve

than their compatriots in mature markets. Further, government regulations that are geared

towards preventing global competition in fact prevent the growth and maturity of a local

engineering supply base in some emerging markets.

2.6.6 Other Factors:

Other factors like language, quality of education, ability to scale-up resources, local regulation

and respect for intellectual property, etc. take on different levels of significance in the

outsourcing of engineering services than other types of outsourcing. For example, intellectual

property related issues tend to be more important for engineering services than for business

process functions that do not give the customer a competitive advantage in the market. Also, the

ability to be able to scale-up resources plays a crucial role in the successful execution of off-

shoring the source of engineering services.

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2.7 Framework of Engineering Services Outsourcing model which

includes both on shoring and off shoring

Onshore Offshore

Preliminary design

1. Idea

phase:

Identificatio

n of a

2. Design phase:

Engineer

analyses the idea

and designs

preliminary

Client Engineer

2A. Design phase:

The engineer conveys the

work to be done by the

foreign engineer which can be

either design or

Initial Engineer Foreign

Engineer

Teleconferences

Electronic data sent

Engineer

Regulations

Standards

3. Test phase:

The engineer applies the design to

a model to test- can be done

domestically or abroad at the

offshore site. This applies to the

manufactured products

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Product

The above framework relates to the engineering services related to the product development:

Idea Phase:

Here, the client gets an idea about a new product which might be to solve a particular problem or

is a new utility all together.

Design Phase:

Here, the client appoints an engineer to whom the client narrates the idea/problem. Based

on this the engineer prepares a initial design and estimates the requirements for the

project in terms of software, hardware, intellectual capital, number of man-hours your

project process requires etc.

After this the specific components of the project are identified. Decision is to be taken as

to which activities need to be performed on-shore and which activities can be off shored.

An ESO is selected in some other country where a part of the designing or manufacturing

process can be outsourced

Next, an India-based Project Leader/Outsourced Process Manager (OPM) of the ESO is

selected and brought on site for the project's first few days. This Project Leader/OPM will

manage all activities of the team offshore.

After gaining an in-depth knowledge of your needs and requirements, the Project

Leader/OPM will select the remote team members, chart out roles and responsibilities,

and develop the specifications for the milestones and deliverables involved. A

4. Construction phase:

The engineer supervises the

manufacturing process

domestically or abroad

5. Product completion

phase:

Engineer hands over the

product to the client

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communication protocol will be established and reporting mechanism deployed so that

the client knows exactly what has been accomplished and what needs to be accomplished

at any point in time.

Finally, the project leader will return to his country to direct all activities of the team.

Test phase:

The engineer applies the design to a model to test- which can be done domestically or abroad at

the offshore site. This applies to the manufactured product. It is not applicable for the project

such as software development.

Construction phase:

Client’s engineer supervises the manufacturing process domestically or abroad.

Product completion phase:

Engineer hands over the product to the client which can be then commercialized.

2.8 Rationale for outsourcing engineering services

Organizations that outsource are seeking to realize benefits or address the following issues:

Cost savings

The lowering of the overall cost of the service to the business. This will involve reducing

the scope, defining quality levels, re-pricing, re-negotiation, and cost re-structuring.

Access to lower cost economies through offshoring called "labor arbitrage" generated by

the wage gap between industrialized and developing nations.

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Cost restructuring — Operating leverage is a measure that compares fixed costs to

variable costs. Outsourcing changes the balance of this ratio by offering a move from

fixed to variable cost and also by making variable costs more predictable.

Improve quality — Achieve a steep change in quality through contracting out the

service with a new service level agreement.

Knowledge — Access to intellectual property and wider experience and knowledge.

Operational expertise — Access to operational best practice that would be too difficult

or time consuming to develop in-house.

Access to talent — Access to a larger talent pool and a sustainable source of skills, in

particular in science and engineering.

Capacity management — An improved method of capacity management of services and

technology where the risk in providing the excess capacity is borne by the supplier.

Enhance capacity for innovation — Companies increasingly use external knowledge

service providers to supplement limited in-house capacity for product innovation.

Reduce time to market — The acceleration of the development or production of a

product through the additional capability brought by the supplier.

Commodification — The trend of standardizing business processes, IT Services, and

application services which enable to buy at the right price, allows businesses access to

services which were only available to large corporations.

Risk management — An approach to risk management for some types of risks is to

partner with an outsourcer who is better able to provide the mitigation.

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2.9 Risks involved in Outsourcing Engineering services

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2.10 Engineering services outsourced in various branches of

Engineering

Aerospace Engineering

Aerospace Engineering Services Outsourcing:

Product Design & Development

CAE Services

Tool Design

Aero Structures - Engineering Design & Development Support for

Aero Engines –Engine Design & Analysis

Design Support Services for Other Areas

Civil Engineering Services Outsourcing

Transportation Design Analysis

Construction Drawings

Structural Engineering

o Behavior of Metal Structures

o Design of Concrete Shells

o Advanced Matrix Analysis of Structures

o Dynamic Design of Structures

o Reliability Assessment of Structures

o Structural Steel Design

o Reinforced Concrete Design

Electrical & Plumbing

CAD Services

Electrical Engineering Services

Design of Lighting Systems

Design of Power System

Determining Earth Protection Requirements

Design of Fire Protection System

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Electronics and Communication Engineering

Front-End Engineering

o Mixed Analog/Digital Designs

o Bluetooth and Wireless Designs

o High Speed Digital Designs

o Video Graphics

 Hardware Engineering

o Network Interfaces

o Schematic Tools - Amplifiers, Filters, Semiconductors, Converters

o Processors

Electronic Interfaces and Design

IT and Computer Engineering Services

Application Development & Maintenance

Content Management

Database Management Services

Engineering Software Design & Development

Data Mining & Warehousing

Software Code Translation

Design of Chips, Circuits

Network & Information Security

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1. Information System Security

2. Cryptography

Web Based Collaborative Engineering

Knowledge Based Engineering Solutions

Artificial Engineering

Real Time Systems

Embedded Systems

Hardware Integration

Mechanical Engineering Services

Equipments

o Heavy Engineering

o Earthmoving Equipment

o Agriculture Machinery

o Automotives

o Machine Tools

o Special Purpose Machines

o White Goods

o Tooling

o Turbo machinery

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Mechanical Animation Services

o Animation From 2D CAD / Scanned / Hand Drawings

o Animation Showing 3D Sectional Views

o Animation of Assemblies

Mechanical 3D Modeling Services

o 3D Modeling from 2D CAD / Scanned / Hand Drawings

o 3D Sectional Views

o 3D Assembly & Rendering

Mechanical 2D Drafting Services

Fatigue And Failure Analysis

2.11 Description of various IT Engineering services

Engineering Software Design & Development

Software development (also known as application development, software design,

designing software, software application development, enterprise application

development, or platform development is the development of a software product.

Software can be developed for a variety of purposes, the three most common being to

meet specific needs of a specific client/business (the case with custom software), to meet

a perceived need of some set of potential users (the case with commercial and open

source software), or for personal use (e.g. a scientist may write software to automate a

mundane task).

Content Management

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A content management system (CMS) is the collection of procedures used to manage

work flow in a collaborative environment. These procedures can be manual or computer-

based. The procedures are designed to do the following:

o Allow for a large number of people to contribute to and share stored data

o Control access to data, based on user roles (defining which information users or

user groups can view, edit, publish, etc.)

o Aid in easy storage and retrieval of data

o Reduce repetitive duplicate input

o Improve the ease of report writing

o Improve communication between users

System on Chip(SOC) design

System-on-a-chip or system on chip (SoC or SOC) refers to integrating all components of

a computer or other electronic system into a single integrated circuit (chip). It may

contain digital, analog, mixed-signal, and often radio-frequency functions – all on a

single chip substrate. A typical application is in the area of embedded systems.

Network & Information Security

The term network security and information security are often used interchangeably.

Network security is generally taken as providing protection at the boundaries of an

organization by keeping out intruders (hackers). Information security, however, explicitly

focuses on protecting data resources from malware attack or simple mistakes by people

within an organization by use of data loss prevention (DLP) techniques. One of these

techniques is to compartmentalize large networks with internal boundaries.

