India’s engineering services exports next big thing: survey

August 15th, 2008 - 12:57 pm ICT by IANS  

New Delhi, Aug 15 (IANS) Engineering design and services exports - now only a small component of India’s software and services exports - is all set to be the next big thing in the country’s relentless march towards becoming a global knowledge powerhouse, says a new survey. In fiscal 2007-08, engineering services accounted for revenues of Rs.101.1 billion ($2.5 billion), up from Rs.80.5 billion ($1.8 billion) in the previous fiscal.

This represents a growth of 25.6 percent in rupee terms and slightly more than 40 percent in dollar terms, says the 25th annual information technology (IT) industry survey of Dataquest - the flagship publication of the CyberMedia group.

This revenue figure does not include revenues from India’s exports in such areas as software product engineering, semiconductor design, and other high technology and telecom engineering, the survey says.

“Like in IT services and BPO, cost and access to engineering talent remain the top two drivers of offshore engineering services,” the survey says.

Two years ago, a study done by global consulting giant Booze Allen and Hamilton for Indian IT industry lobby National Association of Software and Services Companies (Nasscom) had estimated that by 2020, India could earn close to $30 billion (Rs.1.2 trillion) from offshore engineering services.

This was against the backdrop of a global spend of $750 billion on engineering services in 2004, which the study says was growing.

“In hindsight it seems even Booz Allen Hamilton had underestimated the potential,” the Dataquest survey says.

“With a revenue figure of $2.5 billion (despite excluding areas mentioned above), the industry could surpass that $30-billion mark by at least three to four years before 2020,” it says.

However, the big picture, according to it, is the way rising engineering services revenues represent the possibility of India making a transition from services to manufacturing that many believe is just wishful thinking.

Giving the example of how India’s largest IT services firm Tata Consultancy Services bagged a concept-to-manufacturing contract from an Italian aerospace company, the survey says “if TCS’ experimentation - it is still too early to call it a trend - succeeds, the Indian dream of “services to manufacturing” may just become a reality”.

The other big picture trend is that rising engineering services exports indicate the country is moving up the IT services value chain with Indian companies showing an increasing appetite for taking on more complex work.

Already, engineering services account for the second largest area (after BPO) outside enterprise IT for most large IT services firms, including TCS, Satyam, and HCL, it says.

Given that an employee takes at least three years to become fully productive in engineering services unlike in IT, where it happens in six months and in BPO where it can happen even in two months, most Indian firms have just begun the journey to become leading providers of engineering services.

“Both revenue realization per employee and margins will only better with time,” the survey says.

Engineering services’ share in the entire IT services pie has increased from about four percent in fiscal 2006-07 to more than seven percent in fiscal 2007-08.

“Yet, many stakeholders believe unlike IT and BPO, the tipping point for engineering services is yet to be reached,” the survey concludes.

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