1. WHITEPAPER Engineering Services Outsourcing A research on drivers and trends

2. WHITEPAPER Engineering Services Outsourcing Drivers and TrendsINTRODUCTION THE RESEARCH COMPANY QEDBATON QEDbaton delivers high impact demand generation solutions to technology companies across global markets. With a team of 100+ demand generation specialists, QEDbaton converses with over 5000 technology decision makers & influencers monthly while tracking over 15000 companies. QEDbaton has worked with over 70 technology companies in the past 6 years. Its experience spans verticals & horizontals in geographies such as North America, Europe, Middle East, APAC and India. QEDbatons key services include: Research Services - Market entry and marketintelligence reports, list building and contact discoveryand B2B surveys Demand Generation Services - Lead nurturing, leadqualification, appointment setting, event enrolment andemail direct marketing THE RESEARCH SPONSOR BWIR Barry-Wehmiller International Resources (BWIR) is part of the consulting platform of the $1.2 billion Barry-Wehmiller Companies, Inc., a market leader in packaging, paper and paper- converting capital equipment manufacturing, headquartered in St. Louis, Missouri with global operations. BWIR brings the best of both worlds - the dependability of a global billion dollar company with the benefits of distributed operations. BWIR has been recognized as a pioneer in outsourcing with a distributed global network of talent and resources. ISO 9001:2008 certified, BWIR has validated systems and processes in place to deliver superior services to their customers. In engineering services, BWIR offers the entire gamut of services ranging from product development, value engineering, sustaining engineering, CAD services, controls and embedded systems support. BWIR has over a decade pioneered setting up and managing Global Engineering Centers (GECs) for a wide variety of manufacturing companies, thereby helping them with faster product development and reduce operational costs.1 3. WHITEPAPEREngineering Services OutsourcingDrivers and TrendsINTRODUCTION ABOUT THE RESEARCH Engineering Services Outsourcing (ESO) has emerged as one of the major outsourcing initiatives in the last decade among the engineering and manufacturing organizations. With the growth of reliable communication systems the new globalization paradigm has changed from products that can be manufactured anywhere to services that can be rendered anywhere. This research is intended to understand the primary drivers to engineering outsourcing, the trends and cues from the practitioners. The broad parameters surveyed and analyzed were: Outsourcing trends Top outsourcing destinations Outsourcing partner selection criteria Type of engineering work outsourced Prevalent engagement models The survey was conducted with a broad range of manufacturing companies spread across geographies and revenues. The underlying idea was to get these details from the practitioners and hence the survey was targeted at senior engineering professionals in over a 100 manufacturing companies. Survey Demographics17% 9% 13%9% 4% 22%43% 52% 16% 60% 30% 22% Industrial Machinery Director/Head/ VP- Northern Europe EquipmentEngineering Manufacturers Southern EuropeDirector/Head Product Oil & Gas EquipmentDevelopment and R & DWestern Europe ManufacturersEngineering ManagerNorth America Consumer ElectronicsOthers Rotating Equipment Manufacturers 2 4. WHITEPAPER Engineering Services Outsourcing Drivers and TrendsOUTSOURCING STATISTICS It was observed that companies in the North American Outsourcing Statistics region were outsourcing more compared to the European companies. It was also observed that a larger percentage of mid-sized engineering companies (>$200 mn in revenue) were outsourcing engineering services and setting up captives engineering centers in emerging50%50% economies. Another interesting observation was about 30% of the companies surveyed ran their own engineering centers in emerging economies, but also outsourcedHave outsourcedengineering services to third party engineering serviceEngineering providers as a de-risking strategy and to build a global delivery model. A large percentage of these captiveHave not outsourcingEngineeringengineering centers were setup as engineering centers to support their manufacturing bases in emerging economies.DRIVERS TO OUTSOURCE Reasons for outsourcing Contrary to popular belief, the primary driver for outsourcing does not seem to be cost. While companiesFlexible arrangement to handle 4.13 sudden spikes of work do want to take advantage of outsourcing at a lower cost, the priority is to maintain flexibility and outsource non-Availability of skills 3.77 core tasks and augment engineering skills to get products faster, better and cheaper to the market place. SomeOutsourcing non core activities 3.14 respondents even mentioned that there are some services that they outsource at a premium since this Cut down operational costs 2.65 model allows them the flexibility to convert fixed costs into variable costs.Reasons for not outsourcing The biggest deterrent to outsourcing seems to be worries with respect to IP concerns. The companies that haveLesser volume of work 59.09% chosen to outsourcing have dealt this by choosing theFear of losing intellectual property 45.45%right partners and selectively outsourcing non-coreWork requires high degreeactivities. In some cases, if the work content was veryof domain expertise22.73% critical, the companies chose to take advantage of a global Concerns with respect to 13.64%delivery model and executed it onsite, rather than managing the external team offshoring it.3 5. WHITEPAPER Engineering Services Outsourcing Drivers and TrendsPREFERRED OUTSOURCING DESTINATIONSIndia, followed by China have clearly emerged as themost preferred destinations when it comes tooffshoring engineering services or to setup captive Preferred outsourcing destinationsengineering centers. The respondents attributed thereasons for this as cost arbitrage, strongmanufacturing base, emerging local demand and alarge talent pool.23%23%While India (ranked as the top