Knowledge Based Engineering Solutions

KBE can be defined as engineering on the basis of electronic knowledge models. Such

knowledge models are the result of knowledge modeling that uses knowledge

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representation techniques to create the computer interpretable models. The knowledge

models can be imported in and/or stored in specific engineering applications that enable

engineers to specify requirements or create designs on the basis of the knowledge in such

models.

Artificial Engineering

Artificial intelligence (AI) is the intelligence of machines and the branch of computer

science that aims to create it. AI textbooks define the field as "the study and design of

intelligent agents. Where an intelligent agent is a system that perceives its environment

and takes actions that maximize its chances of success.

Real Time Systems

In computer science, real-time computing (RTC), or reactive computing, is the study of

hardware and software systems that are subject to a "real-time constraint"—i.e.,

operational deadlines from event to system response. Real-time programs must execute

within strict constraints on response time.The anti-lock brakes on a car are a simple

example of a real-time computing system

Embedded Systems

An embedded system is a computer system designed to perform one or a few dedicated

functionsoften with real-time computing constraints. It is embedded as part of a complete

device often including hardware and mechanical parts. By contrast, a general-purpose

computer, such as a personal computer (PC), is designed to be flexible and to meet a wide

range of end-user needs. Embedded systems control many devices in common use today.

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Part 3: Engineering Services Outsourcing in practice

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3.1 Factors considered in selecting the activities to be outsources

It is critical for companies to conduct thorough analyses of their internal engineering processes

and sub-processes before determining whether or what to outsource or move off-shore. Key

factors that will help in this analysis are:

1. Transferability;

2. Maturity; and

3. Risk.

3.1.1 Transferability:

Before deciding about outsourcing an engineering activity, each and every process must be

analyzed for its transferability to, and the ability to perform the process without need for face-to-

face interactions by, a third party. Processes that need extensive interactions with company, its

engineers or other parts of the company’s organization must be weeded out since these processes

are not good candidates for outsourcing or off-shoring. Such processes run the risk of not

capturing the latest requirements from the customer and/or modifications performed by other

functional groups within the company organization. Additionally, if the process involves very

frequent judgment calls being made by the engineer performing the work, then it is highly

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inefficient to outsource such an activity because the service provider’s engineer will be required

to check with the company’s engineer every time a decision has to be made.

Also, it is very difficult to remotely administer engineering processes that require hands-on

assessment and the physical presence of engineers at the company’s facility. Sourcing such

processes to an off-shore location poses logistical problems for administering and managing the

work. Engineering processes must be assessed for their transferability before a decision can be

made to outsource or off-shore them.

3.1.2 Maturity:

For an engineering process to be successfully outsourced or moved off-shore, it has to be well

defined, process-mapped, documented and standardized. A mature engineering process typically

does not require a combined decision-making from multiple functional organizations within the

company. However, a process with poor documentation typically means that there may be more

than one way of performing the process and the data or information required to complete the task

might be resident with multiple sources within the company. If extracting the required

information is a laborious process if done internally, expecting a provider to extract that

information is dubious.

Also, if no set standards exist for performing a process, the process may be performed with

varying results each time it is done. If the process-mapping is poor, then it is likely the steps and

sequential tasks required to perform the process are stored in some engineer’s memory and not

on paper. Sourcing a third party to perform that function requires extracting the steps and

sequential tasks from the engineer’s memory. Each one of these characteristics makes a process

less communicable to an engineering service provider and reduces the possibility of successful

results from sourcing that function externally. More often than not, outsourcing of an immature

process leads to disappointing results.

3.1.3 Risk:

Engineering processes that are outsourced or off shored should also be evaluated for risk. The

most prominent risk is the risk of losing intellectual capital – both hard intellectual property and

know-how. Given the unique nature of engineering, companies outsourcing their engineering

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functions have to be careful to protect their intellectual capital. Additionally, engineering

processes that are very complex raise significant transition risk. For example, an engineering

process that has the potential to take-up a significant portion of an experienced engineer’s time,

for a prolonged period of time, in order to transition that process to a service provider raises

significant transition risk. Other risks include liability for poorly engineered or defective

projects, warranty commitments to third parties and reputational risks associated with poorly

engineered products or processes.

3.2 Considerations used to determine Captive or Vendor:

There are many different business models used in practice by companies that outsource or off-

shore engineering functions. There is no one best solution that would fit all companies. The

business model should be tailored to fit the strategy and the needs of each company.

The long-term and short-term strategies of the company, the types of engineering activities being

sourced, and the suitability for outsourcing those functions all play a key role in determining the

right business model for sourcing that function. For example, the business models would be

different if the long-term strategy of a company is to find the equilibrium in engineering

activities to serve the high-cost regions from the off-shore location versus a long-term strategy of

developing a regional engineering footprint to serve local markets. Also, business models vary

based on the nature of the engineering activities off-shored (e.g., highly mature but subject to

intellectual property risks; versus immature but little intellectual property risk.)

A sample way to think about outsourcing and off shoring engineering activities is explained

below. Highly mature processes are typically the best candidates for outsourcing and off shoring

since, by definition; they are well defined, standardized and documented. There is very little, if

any, variation and ambiguity associated with their execution. Of the mature processes, if there

are processes that contain proprietary procedures – information – or data linkages, then such

processes may be deemed “high risk” and best candidates to be executed in an off-shore captive

center of the company. A captive center is typically 100% or majority owned by the company

that is outsourcing the engineering activity. Engineering processes that are mature and low-risk

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are best candidates to be outsourced and off-shored to engineering service providers (i.e., third

party vendors).

3.3 Key pointers in selecting the right partner for providing engineering

off shoring services:

Once engineering processes have been identified for outsourcing or off shoring, companies

should take time to evaluate the capabilities of the vendors that will best suit their strategy. It is

important to critically evaluate the vendor base before finalizing a partner. While this step might

seem obvious, there are numerous examples of failed relationships and disappointed company’s

and vendors because companies have been too eager to chose a vendor and start the outsourcing

process, without having first done a capability analysis.

The following five step process is indicative of the methodology that companies may want to use

to select a service partner.

Step-1: Evaluate the capabilities of the vendor and short-list the potential candidates that have

some experience in the industry / relevant product expertise.

Step-2: Give a pilot test(s), that is/are representative of the problems that would be solved during

the performance of outsourced services, to the short-listed vendors (from step-1) and evaluate

their performance. Further refine the list of capable vendors that met pre-defined success criteria.

Step-3: Visit the operations centers of short-listed (step-2) vendors, i.e., the location where the

proposed activities are to be executed, to diligence the vendors’ capabilities and review their

facilities first-hand.

Step-4: Request an RFQ for the engineering activities that are planned to be outsourced or off-

shored from the short-listed vendors and evaluate them.

Step: 5 pick the right vendor partner based on assessments conducted in steps 1-4.

3.4 Contractual issues in Engineering Services Outsourcing

3.4.1 Scope of Service

Successful outsourcing requires a clear definition of scope. What, exactly, must the service

provider do? What responsibilities will the company retain? These questions have particular

importance with engineering and design outsourcing, where an entire function or set of tasks is

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rarely transferred to a service provider. Outsourcing of engineering operations requires complex

interactions between the service provider and the company. For example, even in well

established and long standing outsourcing relationships, companies typically outsource only

discrete tasks or projects to the service provider and retain control over the aggregated function.5

Demarcation lines and points of interaction must be clear.

Allocations of responsibility between service provider and company inevitably vary from one

project to the next. As in other spheres, strategic functions tend to remain inside the company

organization, along with operations that deal directly with customers.6 Routine transactions are

often good candidates for outsourcing, along with middle-tier operations that use standard

processes. Since companies retain substantial responsibilities, the usual “sweep” (or “general

scope”) language customary to other types of outsourcing may be less sweeping. When, years

ago, companies began to hand off data centers to outside service providers, the scope of service

included not only the statement of work, but everything else done by displaced staff or within the

IT budget. In effect, the service provider agreed to do whatever had been done inside the

company’s data center. When discrete or selected engineering or design projects are outsourced,

but control over the entire engineering or design process remains with the company, such

sweeping language may not be appropriate.

