CIMdata PLM Industry Summary Online Archive

13 January 2009

Company News

Engineering Services Outsourcing: Global Delivery is Part of the Answer for Detroit’s Automakers by Warren Harris, CEO – INCAT

Now two years into its second century, the North American International Auto Show in Detroit has never seen the U.S. industry in such difficulties. The “Big Three” have become the “Detroit Three,” and America’s automotive industry is facing what was previously unthinkable – bankruptcy, mergers and the threat of catastrophic job losses. The recent U.S. government bailout of Chrysler and GM will help, but industry insiders know that a radical reconstruction of the sector is essential.

However, for those who are able to keep their heads when those about them are losing theirs, there are some bright lights amid the gloom. The U.S. automotive industry, including its extended supply chain, must and will survive. The question is, in what form? I believe the future likely belongs to smaller and/or more nimble players who are alert to the potential of a borderless world of talent.

Globalization over the past five years has seen more and more automakers gaining confidence in a global delivery model. Under the current economic difficulties, the competitive position of automotive OEMs in the U.S. is dependent, in part, on a global business model and the associated value chain. What does this mean? Simply put, it means reaching beyond the more commonplace outsourcing of IT services and business support functions. It calls for what can be a difficult decision – to entrust core engineering services, and even the complete end-to-end design and development of a vehicle, to firms with the experience, expertise and sheer innovative talent to help create better products, faster and at lower cost.

There is no question that the process of shifting more complex and more vital activities to an outsourcing model entails some risk. There is no one single Global Delivery model. Different industries, different businesses and different technologies require different outsourcing decisions, different management logistics and different approaches to the mitigation of risk. Every OEM will seek its own unique solution, protecting intellectual property and brand capital while looking for a competitive edge through the benefits of Engineering Services Outsourcing (ESO).

Let’s look at some of those benefits.

Cost – Highly qualified talent remains abundantly available everywhere. A balanced approach to engineering that includes ESO and the right mix of offshoring can deliver the necessary results for automotive OEMs at substantially lower cost, while growing that work force in every region.

New markets – At a time when the domestic automotive market has slowed, overseas markets are all the more attractive. Locating an offshore development center in a potentially high-growth market makes sense, allowing manufacturers to gain insights into local preferences and regulations.

Speed – Round-the-clock engineering capabilities provide a competitive edge, if a sufficiently robust process framework is put in place to fully exploit those capabilities.

Flexibility - Outsourced operations can benefit manufacturers facing unpredictable and varying demands for engineering capacity. Reliable offshore service providers can fill a sudden and escalating need for engineers and scale down at the end of the project, with no adverse impact on the organization’s core staffing level.

Quality – At successful ESO specialist companies, bright and highly motivated engineering professionals have gained experience and deep domain knowledge through their global deployments. These individuals understand the need to implement rigorous quality assurance and project management protocols with every project. As a result, quality standards are not simply met by ESO providers, but in many cases established and maintained by those organizations.

America’s automotive industry must find the opportunities within the current situation, to put itself back on a competitive footing and once again produce aspirational models that provide the desired performance and economy, and attractive pricing. The industry also must resist the new spirit of protectionism that is currently prevalent. It is a concept that will work counter to the industry’s turnaround in the global marketplace. For the U.S. automotive OEMs with the vision to embrace it, ESO can be a key part of Detroit’s return to health.

Warren Harris is CEO of INCAT, a Tata Technologies company and a global leader in Engineering Services Outsourcing (ESO) and Product Development IT services. In mid-2008, his company published “Global Delivery – An Essential Guide to Engineering Services Outsourcing.” The 50-page guide provides a definitive summary of the business of Global Delivery and how to approach it, as well as what – and where – to deploy. It is available in both print and electronic versions.

“INCAT is currently defining the global ESO landscape,” said Harris. “With this booklet, we are providing insights that will foster a wider understanding of the value of Global Delivery, and will make clear to organizations setting out in this direction that, as the industry leader, INCAT is their best partner on that journey.”

To download an electronic copy of INCAT’s “Global Delivery – An Essential Guide to Engineering Services Outsourcing,” go to http://www.incat.com.

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