Meeting the challenges in off shoring of engineering services, Vikas Sehgal, Principal and Director, India Business, Booz Allen Hamilton

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Please contact Vikas Sehgal at [email protected]; 001 312 560 2311 if you have any question

Mumbai, India · February 13, 2008

Booz Allen Hamilton – NASSCOM Presentation

This material was used by Booz Allen Hamilton during an oral presentation; it is not a complete record of the discussion.No part of this document may be circulated, quoted, or reproduced for distribution without prior written approval from Booz Allen Hamilton.

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Engineering lies at the very heart of organizations

Note: Based on top engineering spenders/key innovators in Automotive, Aerospace, Telecom, Semiconductor, Consumer electronics and Pharmaceuticals verticals

Source: Booz Allen IC, Booz Allen Innovation 1000 database, Booz Allen analyses

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IT is important – but engineering is in a league of its own

70%

60%

30%

75%80%

95%

0%

20%

40%

60%

80%

100%

Engineering Finance Sourcing Sales & Marketing Manufacturing IT

Percentage of Respondents Considering a Function Core/Strategic(2007)

Source: Booz Allen IC, Booz Allen client engagements

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IT is linked to the entire value chain but engineering sits at the heard of it

FinanceSales &

Marketing

Product Strategy

Sourcing

IT

Manufacturing

Working Relationships B/W Different Functions

Engineering


Strong linkage

Tertiary linkage

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Companies such as Toyota are built around engineering

QRD

Cost

PRODUCT STRATEGY

PROGRAM MANAGEMENT ENGINEERING SOURCING PRODUCTION

ConservativeInvestment

DesignRe-use

CE asIntegrator

CreativeTension

StrongFunctional

Engineering

ProductionOrientation

Incre-mentalism

Disciplineand

ScheduleMaintenance

Long-termSupplier

Competition

SupplierCapability

Development

JIT andKanban

SupplierEngineering

Follower

Configuration Simplicity

RevealProblems

ContinuousImprovement

Long-termSupplier

Relationship

BundledOutsourcing

Toyota Business Model


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Engineering landscape is evolving more rapidly

Past: Extent of Engineering (1900s)

Dominant region for engineering activity

Emerging regions for engineering activity

Source: Booz Allen IC

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Engineering – Present

Present: Extent of Engineering




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The Future

Future: Extent of Engineering (2015)




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Following the shift, companies are increasingly utilizing global model for engineering

Share of Foreign R&D Sites – All Companies –

55%49% 47%

40% 38%32% 30%

45%51% 54%

60% 62%68% 70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1975 1980 1985 1990 1995 2000 2006

Top Reasons for New Site Planning

TechnologyClusters orAcademic Institutes

(20%)

Markets orCustomers

(24%)

Proximity toProductionFacilities

(12%)

Qualified Workers(18%)

Low-Cost Skill Base(18%)

BusinessEnvironment

(9%)

Note: Based on survey of companies with home base in Europe

Source: Booz Allen Survey of leading companies

Pe

rce

nta

ge

of

Site

s

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Companies view engineering services through a global lens

Sites Under Active Consideration for Engineering Services

Note: Weighted average scores based on client ratings

Source: Booz Allen client study; Booz Allen analysis

Satellite Site

Global Service Site

Sao Paulo

Bangalore

HyderabadPune

Gurgaon

Mysore

Johannesburg

Budapest

Mexico City

MoscowSt. Petersburg

Beijing

Shanghai

Changchun

Guangzhou

Bangkok

Manila

Chennai

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Business of engineering offshoring is competitive—many want a piece of this pie

Government Support for Engineering Offshoring (Present)


Forced Support

Active Support

Passive Support

Policy Support forEngineering Offshoring

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Countries like China are formulating policies that are aggressively geared towards attracting high value add services

India China Mexico RussiaCzech

Republic Poland Hungary Thailand Philippines

Tax Reduction(e.g. tax abatement in SEZs)

Subsidies & Grants(e.g. Subsidy on percentage of total cost)

Infrastructure Improvements(e.g. access to communication, power, water supply, roads, etc.)

Training & Education(e.g. grants to train employees for new roles, grants to R&D institutes)

Comparison of Incentives Offered by Countries for R&D/Engineering Services(Relative Scale)

Strong Support

Moderate Support

Passive Support

Policy Support forEngineering Offshoring

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So yes, it is a big opportunity

Market Potential for India(2004 – 2020)

Re

ven

ue

Po

ten

tial (

$ B

n)

$0

$5

$10

$15

$20

$25

$30

$35

$40

2004 2006 2008 2010 2012 2014 2016 2018 2020

CommercialOpportunity

DefenseOpportunity

Source: Booz Allen NASSCOM study; Booz Allen IC; Industry research, Expert Interviews

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Yes, India leads the pack for engineering services, currently

0

1

2

3

4

5

6

India China Mexico Russia CzechRepublic

Poland Hungary Thailand Philippines Egypt Ukraine Bulgaria Brazil Vietnam Romania Turkey SouthAfrica

Competitive Index of Countries – Engineering Services(Present)

Com

petit

ive

Inde

x*

* Competitive Index based on a range of 0 – 7 (0 – Minimum, 7 – Maximum)

Note: Scores for countries are based on scores for components in Country Assessment framework

Source: BAH analyses

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…but others are catching up

Competitive Index of Countries – Engineering Services(2015)

* Competitive Index based on a range of 0 – 7 (0 – Minimum, 7 – Maximum)

Note: Scores for countries are based on scores for components in Country Assessment framework

Source: BAH analyses

0

1

2

3

4

5

6

China India Russia Mexico Thailand CzechRepublic

Poland Philipp. Hungary Egypt Ukraine Bulgaria Brazil Romania SouthAfrica

Vietnam Turkey

Com

petit

ive

Inde

x*

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Questions for the panel

What is the future of off shoring of engineering services to India

What are the challenges that you have experienced in off shoring

Are there differences in challenges when dealing with vendors vs. captives

What are the most attractive attributes of vendor, and captive

11

22

33

44

Which countries are you looking to source the technical services from – apart from India

55

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Q & A