Instead, the scope of work for outsourced engineering services tends to be defined on a project

by project basis. In addition, the scope of work is often described more from the perspective of

the work-flow processes common to a particular type of project than as a matrix allocating

responsibility for a particular set of tasks. The work flow process describes the steps that should

be followed for a particular type of outsourced engineering project. For example, if the project

being sourced is the production of red line drawings or process diagrams for a particular product

or machine, the statement of work might describe or set forth the process steps and expected

deliverables associated with development of production drawings. When allocating responsibility

for completion of a specific production drawing project, the company and the service provider

use the service description as the starting point for estimating the work that will be required to

complete the project. The parties may vary this work allocation as necessary based on the

requirements of a particular project. The precise scope of work for each project is then confirmed

in the documentation for that particular project.

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Different types of engineering or design services usually have different work flow processes

associated with them. These processes may reflect the company’s internal policies or procedures

for discharging the work to be outsourced. Or, the process may reflect the service provider’s

process. Usually, the process will be a composite based on the service provider’s best

practices and the company’s specific business requirements related to a particular

type of engineering work being performed. Complex projects may combine

multiple work flow processes from various types of engineering assignments. The

key requirement for successful project management and discharge is the clear

demarcation between the work the service provider is expected to perform and the

work that the company retains.

As engineering outsourcing matures, it may become more common for parties to move away

from these process based statements of work to the task allocation matrixes more common to

traditional forms of outsourcing, like data center management. This is particularly true where

parties are interested in transferring the entire responsibility for an engineering function to a

service provider. An example of such a function might be management and maintenance of

design archives. Rather than allocate responsibility for archiving and maintaining design

drawings on a piecemeal or project-by-project basis, a company may transfer the entire set of

obligations related to archiving and maintaining an inventory of design drawings to the service

provider. In that case, the statement of work would likely detail the tasks associated with that

scope of work (e.g., checking in design drawings, checking out design drawings, backing up the

archive, etc.). In addition, the parties may agree that even if a task is not identified in the

statement of work with respect to that function, if that task was performed by the company’s

personnel that were responsible for archiving and maintaining drawings, then that work is in the

scope of the service provider’s work.

3.4.2 Transition

Transition refers to the process of transferring responsibility for performance of a task from the

company to the service provider at the inception of an outsourcing agreement, and from the

service provider back to the company, or to an alternative supplier at the end of the outsourcing

agreement. In the context of outsourced engineering and design services, work is often

outsourced on a project by project basis. Consequently, outsourced engineering services raise

interesting transition issues. First, how much initial knowledge transfer is required and how

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much knowledge transition should be incorporated into any particular project? Second, how do

the company and the service provider ensure that transitioned knowledge is retained by the

service provider and disseminated to available service provider staff? And third, how

does the company protect its interest in retaining access to such knowledge within

its organization as the scope of the outsourced engineering services expands.

The knowledge generally transitioned as part of an engineering outsourcing engagement includes

functional and technical information about the company’s products, services, plant and

equipment. It also includes a detailed understanding of the company’s engineering standards,

procedures and policies. In this respect, engineering and design outsourcing may offer significant

challenges. Where these standards, procedures and policies are not written down or where they

vary considerably from one facility or department to another, transitioning this information may

be very difficult. Documenting and consolidating such standards, policies and procedures is one

exercise that companies considering outsourcing of their engineering or design function may

want to undertake in advance of the outsourcing in order to make the transition to an outsourced

delivery model more efficient. Requiring service providers to document such standards, policies

and procedures as part of their service delivery obligations may also help ensure that such

knowledge remains accessible to the company even as the scope of the outsourced services

expands.

As discussed above, one transition strategy commonly employed in outsourced engineering

services is to begin the relationship with proof of concept or beta projects that are sufficiently

scope contained to permit the service provider to deliver the service without a transition of all the

engineering standards, policies and procedural information that would be required for a full scale

outsourcing. Typically, companies can prepare a scope of work package for such proof of

concept project with the applicable engineering standards or policies included. Alternatively,

service provider personnel may “job shadow” company personnel in their performance of a

“typical” project in order to identify the standards and policies applicable to a particular type of

work. Such a transition process may be effective where the company does not have documented

engineering standards or policies or where such documented standards are not readily accessible

to potential service providers.

Job shadowing may raise immigration issues where the service provider intends to staff the

project with foreign nationals. For example, how do foreign nationals gain entry into

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the U.S.? Under what visa programs are they permitted to work in the U.S.? What restrictions

apply to their visas? With which requirements must the company comply? Some service

providers have available staff already in the U.S. to manage the transition. Others may request

assistance from their clients in obtaining visas and work permits. Where timing is critical, it is

important for clients and service providers to consider whether visa issues will delay transition.

Companies should verify with the service provider that the service provider is responsible for

compliance with all applicable immigration laws.

Another approach to transition that may be useful in the engineering space is the transfer of

engineering staff from the client’s organization to the service provider. In some jurisdictions,

such a transfer may occur by operation of law. In such jurisdictions, if engineering or design

work is transferred from a company to a service provider (with or without assets related to the

performance of that work), the engineers that were providing that work may have a legal right to

transfer with such work to the service provider.7 Transferring the people that were performing

the work to the service provider is an effective way to ensure that knowledge is transferred to the

service provider. On the other hand, such a transfer of personnel may impact other business goals

of outsourcing. Because employment laws vary by jurisdiction, companies and service providers

should understand the impact that local employment laws may have on the outsourcing

agreement. Where multiple facilities are impacted across multiple jurisdictions, the effect of

local employment laws will likely result in different impacts.

3.4.3 Service Levels

In outsourced engineering and design services, as in other outsourced operations, quality and

performance command attention. Companies seek consistency, accuracy, reliability and

accountability, and desire appropriate consequences to deter poor performance. In addition,

unlike many other forms of outsourced services, mistakes may lead to property damage,

production or line delays and even physical injury. Safety must be the paramount concern. While

contractual remedies are important, the need to perform appropriate due diligence on the service

provider’s safety and performance record cannot be underemphasized. Service providers

understand this in the context of outsourced engineering services and go to great lengths to

develop and protect their practices and reputations with respect to the safety and quality of their

solutions. In addition to diligencing the service provider, companies will seek contractual

remedies to address quality issues that fall below expected standards. Often, these contractual

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remedies take the form of quality metrics or “service levels” relative to project performance.

These service levels generally break down into two categories, project specific service levels and

aggregate project service levels. In the former category, project specific service levels will

depend on the quality of service delivered for each outsourced project. For example, in the

context of design drawings, the metric might measure the percentage of design drawings

completed correctly and on time against the total number of corrections requested. On the other

hand, the aggregate project metrics might measure the percentage of projects during the quarter

that were completed within budget against the total number of projects initiated in that time

period. Similar to other types of outsourcing relationships, a percentage of the service provider’s

fee may be at risk pending the satisfaction of such service levels.

However, service levels alone may not be sufficient in the context of outsourced engineering

services to provide companies with adequate comfort that the outsourced engineering service

provider is bearing sufficient risk to ensure that it has taken appropriate level of care to avoid

mistakes. This can be particularly true where the company is entrusting the service provider to

deliver a result that may have significant impact on the company’s business. For example, if the

company is outsourcing the delivery of a material capital project, mistakes or delays could have

an impact on production that cannot be adequately addressed through service levels. A design

flaw in a production drawing could give rise to liability issues that cannot be adequately

addressed through service levels. Determining how to allocate these potential liabilities between

the company and the service provider raises questions that may not be addressed through the

liability allocation methodologies applicable to other forms of outsourcing.

For these reasons, companies may determine that the complexity of establishing and measuring

service levels outweigh the benefits of including them in project based outsourcing services

contracts. Setting initial service levels poses challenges, since comparatively few companies

have measured their own performance as comprehensively or rigorously as they propose for the

service provider. Without records of past performance, service providers are reluctant to make

specific performance commitments. Consequently, establishing service levels can be

problematic. Measuring performance against service levels once set may also be difficult. Unlike

other forms of outsourcing, there may not be readily available tools to measure performance.

