Analyst: Outsourcing to grow in fresh field

The next wave of outsourcing will be in product engineering, according to an AMR Research analyst.

Citing an AMR survey of business processing outsourcing in 2004, analyst Lance Travis said on Tuesday that outsourcing engineering services is "a small but growing offering from outsourcing service providers."

The study found that last year, 15 percent of manufacturing companies hired outside companies to handle parts of their research and engineering activities. Another 10 percent of manufacturing companies had plans to do the same by the end of 2005.

AMR also reported that 13 percent of the outsourced engineering work is being done in India, and 19 percent is being done in other Asian countries, including China.

"The market for outsourced engineering services is expanding globally," Travis wrote in a research note.

The report comes amid growing concern that the United States may be losing its edge when it comes to technological leadership, as countries including China and India ramp up their abilities.

Outsourcing refers to farming out tasks to a separate company, whose operations might be in a lower-wage nation. Product engineering arguably represents a higher level of work than has traditionally been outsourced, as earlier contracts focused on tasks such as running human resources departments or information technology operations.

"Companies considering outsourcing product engineering are looking for benefits similar to companies outsourcing IT functions and other business processes: reduced costs, improved capabilities and added flexibility to their internal workforce," Travis wrote. "To date, outsourcing engineering services is more effective at delivering staffing flexibility."

In AMR's 2004 survey, the companies naming staff flexibility as a benefit outnumbered those reporting cost savings or skills benefits two-to-one.

As evidence that the market for outsourced engineering services will continue to grow at a healthy rate, AMR cited a recent agreement between IBM and Nortel Networks to set up a joint development center.

"This represents one of the first major contracts for IBM's 1,200-person engineering services group," Travis wrote.

He argued that over five years, the deal could save Nortel $2 billion.

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Outsourcing engineering services

Outsourcing engineering services and R&D is a trend that is seeing some momentum. The argument one could make is that by sharing Knowledge [Globally] innovation and ?thinking outside the box? is going to receive a fillip.

- Mohan [Author, Consultant] http://www.offshoringmanagement.com

[waynehapp]

Three Comments

I hope intelligent.

FYI - America has already lost its edge.

1. Manufacturing was bad enough but once you outsource highly skilled jobs then the incentive for perusing higher degrees is removed. That combined with tuition that has skyrocketed means that American Universities will start emptying out. Who needs a PHD in when the most secure job in America is being a carpenter or plumber? Aren't American schools already complaining about the lack of foreign students? Guess what guys! You hired them in their own countries so why should they come here?


2. Is it me or does the American way of increasing revenue by cutting costs and expenses make anyone else queasy? What happened to selling products?

3. Henry Ford was bright enough to know that his workers need to be able to buy the cars he produces. Nortel can save zillions of dollars by sending it's design work overseas but it will ultimately come down to this.

Everyone in America will be either working at Wal-Mart or at a food shop selling stuff to the people at Wal-Mart.

People at Wall-Mart have no use for and probably can't afford those nifty Nortel phones.

Carpenter and plumbers on the other hand love em'

[furl12]

better make that two

George Santayana believed that those cannot remember the past are condemned to repeat it.

Americans remember that Henry Ford was a folk hero who was on the side of the American worker. Not so.

He was a nasty, mean megolomaniac who treated his employees like dirt and snooped on his employees? families. He had to pay over the odds to get anyone to put up with him. He didn?t have access to Indian workers or he would certainly have hired them.

There is nothing in American history to suggest that workers (i.e. everyone not a corporate executive) are sensible to continue their childish trust in the US corporate oligarchy.

[waynehapp]

Me again

I'm a perfect example. I just looked at my post and notice the bad grammer. Guess I'll hook up with friends in South Philly and become a carpenter. Now if you can get into the union....

outsourcing

First it was blue collar jobs, now it's the high paying white collar jobs. There goes the middle class. Once we get done training all the other countries how to do everything we used to do, they wont even need middle / upper management. Somehow I think we'll get by, but out children's futures are going to be quite challenging. Think of how many workers could be spared if we just outsourced the CEO.