Automotive engineering design services or AEDS has been touted as the next big opportunity for sometime now. Several companies like Ford, General Motors (GM), DaimlerChrysler, Toyota, Honda, Nissan, BMW, Robert Bosch, Johnson Controls now have in-house engineering design centres in India or outsource work to third-party vendors here. Indian firms are working on at least $500-million worth of AEDS projects. That figure could double in two years, perhaps earlier.
This opportunity has meant that a whole range of companies have jumped in the bandwagon to take advantage of this new phenomena of design and engineering outsourcing. The players range from pure-play design firms started off in the last 3 years to take advantage of the growing trend, to captive centres of global companies line General Motors and subsidiaries of Indian automotive companies like Mahindra Engineering. Even IT services companies like Infosys, Wipro and Satyam want to get into the this space and have already set up large teams to work on design projects.
The drivers for this growth are quite clear. As the auto business gets more and more competitive, auto manufacturers need to stay ahead by constantly innovating and anticipating consumer tastes to release new models more quickly. This has given rise to the concept of 'the moving design line', where the break up of the automotive engineering design process and the dispersed development of the building blocks are now a way of life for carmakers. So outsourcing the design process, reduces the development cycle and also saves a whole lot of money.
Making a car, nowadays is also a lot more complicated. Everything in motor vehicle - engines, transmissions, braking, exhaust systems - are now controlled by microchips. In 2000, 25 per cent of the value of a car was in its electronics. But consumers are demanding more electronics in their cars: navigation systems, on-board entertainment systems, telematics, etc. Car majors cannot do anything but oblige. Putting these things into cars involve a lot of embedded design and integration. To break up the design and outsource the various parts therefore makes a lot of sense.
But inspite of all this opportunity, the industry at present is only worth $500-million. That is peanuts compared to the IT or ITES industry. So why this sluggishness, inspite of all the positives to design engineering outsourcing. Plainly put, it is a mind-block. For most manufacturing companies, engineering would be their core strength. Hence, there will be higher internal resistance for outsourcing when compared to IT services. Therefore this means that usually bits and pieces are only outsourced to a vendor at a time and that the typical project size is very, very small compared to IT projects. In AEDS, a $1-million contract would call for a bottle of champagne. If you have 100 employees and 10 customers, you have achieved critical size, is the general mantra.
Then there is the issue of intellectual property rights protection and confidentiality. While cost is an overriding factor in IT outsourcing, intellectual property rights protection and partnering in improving performance in core functions, that is, product development are the critical parameters in AEDS.
But there is hope that this industry will see bigger things in future. Already there is more acceptance of Indian engineering skills, and areas like confidentiality will improve with increasing trust over a period a time. Design companies see more and more complex and bigger projects coming through in the near future and believe a trend has been set. So, maybe India will be the next design hub after all.
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