Also, unlike other forms of outsourcing where an entire function is transferred to a single

provider, engineering outsourcing engagements can be structured such that project tasks are

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competitively bid to multiple qualified service providers. By structuring multi-source

relationships, companies may use competition to keep pressure on price and performance quality.

If quality starts to diminish, companies can turn to an alternative service provider for the next

project. This competitive pressure may provide a better incentive for performance quality than a

service level regime.

However, companies, in fairness, insist that some things, such as aggregated project performance

against budgets or timelines must be measured and reported. Even if price reductions are not

associated with failure to meet certain minimum standards, such information is useful in

managing the outsourcing relationship. This information is also useful in identifying issues for

improvement. Often, this information is beneficial to both parties in determining the root cause

for performance failures so that those issues can be resolved.

3.4.5 Quality Warranties

Quality warranties play an important role in engineering and design outsourcing. Like their

predecessor professional services agreements, engineering outsourcing service agreements must

contemplate at least two different approaches to quality: quality of service performance and

quality of deliverables or the results of performance. This dichotomy in quality warranties raises

interesting issues with respect to professional services agreements. This is especially true in the

context of professional services agreements where a significant component or outcome of those

services is the supply of goods or capital. Given the nature of outsourced engineering functions,

this dichotomy will continue to raise issues when those professional services agreements are

structured as outsourcing relationships. Is the service provider responsible for achieving a

particular result or is the service provider merely responsible for performing in a professional

manner? Or both? The former is a strict liability standard for achievement, the latter is not.

In light of this dichotomy and the need to avoid ambiguity as to the parties’ intent, engineering

outsourcing service agreements should specify what quality standard(s) apply. Given the wide

variety of services provided under an outsourcing agreement, these quality standards may

include:

Performance warranties (e.g., performance in a professional and timely manner in

accordance with highest industry standards)

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Warranties of specific results (e.g., delivery of a work product that is suitable for a

particular purpose or installation of capital equipment meeting certain specifications by a

certain date)

Staffing warranties (e.g., performance by duly qualified and experienced staff).

Absent express agreement on the nature of the applicable warranties, warranties may be implied

by court. In the context of engineering outsourcing services, a court may imply a performance

warranty which would require the service provider to meet the same standard as other

professionals with respect to its performance of the services. This warranty would not require

achievement of any specific result. So if delivery of a particular result is expected by the

company, it should be clearly stated in the outsourcing contract.

The warranties that the company and its agents make to the outsourcing service provider also

merit special consideration. In some instances, the company makes express warranties to the

service provider. For example, a company may warrant that it has the right to transfer to the

service provider design drawings under the company’s control.

The company may also make implied warranties to the service provider, which are effective

unless disclaimed by the company. For example, a company may make implied warranties that

the design drawings provided to the service provider are suitable for the construction of a

particular piece of equipment. In that case, if the service provider complies with the design

drawing, the company may bear the risk that the equipment under construction will achieve a

particular result. If the company does not intend to provide such warranties, these implied

warranties should be conspicuously disclaimed.

Because the company does not generally control the service provider’s staffing decisions

(controlling such decisions makes the outsourced relationship look suspiciously like co-

employment), companies may seek warranties of minimum staff qualifications from service

providers. These warranties are intended to guarantee quality levels by requiring educational,

training and experience levels for the service provider staff that will be performing outsourced

services. In the context of offshore outsourcing, it is important to consider how such minimum

qualifications may be impacted by differences in educational systems and demographics. It is

also important to consider what licenses, if any, should be required for in-scope staff. These

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requirements may vary considerably by the type of function being outsourced, the jurisdiction

involved and even by the particular project being sourced from the service provider.

3.4.6 Pricing

Because people are the primary cost input, engineering and design outsourcing services are often

priced based upon headcount (generally expressed as numbers of “full-time equivalents” or

“FTEs”) or some headcount equivalent (such as hourly rates). Pricing may also be based on time

and materials. Typically, the parties will establish a budget estimate for a particular project based

on the complexity of the project, the personnel requirements and the expected timeline of the

project. Service Providers may include materials costs in their budget estimates, materials may

be procured by the company, or materials may be pass through expenses to the company. Even in

situations where headcount is expected to comprise a significant portion of the fees, parties

should clearly allocate financial responsibility for materials. Where charges are based on

headcount or hours, the parties should determine up front how to allocate responsibility for

correcting mistakes. Is the time spent fixing an erroneous deliverable chargeable? Or should such

time be non-billable? How is such time segregated from billable time, if it is not chargeable?

What records must the service provider maintain to validate headcount charges? Working

through these issues is particularly important where the company has little visibility into the

service provider’s delivery organization.

In very mature situations where a function is being transferred to a service provider or where

services are closely tied to transaction volumes, services may be priced on a per-transaction basis

– price per design drawing, for example. This pricing model requires well established baselines

and fairly predictable demand requirements, which may not be typical to most engineering

environments. Charges then fluctuate with levels of activity. Ideally, service provider costs,

charges to the company and service volumes are effectively synchronized. Pricing metrics must

be chosen with care, however, to correspond with value delivered. For example, multiple

revisions to correct prior mistakes should not be chargeable to the company.

Likewise, in very mature situations, fixed pricing may be appropriate. Service providers

generally require fairly detailed scope descriptions and change control procedures before

accepting fixed price projects. Where projects tend to be repetitive and quantifiable, fixed pricing

may be attractive to both, companies and service providers. In such situations, though, service

providers should have incentives to continue to drive costs out of their delivery organization.

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Maintaining competitive pressure through sourcing models using multiple suppliers is one means

of maintaining such incentives even in a fixed fee model.

3.4.7 Compliance with Laws

Engineering and design services involve laws and regulations affecting companies generally

(such as OSHA) and the particular company’s industry (such as FDA, HSA or other regulatory

bodies). Regulatory responsibilities cannot be delegated, even if operations are outsourced, but

companies can and do seek indemnification and other protection from outsourcing service

providers. Supposed distinctions between laws affecting one side or the other are rarely neat,

since a great many laws affect both the company and its service provider (sometimes in

somewhat different ways). To sort through this maze, a matrix of legal requirements and

responsibilities is often helpful, so that the parties proceed from a common understanding to

sensible allocations of responsibility for monitoring, compliance and, in the event of difficulty,

liability based upon their particular competencies and ability to monitor legal developments and

manage risks.

Where compliance responsibility rests with the company (as it must in many regulated

industries), the parties can protect themselves by developing detailed written procedures,

approved by the company’s lawyers that the service provider must follow. Service Providers who

(understandably) decline to give legal advice will generally accept that they must comply with

the company’s procedures, and be accountable for failures to do so. Most also recognize

obligations to be familiar with and abide by laws of general application affecting many or most

companies, as well as local laws in the countries where they operate service centers.

Outsourcing engineering and design services to offshore service providers may raise export

control compliance issues, particularly where information or materials within the scope of the

outsourced function are subject to export restrictions. Under U.S. law, providing foreign

nationals with access to such controlled products within the United States is deemed to be an

export. Consequently, offshore service providers may be prohibited from accessing controlled

information without a license even if the information itself never crosses a border. To address

such export control issues, parties may structure delivery solutions to prevent exports or deemed

exports of such information by restricting work on such projects to approved service provider

personnel. Alternatively, parties may obtain the licenses necessary to permit the export of such

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information to authorized personnel and comply with the requirements of such licenses with

respect to any export or deemed export of such controlled information or materials.

3.4.8 Security and Confidentiality

Providers of outsourced engineering and design services may be privy to some of their clients’

most sensitive business, financial or technical information, such as costs of production, emerging

product strategies and even trade secrets, all of which may be very valuable to competitors and

which, if disclosed, may cause significant damage to the client. Companies therefore must pay

close attention to security arrangements and to such things as the risk that service provider

personnel assigned to the company’s account may perform services for competitors.10 No

company wants the service provider’s account executive transferred to the account of the

company’s competitors, at least not immediately, or its data commingled with competitors in a

way that could inadvertently lead to unauthorized disclosures. Neither does a company want to

discover that the solution provided by the outsourced engineering staff may be tainted because

those engineers were working on a competitor’s project. On the other hand, dedicated staff or

separate, secure working areas within the service provider’s facility are likely to add cost.

