Ford has them. So does General Motors. And both aerospace majors Boeing and Airbus have them too. So what are we talking about?
Engineering components designed by Indian software companies, that's what.
At $100 million, it's a relatively small outsourcing business today. But it is growing at 50 per cent rate annually -- much of the growth taking place in the last 18 months. A Nasscom/McKinsey study says the market for this segment is expected to grow to $11 billion by 2008.
Not only are the Indian software giants expanding this segment of their business in terms of people and resources, newer and smaller players are logging on to engineering services, product and packaging design in a big way too.
"We are seeing aggressive growth in this area and it is crucial to our overall growth. We are very bullish on the future," says Ramesh Emani, president, Wipro product design and engineering which has a team of 6,500 engineers working in this segment.
Last December, the Rs 59 crore (Rs 590 million) Geometric Software was the latest entrant in this space. It will now be able to offer its customers end-to-end solutions in product life cycle management.
Geometric, which till now was only selling engineering software, will be able to provide manufacturers designing services as well. The company expects substantial results in the next two to three years.
Take the Rs 2,051.5 crore (Rs 20.515 billion) Satyam Computer Services, which has seen both its revenue and team size for the engineering services division double in the last two years despite offering engineering services for a decade.
Today, engineering design services account for 5-6 per cent of total Satyam turnover. "Not only do we tap new customers but we are also able to cross sell products to these captured customers from the company product offerings," says Manish Mehta, head - SAP, engineering and GIS at Satyam.
Wipro entered this segment two decades ago. Today, one third of Wipro's revenue comes from this segment and the company has seen the number of employees dedicated to this segment grow by over 40 per cent in just the last year.
Even TCS, which got into the engineering and product design space in the early '90s, expects substantial benefits from this segment. Currently, seven per cent of TCS' revenue comes from design, but Regu Ayyaswamy, head of engineering services, TCS is confident it will cross the 10 per cent mark by year end.
It's not hard to imagine the reasons for this expected growth. Competitive pressures are forcing automotive, aerospace, consumer durable and fast-moving consumer goods companies to reduce costs. Companies in these sectors spend a substantial sums on designing new products or modifying old ones and testing them.
While these companies need to cut costs, they also need to sustain the process of improving their products and increasing product differentiation to stay competitive.
Says M K Padmanabhan, president of the Rs 15.75 crore (Rs 157.5 million) Plexion Technologies which has just completed its fourth year in the design space, "The non availability of adequate technical skills and the time to market pressures are issues for global vendors."
Plexion, funded by JPMorgan Partners, is a 100 per cent export oriented unit catering to the automotive and aerospace sector.
Clearly, there are substantial savings involved for the companies that outsource this function. Estimated cost savings to an original equipment manufacturer in the automotive or aerospace sector are roughly 50 per cent to 60 per cent.
Says Satyam's Mehta, "Spends remain the same since companies can't afford to reduce these costs but by outsourcing the work to India, they get more value for their budgets."
Moreover, as companies expand geographically, the requirements of each market also change. Says Shashank Patkar, head-engineering services, Geometric Software, "Apart from the turnaround time, business also comes from the need to localise global designs." Adds TCS' Ayyaswamy, "The product development turnaround is fast since work progresses in a 16-hour shift due to timezone differences."
So what is each player's strategy? While smaller players like Geometric and Plexion are looking at milking the fact that they are niche players, the larger players are using their capabilities across various segments to attract customers. Plexion, for instance, has set up global delivery centres at Detroit and London and marketing offices in Germany, Singapore and Japan.
TCS, with 1,500 engineers on its rolls, is looking at adding another 550 this year. It has 30 clients today and plans to add another 15 by the year end. Apart from automotive and aerospace, it is now looking at consumer electronics too.
Take Wipro, which has two separate business units: telecom and internet working, which focuses on telecom equipment providers; and embedded and product engineering, which focuses on product strategy and architecture, design & development, sustenance and support. It operates in industry verticals like computing systems, semiconductors and consumer electronics. Says Wipro's Emani, "Today the focus is the innovation programme to help build intellectual property and solutions for the above segments."
Infosys Technologies, however, focuses on design for IT. Says Sridhar Marri, head - communications design group, Infosys, "A major initiative is to align design with organisational growth and requirements."
Satyam has divided the business into horizontals as well as key verticals like auto solutions, aerospace and semiconductors. Currently, 55 per cent of its business comes from North America but it is seeing fair growth from Asia Pacific as well. Today the company has 100 clients and is now looking at offering subject matter expertise and integrated solutions to customers.
There are still challenges to overcome. For one, while the potential to grow is there, it will be some time before Indian players are responsible for the bulk of the designing work that goes into, say, an automobile or aeroplane.
So today, if there are, say, 500 components in a Ford automobile, four are designed by Indian IT companies. And that is how much distance Indian IT companies can cover. Being nascent, players say the potential to grow is enormous.
Despite extremely high entry barriers, the competition within the segment is high. Players have to constantly work at improving quality and delivery so that business grows. But as Geometric's Patkar puts it, "We may not still be designing the entire plane or car, but we will get there eventually."
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