‘IT engineering service providers should build scale’

Even as the IT and BPO revenues are dropping for Indian IT Service players, the engineering services segment has been doing well. Pareekh Jain, Research Vice-President (Engineering Services), HFS Research, a global IT services research company, spoke about the opportunities and challenges in this sector, in an interview with BusinessLine . Excerpts:

What is the growth of the engineering services segment versus the IT services growth in India?

In the last couple of years, the engineering services segment has grown faster than IT services. In FY 16, according to NASSCOM, Indian engineering services exports grew by 12.6 per cent, where as the IT Services exports grew by 10.3 per cent. We expect a similar trend in FY 17 also. Infosys and TCS announced their September quarter results couple of days back. Their quarterly engineering services revenue grew by 14 per cent and 16 per cent respectively, nearly double that of IT services revenue growth. All these are good signs for the growth of engineering services.

HCL Tech is among the top five engineering service providers globally according to your ranking. How do you think the company stands apart among its peers?

HCL Tech is the only Indian engineering services provider in the top five positions globally by revenue. After Geometric’s integration, HCL might enter into the top three club. Few things stand apart for HCL. The first is the top management’s commitment to grow the engineering services business both organically and inorganically. Engineering services, being 18 per cent of the company revenue, is one of the big growth engines for HCL (the other being Infra).

The second is product engineering DNA. HCL started as a computer manufacturer a few decades back and it built on that expertise in offering engineering services to global customers. The third is the investment in engineering labs and patents. HCL has filed over 1,200 patents in engineering services.

What are the strengths of Indian providers? Can they make a difference in the market dominated by European players?

The strength of Indian providers is in embedded and software product engineering, where as the strength of European ones is more in mechanical services. The other difference is Indian providers are strong in telecom, semiconductor, ISV and hi-tech verticals, where as European service providers strength is more in automotive and aerospace verticals.

Engineering, unlike IT and BPO, is a core capability of enterprises and their rationales of outsourcing earlier was not the lack of expertise. It was more about flexibility to manage demand where European service providers with local presence scored.

In the last few years, the scenario has changed. With IoT, every product needs to be smart. The car is today more like a software. Many manufacturers don’t have software and embedded expertise. Here Indian engineering services providers with their capabilities in embedded and software product engineering stand a good chance.

What should be the focus of Indian engineering services players? What can be a catalyst?

Indian engineering service providers should do three things to stay ahead. The first is to build on their strength of embedded and software engineering, while growing their mechanical and PLM practices in different industries. Automotive, aerospace and medical devices should be their focus, in particular.

The second is to build scale fast, both organically and inorganically. The scale is important in engineering services as it will enable them to make further investments in labs, R&D, patents, marketing and innovation,.

Finally, they should strengthen local presence in engineering hotspots such as France and Germany and give competition to European service providers. The catalyst can be adoption of IoT and Industry 4.0.

IoT will require all products to be smart and able for communication. Who will make the products smarter? It will be these engineering services providers.

COMMENT NOW