There are a number of ways of dealing with security and confidentiality issues in engineering

outsourcing service agreements. First, it is essential for the company to perform due diligence on

the service provider’s confidentiality and security practices. Established service providers will

expect such diligence and should be able to provide clear evidence of the commitment to

confidentiality and security. Also, at a minimum, the outsourcing agreement should include clear

and unambiguous covenants from the service provider that confidential customer information

will be treated as confidential and that the service provider will use, at minimum, reasonable

efforts to protect that information from unauthorized disclosure. Where the information is

particularly sensitive, the company may want to attach minimum security and confidentiality

policies which set forth the technical and operational procedures that the service provider and its

agents (including subcontractors) must follow with respect to the performance of the services.

In the context of offshore engineering services, where the service provider staff will have access

to highly confidential information or the risk of misappropriation is high, companies may want to

put non-disclosure agreements in place directly with service provider personnel. Obtaining such

non-disclosure agreements directly from service provider personnel can be administratively

burdensome. Service provider staff may turn over frequently, so maintaining agreements

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with current staff can be challenging. On the other hand, maintaining such

agreement with service provider staff can be useful in protecting company’s

confidential information in the presence of such frequent turn-over in staff.

Individual non-disclosure agreements may also be useful in pushing down

customer security requirements directly to those persons accessing sensitive

information.

When services are being delivered from offshore facilities, particularly if the offshore delivery

center is a subcontractor to the service provider, the company may want to have a separate non-

disclosure agreement with the subcontractor that directly protects the company’s confidential

information from disclosure. Having such an agreement in place may simplify the company’s

ability to seek injunctive relief directly against the subcontractor in the foreign jurisdiction. Such

enforcement may be facilitated by choosing the local law of the offshore jurisdiction as the

governing law of such non-disclosure agreement. Of course, prior to selecting local governing

law, local counsel should be consulted to confirm that the non-disclosure agreement is

enforceable and compliant with local requirements.

3.4.9 Non-Compete

In addition to due diligence and contractual restrictions against disclosure of confidential

information, companies may want to preclude service providers from serving direct competitors

or from entering into particular market segments after having access to confidential information.

One rationale for such non-compete obligations is to protect the company’s confidences from

inevitable disclosure. A key disadvantage of such restrictions, however, is the negative effect

such restrictions have on the service provider’s ability to leverage expertise across different

companies and to allocated experts to protected accounts. Where such restrictions are agreed, the

non-compete is typically limited to restrictions against re-assigning in-scope staff to competitor

accounts for some period of time. In other cases, the restriction may apply only to a limited

number of high level personnel.

With respect to offshore delivery centers, local employment laws and practices may make non-

compete agreements with particular individuals unenforceable. In those instances, covenants

from the service provider not to reassign particular resources to competitor accounts may be a

company’s best protection against inevitable disclosure of confidential information. Where

parties agree that experts should or must be permitted to work for competitors, companies may

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require that information flows to such experts be limited to avoid, where possible, disclosure of

customer confidences.

3.4.10 Compliance – Controls and Audit

Unlike other types of outsourcing (e.g., information technology infrastructure management and

finance and accounting administration services) which may have a direct impact on financial

reporting systems, the focus on internal control compliance and audit with respect to engineering

and design outsourcing is focused mainly on quality, accountability, safety and timeliness. Such

controls are usually based on the company’s engineering standards, industry standards or the

service provider’s best practices. These controls are important in the engineering and design

outsourcing space because they provide the agreed constraints around which the service provider

must deliver services. These constraints offer the company a source of control over delivery,

which otherwise is ceded to the service provider. In some instances, it is useful to map these

controls against the service provider’s processes. Through this mapping procedure, the company

can establish that its control objectives will be achieved, even if the controls are based on the

service provider’s practices as opposed to those of the company.

As discussed above in the scope of work section, engineering controls may be specified in the

service description and may take the form of mandatory checkpoints (or gating activities),

customer reviews, licensing requirements, permit requirements, service provider reviews and

testing procedures. Companies will often impose clear record keeping obligations on the service

provider to document that such controls are in place and being followed. Companies should use

their due diligence investigation of the service provider to review the service provider’s control

environment and its history of compliance with such controls. Companies may also require

ongoing testing and reporting to document that controls are operating effectively.

In addition to well-defined controls over engineering and design services, companies should

retain the right to audit, either directly or through third parties, service provider’s conformance

with such controls. In some outsourcing contexts where delivery platforms are highly leveraged,

service providers may provide third party audit reports of control compliance to companies as

part of their service offering. With respect to generic controls over security and confidentiality

procedures, obtaining and sharing audits of such procedures at no additional charge is becoming

an increasingly expected component of the service provider’s offering. Requesting access to such

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audits as part of the company’s due diligence may be helpful in identifying reputable service

providers.

3.4.11 Intellectual Property

Allocating ownership rights in intellectual property arising out of engineering and design

outsourcing agreements is critical. Both companies and service providers have an interest in

work product. Companies may expect ownership of the intellectual property generated from a

project, particularly where that project has strategic importance to the company’s business and

where such company is fully funding the engineering or design work. However, because the

engineer working on the project is a service provider employee and not a company employee,

depending on the scope of the engineering or drawing assignment, there is no guarantee that

ownership of such intellectual property will inure to the company upon creation. Instead, under

applicable law, the service provider may retain ownership rights in such intellectual property

absent an express agreement by the parties to the contrary.

In some cases, it may be advantageous to both parties for the service provider to retain

ownership in intellectual property created through the performance of the outsourced engineering

or drawing services, so long as the company obtains broad and unrestricted licenses to use such

work product. The service provider may be better positioned to leverage that intellectual property

in ways that do not negatively impact the company. This may be the case where the engineering

services being outsourced are standardized and do not provide the company with any market

advantages. Of course, in other circumstances it will be critical for the company to retain

ownership over intellectual property rights. For example, where the service provider is designing

a component to a machine that will provide competitive advantages to the company, precluding a

competitor from obtaining license rights in or to that design may be a company

For these reasons, contracts for the provision of engineering and design outsourcing services

must provide clarity around ownership of intellectual property rights. In some instances, this may

require express assignment of intellectual property rights from the service provider to the

company. In other instances, particularly where services are delivered from offshore locations,

such assignments must be made in writing following creation of the intellectual property. To

accommodate such requirements, engineering services outsourcing agreements often include

further assurance clauses pursuant to which the service provider agrees to execute any

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assignments necessary to achieve the contractual allocation of intellectual property rights, for no

additional consideration.

Where services are delivered from offshore delivery centers, companies must also be cognizant

of the broader implications of international variations in intellectual property laws. Intellectual

property law is strictly territorial. As a consequence, the law governing ownership of intellectual

property is usually the law of the jurisdiction in which the intellectual property is developed, as

opposed to the law of the jurisdiction where the company resides, or even the governing law

specified in the contract. Some jurisdictions have default provisions as part of their background

intellectual property law regime that differ from principles of U.S. law.12 Understanding the

issues raised by such background legal principles is essential in order to properly structure the

engineering services outsourcing contract to achieve the intellectual property allocation intended

by the parties.

In addition to a clear allocation of rights, in the context of engineering services outsourcing, it is

important to consider the procedures that the parties will put in place to properly identify

patentable inventions that may be created during the provision of engineering and design

services. This process should provide for the capture, retention and transfer of applicable

technical notebooks, research findings and other related information. Otherwise, particularly

where services are provided offshore or from remote locations, the allocation of intellectual

property rights may not be practical to enforce. Companies may find it challenging to actually

implement the further assurances clause if they are not aware of the service provider’s invention.

