Mastering Engineering Service Outsourcing in the automotive industry

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Mastering Engineering Service Outsourcing in the automotive industry
Cooperation with external engineering suppliers means sharing confidential
information that should not be available to other players in the industry. By
working with ESPs that are active for more than one OEM/OES, clients are
rightfully afraid that their know-how might end up in the hands of competitors.
A large number of OEMs/OESs therefore developed a more expensive,
but simultaneously more controllable way of tapping into the potential of
a globalized, low-cost engineering base: they operate captive engineering
centers in low-cost locations. Figure 6 demonstrates that most major automotive
companies are already present in the prime engineering outsourcing
locations with their own R&D facilities. To some extent, these facilities are
responsible for developing products for the respective market. But to a
varying degree, they are also used as a low-cost engineering base that takes
over design responsibilities from established R&D locations in more expensive
locations. Establishing a captive R&D center in a low-cost location is a
major decision for automotive companies that only makes sense as part of
a broader strategy. R&D centers incur high fixed costs, take a relatively long
time to become fully operational and require highly qualified personnel that
must be trained to fulfill industry and company standards. To go down this
path, OEMs/OESs must be convinced that there is long-term value in
supporting engineers e.g. in India. Figure 6 shows a selected number of
R&D facilities, indicating that a growing number of automotive companies
recognize that value. Nearly all larger OEMs and suppliers are among the
companies that have R&D facilities in low-cost locations.