offshoring location)has the advantage in terms of English language skills,cultural compatibility with the West, a robustpolitical and legal system, and a better perception of 54%protecting Intellectual Property (IP), China (thesecond ranked offshoring location) has much betterinfrastructure and a well-developed manufacturing IndiaChina Othersbase. Other emerging destinations include Taiwan(Computing Systems), Ireland (Medical Devices),Poland and Brazil (Construction/Heavy Machinery).OUTSOURCING PARTNER SELECTION CRITERIAIt was observed that availability of skills is theOutsourcing partner selection criteriaprimary driver for selecting a partner. Ease of Domain expertise /4.19communication and cost are secondary drivers forProduct knowledge of theselecting a partner. It was also observed that mostEase of Communication 3.90manufacturers chose their outsourcing partners Cost3.80without bias of offshoring destination except in casesInfrastructure availablewhere manufacturers chose partners based on with the vendor 3.16proximity to manufacturing base.Customer references2.89 Proximity to production plant 2.43Proximity to customers1.30 4 6. WHITEPAPEREngineering Services OutsourcingDrivers and TrendsTYPES OF SERVICES OUTSOURCED Product development & value engineering emerged as the top service outsourced correlating with the fact thatEngg. services outsourced to partnersthe top partner selection criteria was availability of skills. But it is intriguing that the top reason for outsourcing New Product Development77.78% was flexibility to handle sudden spikes of work, whichCAD Technologies 50.00% did not seem to correlate with the type of services 38.89% outsourced. In discussion with a random set of Sustenance Engineering re s p o n d e n t s , m o s t a c k n o wl e d g e d t h a tControls Engineering27.78% p ro d u c t development initiatives usually take a backValue Engineering 27.78% seat when they are filled with sustenance engineering/ order fulfillment jobs and this extends their product development lifecycles.PREFERRED ENGAGEMENT MODELS Most respondents indicated that project based engagement models were favored more than Resource Based engagement models. To derive the benefit of a long-term relationship and knowledge retention, most manufacturers had dedicated teams retained with theirPreferred engagement models outsourcing partners. But, to maintain accountability and to demonstrate value they were running project- based engagements within these retained dedicated teams to maximize output. The Service Level30% Agreements in these cases were clearly based on hours allocated for task completion. 10% The average satisfaction level with the quality of services 60% provided by their existing outsourcing partners stood at 4 on a scale of 1 to 5. Manufacturers that gave lower ratings cited the main reasons as not being happy with the amount of time being spent on training & partner interaction and a few quality concerns.Project based It was also observed that most manufacturers hadResource based multiple outsourcing partners as a de-risking strategy.Both The large manufacturers echoed that once they reached a large scale and steady state of operations with a particular partner, they felt it is necessary to diversify to other partners. 5 7. WHITEPAPEREngineering Services OutsourcingDrivers and TrendsCONCLUSION Based on the survey analysis, it is clear that Engineering Services Outsourcing is a practice that is fast catching up with manufacturers. Almost all manufacturers are faced with typical engineering challenges of reducing budgets and pressures of faster, better and cheaper product development. With the availability of advanced communication technologies, global delivery of services has been made much easier, which is evident from the continuous growth of outsourcing of services from the manufacturing industry. Most small and mid-market manufacturing companies are also talking about outsourcing and it is no longer a service accessible only by the large companies. While outsourcing presents a huge opportunity beyond doubt, it also comes with its share of challenges such as IP security and communication. The more established service providers have clearly defined processes and systems to handle these and that is what manufacturing companies are looking for. The expectation is that the service providers will lead them into a smooth outsourcing relationship through a process based approach. Most manufacturers acknowledge that their outsourcing relationships have been successful because they believed that outsourcing is a long-term strategy for their organizations and have taken the right steps to ensure that these relationships grow and prosper. The following are some criteria that stand out for evaluating suitable engineering outsourcing service providers among others. 1. Availability of customizable engagement models with scalability to offerflexibility to manage sudden spikes 2. Availability of a global delivery model for better communication and ease ofoperation 3. Access to large pool of appropriate skills 4. A process driven approach to outsourcing 5. The ability to drive SLA based engagements 6 8. About BWIR Barry-Wehmiller International Resources (BWIR) is part of the consulting platform of the $ 1.2 billion Barry-Wehmiller Companies, Inc., a market leader in packaging, paper and paper- converting capital equipment manufacturing, headquartered in St. Louis, Missouri with global operations. BWIR brings the best of both worlds - the dependability of a global billion dollar company with the benefits of distributed operations. BWIR has been recognized as a pioneer in outsourcing with a distributed global network of talent and resources. ISO 9001:2008 certified, BWIR has validated systems and processes in place to deliver superior services to our customers.USA INDIA8020, Forsyth Boulevard, St Louis, MO 63105 MPL Silicon Towers, 23 - 1/B3, Velachery-Tambaram RoadPhone: +1 (314) 862 8000 | Fax: +1 (314) 862 4154 Pallikaranai, Chennai - 600 100Toll free: +1 (800) 862-8020Phone: +91 (44) - 4390 9100 | Fax: +91 (44) - 4390 9211Email: info@bwir.com | Web: www.bwir.com