IP Disclosures

For outsourced engineering services to be effective, companies and service providers must be

positioned to share large volumes of information, much of which will typically be protected by

intellectual property rights. To facilitate sharing this information, each party will likely need to

grant the other limited rights to use, reproduce, transmit and create derivative works of such

information. In some cases, service providers may want to incorporate pre-existing service

provider technology or third party technology in a deliverable. Where ownership rights in such

pre-existing or third party technology will not be transferred to the company, the company must

be granted sufficient rights in and to such service provider or third party technology to exploit

the deliverable for its intended purpose. Without properly structured cross licenses, companies

may find their ability to use or divest deliverables restricted. Likewise, service providers may

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find their rights to transfer customer intellectual property to offshore subsidiaries or

subcontractors restricted.

Companies may also find it necessary to provide their service providers with intellectual

property licensed to the company by third parties. In such cases, consents to permit or sublicense

to the service provider use of such intellectual property may be required. The outsourcing

contract should clarify which party is responsible for obtaining such consents. At times, the

company may be in the best position to obtain such consents. In other circumstances, the service

provider may be better positioned. In any event, identifying and allocating responsibility for

obtaining such consents is typically a necessary task to initiate the outsourced services. Where

such intellectual property will be transferred offshore or will be accessible by foreign nationals,

third party providers may require that special steps be taken to protect such intellectual property.

Consequently, companies are encouraged to start this review early in their due diligence process.

3.4.12 Subcontractors

Like other forms of outsourcing, subcontractors often play a large role in the delivery of

outsourced engineering services. Where services are delivered offshore, it is not unusual to find

that the service provider subcontracts significant delivery responsibility to a captive subsidiary in

the offshore location. Such a delivery structure is often expected by both parties. In other cases,

the service provider will subcontract delivery to unrelated suppliers in offshore locations. In

either case, the service provider must remain responsible for service delivery, confidentiality and

intellectual property rights. Given the sensitive nature of outsourced engineering services,

companies generally demand visibility and approval rights over subcontracts, at least where such

subcontracts are for material portions of the services being delivered. De minimis administrative

procedures may be subcontracted without approval, unless performance of such services

provides the subcontractor with access to customer confidential information.

3.4.13 Taxes

With engineering and design services, as with other outsourced services, both sides must

consider the impact of possible taxes upon the services, of taxes that may be withheld from

payments and of the risks of creating taxable “permanent establishments” where none may now

exist or be intended. Depending on the jurisdictions in question, tax costs could play a material

role in determining the total cost of outsourcing engineering and design services. Contract

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structures, delivery solutions, and invoicing arrangements should be constructed to minimize the

overall effective tax cost of the transaction, but must also be balanced against the company’s and

the service provider’s pre-existing or future tax plans. The administrative burden of different

contract structures must also be taken into account. In some instances, tax planning may require

the transaction to be structured to permit local-to-local invoicing. In other cases, the transaction

should be structured regionally or through a single client or service provider entity. While there

is no single tax advantaged structure for outsourced engineering services, close attention to the

tax impact of the transaction can provide both parties with opportunities to reduce the total cost

of outsourcing.

3.4.14 Assists

One aspect of engineering services outsourcing that is often overlooked is the impact that the

procurement of engineering services from offshore may have on the custom valuation of

imported goods. Where a party outsources engineering services to an offshore provider, the value

of that offshore work may be considered an “assist” that must be added to the custom valuation

of the product when it is imported into the U.S. While “assists” may not apply where the

offshore engineering services are being used to develop products that are manufactured onshore,

they may become a significant issue where the engineering work for products being

manufactured offshore is also procured from an offshore provider.

3.4.15 Termination Rights

Engineering and design outsourcing contracts generally provide the usual panoply of remedies,

up to and including termination, both for breach and “convenience.” Often, the most contentious

issue is the termination charge payable for a “convenience” termination (surely a misnomer, for

termination is supremely inconvenient). In practice, these rights to terminate without “cause,” are

most likely to be exercised when the company is dissatisfied, but lacks either sure grounds to

claim default or the stomach for unpleasant proceedings. Companies naturally prefer lower

termination charges in order to minimize the pain and expense. Service Providers hope to be

made whole, and interpose an expensive deterrent. Termination charges commonly include

shutdown costs (such as severance and relocation), unrecovered investments in facilities and

equipment, and perhaps some allowance for unearned profit on the remainder of the term.

However, since engineering outsourcing transactions usually do not involve major investments in

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technology or infrastructure made for a particular company, termination charges should be lower

than other outsourcing situations.

3.4.16 Disaster Recovery

Ugly events in recent years, such as the September 11, 2001 terror attacks, Hurricane Katrina, or

the 2008 earthquakes in China, have focused attention on the risks of calamities – risks that

distance may compound when operations relocate to India, China or the Philippines. Good

outsourcing contracts address these issues in two ways: through force majeure clauses that

excuse performance and may permit termination if service is not restored, and disaster recovery

arrangements, which plan for the continuity of delivery in the event of a catastrophic event. With

engineering outsourcing services, the essential thing is, if possible, to put knowledgeable people

back to work as soon as reasonably possible. Immediate recovery may not be necessary, so long

as essential functions are restored within a reasonable time. Skilled staff need places to work,

ways to get there and access to information. Good plans assure that they have all three.

Engineering and design outsourcing contracts require such plans, regular updates and periodic

testing of such plans.

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Part 4: Primary Research

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4.1 Exploratory research

Exploratory research was done to understand the business model of IT Engineering

Services Outsourcing model. This was done by conducting a depth interview of a project

leader of one of the leading IT and Electronics outsourcing company based in

Ahmedabad.

The semi-structured questionnaire used for conducting the interview is attached in the

following pages:

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Questionnaire-1

Product

1. Which are the services offered by your company?

2. How do you classify these services (verticals)?

3. Please explain the approach to deal closing part of securing a project?

4. In cases where your company has capability for handling a part of the project and not the

entire thing, do you go for subcontracting or have some other option?

5. How do clients decide which services to outsource?

Price

1. How is the pricing of the project done? Which all factors are considered? How is the

entire business plan made?(fixed, part, hourly basis, flexible pricing)

2. Which are the major components of price?

3. What do you do in case of cost overruns (costs increase beyond expectations). When can

this happen?

Place

1. Which are the main countries from which maximum clientele are obtained?

2. Why do these countries prefer India as a location for outsourcing?

3. Are there major differences between the types of requirements in various countries for

similar services?

Promotion

1. Which are the major tools used for promotion?(Conferences, seminars, trade fairs, trade

journals, direct mailing, etc)

People

1. How are the professional for a particular project decided? Does the client play a role in

this?

2. Do you need to train your professionals for some projects?

3. Are any external consultants hired for some projects?

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Process

1. Are there any constraints in deciding the processes to be used for the project being

imposed by client or otherwise?

2. Is there a process for partial payment on the basis of the completion of the project in

place?

3. How do you handle any errors/bugs that occur or service requirement after completion of

the project?

Contractual Issues

1. How does the company decide how much information to part with related to the

outsourced service and at what stage? How is the confidentiality and security of this

information maintained?

2. If some professionals need to be transferred to the clients place, are there any legal

problems that are faced in it? (related to visa or otherwise)

3. Are there any conditions for penalty or otherwise in case the solution provided by the

service provider fails in any way? Are there any warranties for performance involved?

4. Are the intellectual property rights of the project retained by the company or shared

between the client and the service provider?’

5. Are there any provisions for termination of contracts in the case when the work is

unsatisfactory?

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4.2 Understanding the business model of Engineering Services

Outsourcing (through exploratory research)

4.2.1 Major services outsourced to the IT ESO companies

Following are the major services outsourced to the IT Engineering services company

Application Development & Maintenance

Content Management

Database Management Services

Engineering Software Design & Development

Data Mining & Warehousing

Software Code Translation

Design of Chips, Circuits

Network & Information Security

Information System Security

Cryptography

Web Based Collaborative Engineering

Knowledge Based Engineering Solutions

Artificial Engineering

Real Time Systems

Embedded Systems

Hardware Integration

Image processing

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Product design and development using the combination of the above mentioned

services

4.2.2 Major sources of lead generation

Following are the major sources of lead generation:

1. Direct Sales: This is the process of lead generation where the sales force of the company

gets order from the existing or the new clients by directly approaching them. The

companies generally have sales force in all the countries from which maximum clientele

is obtained.

