Engineering change

For those who may have worried that the dizzying success seen in the export of software and BPO services couldn't last forever, the latest Nasscom-Booz Allen Hamilton report on the next frontier in the outsourcing business is very good news. The report talks of an Engineering Services Outsourcing (ESO) market that is $10-15 billion today, out of a total engineering services market of $750 billion. This total market is estimated to grow to over a trillion dollars by 2020, with the ESO component rising to $150-225 billion. The rest, as they say, is up to your imagination""Nasscom thinks India could get as much as 25-30 per cent of this market, but you could just as well think of a higher number. In the event, that's an additional $50 billion that India's exporters can think of and, according to Nasscom, the bulk of this business will accrue to tech/telecom and automotive firms.

Given the manner in which India's engineering firms, in sectors such as automobiles, have performed, the optimism does not appear misplaced. The country already has 12 companies/plants that have won the Deming prize, one of the more prestigious certifications of quality in the world. In the case of the automotive components firm Sona Koyo, a Deming awardee, in-house rejections have come down from 23,000 parts per million seven years ago to 1,097 today and manufacturing costs have declined an astonishing 45 per cent. The results in the case of R&D are equally impressive, as seen from the Maruti example. The company's majority shareholder, Suzuki of Japan, has announced that by next year all of Suzuki's design and development for cars in Asia outside of Japan will be done by Maruti. The Indian firm houses Suzuki's biggest testing facility outside of Japan, its engineers did all the re-designing of the Zen (something done by the parent earlier), and they were an important part of the team that designed the Swift.

So, the ingredients are in place to reap the harvest that Nasscom points to. The problem areas, as Nasscom itself says, is that virtually all the issues that dog infotech and IT-enabled services also affect the performance of the ESO segment. Sharply rising salaries, which are a serious concern for the BPO business, it is true, will be less of an issue in ESO, given the higher value addition that will be done. But the skills shortage is perhaps an even more serious issue; right now, according to the report, about 35,000 engineers work in engineering services and this needs to increase to around 250,000 by 2020 to achieve the target. That is a giant task, given the demand for engineering graduates from other industries. There is then the issue of the quality of teaching. According to the UR Rao report, in the case of engineering, the total supply of teachers with PhDs is less than a third of the requirement""with the current emphasis on reservations and of rapidly increasing the number of seats in such institutions, the shortage can only get more acute. The other critical issue is infrastructure""if $50 billion of fresh business is to be generated, it has to be housed somewhere, and have assured power, water, etc. As the report puts it, Bangalore's IT/ITES exports are about $6 billion today, so what is being talked about is creating another eight Bangalores in 14 years.