2. E-mail inquiries: Companies having the need of engineering services send email

explaining their requirements to the company.

3. Tender sales: This source of lead generation is mainly for domestic projects.

4. Partnership with the tool/product vendor company: In this the OEM outsource some

non-core activities to the Engineering Services Outsourcing companies on contract basis

for a definite period of time.

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4.2.3 Understanding the process of receiving a project:

Following are the various stages after which a Engineering services project is received

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Contd…

Contents of the technical proposal:

1. Similar projects handled before.

2. Requirements of various tools required for the project. Availability of those tools with

the ESO vendor and the need to purchase them for the project. Price estimate of the

tools to be purchased.

3. Various technical details of the project

4. Time needed for execution of the project. Assumptions made in calculating the time. For

e.g. that particular components of the project would be completed in the desired

stipulated time.

5. Onsite personnel requirements

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4.2.4 Subcontracting

In some turnkey projects, it does happen that the vendor does not have expertise in

some particular domain/component of the project.

In such cases, generally third party consultants are hired to enable the ESO vendors to

handle that specific component.

Sub-contracting is generally not done, as it is generally not allowed in the contract. One

of the reasons for this is the requirement to share information with the sub-contractor.

However, some clients outsource some services to one ESO vendor and the rest to

other. For e.g.: designing of a chip may be outsourced to one ESO vendor and testing to

other. Improved product performance and ensuring right quality are the reasons for

doing this.

4.2.5 Pricing mechanism of IT engineering services

There are two options of pricing outsourcing projects:

1. Time and material pricing

2. Fixed pricing for the entire project

Time and material pricing:

o Here the time component is on the basis of hourly/weekly/monthly cost per

engineer+ other overheads such as manager’s fees.

o Material component includes the cost incurred in obtaining the materials

required for the project. However, on some occasions the materials required can

be provided by the client himself.

o Time and material pricing is generally preferred due to the high level of

uncertainty involved in the projects.

Fixed price for the entire project:

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o This option is less preferred as risks associated with the project in this

mechanism increase which can increase the cost of the project.

o However, some new customers do demand such kind of pricing, majorly in case

of turnkey projects.

4.2.6 Tools used for promotion by IT ESO companies

Conferences/seminars

Participation in trade fairs held in U.S., Europe, Singapore, China etc

Publishing technical articles in journals

Direct marketing

Internet marketing by sending technical journals and articles to the target clients via e-

mail.

4.2.7 Selection criterion of professionals for onshore/offshore projects

Generally ESO vendor selects engineers for a particular project. The criterion for

selection is the expertise and experience in handling similar projects before.

The engineers can be changed while the execution of the project.

In case of onshore projects, resumes of the engineers suitable for the project are sent to

the client who late communicates with the engineers via telephone and then the

selection of the engineers is done.

The engineers are made to sign a non-disclosure agreement (NDA) which prevents them

from sharing the information obtained for the project outside.

For some complex projects short training is also required to be given to the engineers.

4.2.8 Process control for outsourcing projects

Processes to be used for the project are generally discussed and mutually agreed upon

with the client.

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Generally processes used should be ISO 9000 certified.

There are process specialists who make sure that the necessary compliances of the

processes are met.

4.2.9 Error/bug control system

Bug tracking systems are available for handling bug in the technical processes and even

for project scheduling.

Systems can be either with the client or the ESO vendors.

After completion of the project the system is invariably shifted to client. If problems are

faced by the client then he may mail his queries and pay the ESO vendor to fix them.

4.2.10 Penalty in case of failure/ warranty provided

Generally penalties are not charged to the ESO for failures/delays in project because

most of the projects are collaborative in nature.

Also if the penalties are introduced in the contract they would increase the price due to

the increase in the risk involved.

In case of projects priced on fixed cost basis, sometimes penalties are a part of the

contract.

Also, new customers do insist on having a provision of penalty in the contract.

4.2.11 IPR sharing:

Intellectual property of the project is generally retained by the client on the completion

of the project.

However in case of the projects involving the partnership with the tool

manufacturer/product vendor company IP is shared between client and the ESO vendor.

4.2.12 Provisions for termination of the contract

Generally there is a provision for terminating the outsourcing projects with the

minimum stipulated months of notice as per the contract.

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In some cases, due to funding problems sometimes the projects are either cancelled or

postponed.

4.3 Descriptive Research

On the basis of the insights collected from the exploratory research, descriptive research

was carried out.

Following are the major motives of carrying out the descriptive research

1. Finding the markets from which Indian IT ESO vendors get maximum clientele

and markets which offer maximum competition to Indian IT ESO vendors.

2. Understanding the importance of various factors in selecting the engineering

service to outsource.

3. Understanding the strengths of Indian IT Engineering services outsourcing

industry

4. Understanding the contribution of various channels(direct marketing, tender sales,

e mail inquiries etc in getting IT engineering services project)

5. Understanding the effectiveness of various tools of promotion

The survey is done by conducting survey with senior engineers/project leaders of various

IT engineering services outsourcing companies in Ahmedabad.

The structured questionnaire used for the survey is attached in the following pages:

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Questionnaire (IT services outsourcing)

Part 1 (Company Specific)

1. Which are the major verticals that your companies serve?

________________________________________________________________________

________________________________________________________________________

2. Which services offered by your company are in maximum demand for outsourcing?

________________________________________________________________________

________________________________________________________________________

3. Does it happen that a part of the project is subcontracted?

(a) Yes ____

(b) No ____

4. Rank the following channels for getting projects in the decreasing order, Such that the

Rank#1 is given to the channel generating which contributes maximum in getting

projects and Rank#5 to the one which contributes minimum.

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Direct Marketing ( )

E-mail inquiries ( )

Tender sales/RFB ( )

Partnership with tool/product vendor company

( )

Any other, please specify ____________________________________________

5. Which pricing mechanisms are used in pricing the projects?

Fixed price for the entire project ( )

Time and material pricing/variable pricing ( )

Any other. Please specify ___________________________________

6. Rank the following tools of promotion in the decreasing order of their effectiveness.

Direct Marketing ( )

Trade fairs ( )

Conferences /Seminars ( )

Publishing technical articles in journals ( )

Internet Marketing ( )

7. Which are the main countries from which maximum clientele are obtained?

____________________________________________________________________

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Part 2 (Industry/Sector Specific)

1. Please mark the following factors on a scale of 5, considered in deciding the services to

outsource. Here, 5=extremely important and 1=least important.

1 2 3 4 5

i. Importance of the service in the performance ____ ____ ____ ____ ____

of the final product

ii. Cost savings possible if the activities ____ ____ ____ ____ ____

are outsourced.

iii. Amount of interaction and judgment required ____ ____ ____ ____ ____

on the part of the client to handle that service

iv. Availability of standards/benchmarks available ____ ____ ____ ____ ____

to perform and judge the services.

v. Risks involved in sharing the information/ ____ ____ ____ ____ ____

Intellectual property

vi. Risk involved in case of failure of the service ____ ____ ____ ____ ____

Provider

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2. Listed below are few factors which are considered in selection of Engineering Services

provider. Please mark these factors on a scale of 5. Here, 5=extremely important and

1=least important.

1 2 3 4 5

Similar projects handled before ____ ____ ____ ____ ____

Reputation of the Engineering Services provider ____ ____ ____ ____ ____

Price quoted for the project ____ ____ ____ ____ ____

Projected time quoted for the project ____ ____ ____ ____ ____

Recommendation of others from the industry ____ ____ ____ ____ ____

3. Listed below are some factors which make India a favorable place for outsourcing. Mark

the factors on a scale of 5, considered in deciding the services to outsource. Here,

5=extremely important and 1=least important.

1 2 3 4 5I. Cost saving possible by outsourcing the

activities to India ____ ____ ____ ____ ____

II. Proficiency of English language amongst Indian professionals

____ ____ ____ ____ ____

III. Availability of highly skilled engineers in India

____ ____ ____ ____ ____

IV. Availability of good number of companies for engineering services outsourcing

____ ____ ____ ____ ____

4. Which countries are the major competitors of India in Engineering Services Outsourcing?

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4.3.1 Sample frame:

IT engineering services companies in Ahmedabad and Gandhinagar formed the sample frame for

the survey.

4.3.2 Sampling method:

Convenient sampling method was used for the selection of the sample units.

IT engineering services companies in Ahmedabad and Gandhinagar were contacted and

the companies which responded favorably were surveyed.

4.3.3 Sampling unit:

For the purpose of the survey IT engineering services companies based in Ahmedabad and

Gandhinagar were surveyed. Majorly team leaders of outsourcing project teams were the

respondents for the survey.

4.3.4 Sample size:

A total of 11 respondents from 8 companies were a part of the survey

4.3.5 Companies surveyed:

Sr No

Name of the company Location Major Services offered

1 Patni computers Gandhinagar Product Engineering services, Infrastructure management2 E Infochip Ahmedabad ASIC design and verification, product development3 Si bridge Ahmedabad ASIC design and verification, product development4 Tech Teer system Ahmedabad Software development5 Silvertouch pvt ltd Gandhinagar Software development6 Gateway technologies Ahmedabad Product development, application development and

testing7 Icenet technology Ahmedabad Remote Infrastructure

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8 Tatvasoft Ahmedabad SEO,web development

Part 5: Research Findings

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The response to few of the questions asked in the survey is as follows:

1. Which services offered by your company in maximum demand?

Response:

The services which are in maximum demand for off shoring are as follows:

IC Design and verification

FPGA

Development and maintenance of software

Embedded system

Product development

Remote infrastructure

Infrastructure Management

2. Rank the following channels for getting projects in the decreasing order.

Response:

1. Partnership with tool/vendor Company

2. Referrals from existing/past clients

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3. Direct Marketing

4. E mail inquiries

5. Tender sales/RFB

3. Rank the following tools of promotion in the decreasing order of their effectiveness.

Response:

1. Direct Marketing

2. Conferences/Seminar

3. Internet Marketing

4. Publishing technical articles in journals

5. Trade fairs

4. Which are the main countries from which maximum clientele are obtained?

Response:

U.S, UK, Germany, France, Canada, Australia

5. Please mark the following factors on a scale of 5, considered in deciding the

services to outsource. Here, 5=extremely important and 1=least important.

I. Importance of the service in the performance of the final product

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II. Cost savings possible if the activities are outsourced.

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III. Amount of interaction and judgment required on the part of the client to

handle that service

IV. Availability of standards/ benchmarks available to perform and judge the

services.

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V. Risks involved in sharing the information/intellectual property

VI. Risk involved in case of failure of the service Provider

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5. Please mark the following factors considered in selection of Engineering Services

provider. Please mark these factors on a scale of 5. Here, 5=extremely important and

1=least important.

I. Similar projects handled before

II. Reputation of the Engineering Services provider

III. Price quoted for the project

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IV. Projected time quoted for the project

V. Recommendation of others from the industry

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6. Rank the factors which make India a favorable place for outsourcing on a scale of 5.

I. Cost saving possible by outsourcing the activities to India

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II. Proficiency of English language amongst Indian professionals

III. Availability of highly skilled engineers in India

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IV. Availability of good number of companies for engineering services outsourcing

7. Which countries are the major competitors of India in Engineering Services

Outsourcing?

Russia, China, Korea, Japan, Brazil, Mexico, Netherland, Vietnam, Romania, Spain,

Phillipines, Indonesia, Singapore, Hong Kong

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Part 6: CONCLUSION

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6.1 Critical success factors for Indian Engineering Services Outsourcing

Industry

The major factors for the success of Indian Engineering services outsourcing industry are as

follows:

o Cost saving possible by outsourcing the activities to India

o Proficiency of English language amongst Indian professionals

o Availability of highly skilled engineers in India

o Availability of good number of companies for engineering services outsourcing

Thus, considering the expected Rs100,000Cr market for Engineering Services Outsourcing there

is a big opportunity for the growth of ESO vendors. Also there is a need for establishing more

number of quality of technical institutes for the industry to thrive.

The services which are in maximum demand in India are Chip design and verification, FPGA,

software development, Embedded system, Remote infrastrucutre management.

The countries which form the major clintele for Indian ESO vendors are U.S, UK, Germany,

France, Canada, and Australia due to the huge amount of R & D taking place in these countries.

The countries which are the major competitors of India in the Engineering Services Outsourcing

market are Asian countries such as Russia, China due to the huge workforce availabe in these

countries. However the competive advantage of India vis-à-vis these countries is the knowledge

of English language amongst the engineers. Some other south east Asian countries such as

Korea, Japan due to the technological advancement in these countries and Indonesia, Singapore,

Hong Kong due to the cheap labor availability also provide good competition to India in the ESO

market. Some American countries like Mexico & Brazil and Europoean countries like

Netherland, Vietnam, Romania, Spain, Phillipines are also emerging in the ESO market.

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6.2 Consideration in deciding the services to outsource

The most important considerations in deciding the services to outsource are as follows:

Importance of the service in the performance of the final product:

This is generally the most important factor for outsourcing as generally companies retain

the critical components of the projects and outsource the peripheral tasks to the ESO

vendors.

Cost savings possible if the activities are outsourced:

This factor also plays a key role in the decisions related to services outsourcing as this

help in reducing the expenses for the entire project.

Risks involved in sharing the information/intellectual property:

Retaining the intellectual properties is one of the most critical issues in the outsourcing

projects. Normally engineers are made to sign Non Disclosure Agreements (NDAs) to

counter these problems.

Some of the other important factors considered are as follows:

Amount of interaction and judgment required on the part of the ESO vendor to

handle that service:

The services which require high amount of judgment on the part of the ESO vendors are

generally not outsourced

Availability of standards/ benchmarks available to perform and judge the services.

Generally those services which are easy to evaluate on standards and benchmarks are

considered for outsourcing.

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6.3 Critical success factors for the ESO vendors

The factors which are most important in the selection of an ESO vendor for the outsourcing

projects are:

Similar projects handled before

Reputation of the Engineering Services provider

Projected time quoted for the project

Recommendation of others from the industry

Price quoted for the project although an important factor, but is not as important as the above

factors as if the ESO vendors are successful in providing right quality of work within the time

frame, the clients tend to continue with the same ESO vendors and thus a loyal customer base

can be formed.

The most effective channels for getting project in the decreasing order are as follows:

1. Partnership with tool/vendor Company: It is the most effective tool as long lasting

relationship is established with the client and it becomes easy for the ESO to function

as per the client’s requirement. If the service provided is high on quality and within

the time frame, the clients generally do not switch.

2. Referrals from existing/past clients: This is similar to word of mouth publicity

where the existing clients refer the ESO vendor to the potential clients with similar

requirements. Important thing to note is that if the clients are not satisfied with the

service, then it may result in negative word of mouth as well.

3. Direct Marketing: ESO vendors generally have their sales team in the countries

which have maximum potentials for getting projects. This helps them in adding new

clients.

4. E mail inquiries: ESO vendors also get inquiries through internet. Web marketing

plays an important role in this industry. It is due to this reason that ESO vendors add a

lot of case studies on their websites which proves their competencies in various

domains. Also technical articles are sent to the potential clients via e-mail.

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5. Tender sales/RFB: This is the least effective tool for getting projects.

The most effective channels for promotion/communication in the decreasing order as per the

research are as follows:

1. Direct Marketing

2. Conferences/Seminar

3. Internet Marketing

4. Publishing technical articles in journals

5. Trade fairs

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BIBLIOGRAPHY

Internet sources:

www.engineeringservicesoutsourcing.com/

www.nasscom.com/engineeringservicesforum

www.kpoexpertsindia.com

www.hindubusinessline.com/eyeofanopportunity

Research papers:

Indian IT-BPO Industry 2009 analysis

A white paper on Engineering Design Services Outsourcing by Backer & McKinsey,

Booz and Co, September 26,2008

Engineering aspects of offshore outsourcing by National Society of Professional

Engineers, Washington DC