INDUSTRY FOCUS
Marketing of Engineering Services
Engineering Services Outsourcing is a big business. The market for Indian companies in the engineering field is huge. The challenge is that having recognized this, how does a company in this field market its service? Do the 4Ps or 7Ps help? What is it that the customer actually looks for? What is the meaning of quality, cost, delivery and service in this field? Each field has its niche segment and a desirable and most appropriate approach to marketing. In this article, the approach to marketing of engineering services is thoroughly delineated.
Engineering Services Outsourcing (ESO) is no doubt emerging as a very big business. But before we estimate its potential, we need to understand the term ESO in greater detail. ESO is not sub-contracting of manufacturing, as is commonly practiced in the engineering sector. But has more to do with outsourcing of what has been thought all along as a part of the core competency of an engineering company, i.e., the outsourcing a part of the product design.
Engineering services can be defined as the support processes associated with the design of a product or service. Engineering services would also include services which could increase the life or optimize the yield of products. Design of infrastructure, process or equipment needed to manufacture the product would also qualify under ESO.
ESO today looks at outsourcing the non-core part of the product design. It must be remembered that, for a long time, it was not the practice to even discuss with an outside organization the design of a product, let alone allow an outside organization to design the product on one's behalf. Yes, consultants have been used to help out in product design, but they were just consultants and never a part of the product design team. Of course, in the case of large projects, consultants would design and also assist in the execution phase. But for manufactured products, the design was a closely guarded internal affair of the company.
The new thought of outsourcing has taken root since the late 1990s. Companies now focus on the core of the new product (and still keep it a closely guarded secret), but outsource the peripheral design activity. These non-core activities form around 20 to 30% of the product design. However, efficient project management is required to effectively integrate this with the company's overall design goal.
Starting around the year 2000, Engineering Services Outsourcing has become a new and emerging segment of the Indian IT and related business sectors. It has been able to attain a compounded annual growth rate of around 45%.
The Market Potential
Today, over 150 multinational companies are using the engineering expertise of Indian companies. A good number of them are in the telecom and technology space (30% share). The other major business areas are: automotive (20% share), heavy machinery and construction (40% share), electric utilities (3% share) and others (the remaining 7% share).
Presently, ESO forms only 3 to 4% of the worldwide spend on Engineering R&D. If design peripherals are taken at 20% of the total product, a potential growth of six times the current figure can be envisaged. What we will witness is, therefore, an exponential growth for the current players, with a lot of room for new comers.
The total expenditure on R&D throughout the world for engineering services is currently estimated at $750 bn per year (nearly the same as India's GDP!). This is growing at a steady pace and is expected to reach $1 tn by 2020! Twenty per cent of this would be the current potential of $150 bn and a potential by 2020 of $200 bn. In rupee terms, this would amount to Rs. 750,000 cr (potential throughout the world) at present, and would increase to Rs. 1,000,000 cr by 2020. Taking India's share at 10% of this (the current competition is amongst India, China and the former Soviet Bloc countries), it would give a potential for India at Rs 100,000 cr by 2020. A very big market indeed! Maybe even bigger than the current IT pie. Companies in advanced countries are now going beyond cost arbitrage, and are outsourcing high technology services too.
Engineering Services Being Offered in India
In the manufacturing sector, the services rendered are: engineering modeling with CAD/CAM services, reverse engineering through simulation and validation. Tool and die design services are also provided.
Included herein are designs with structural analysis, costing and estimation; landscaping, interior design and 3D walkthroughs for civil, architecture and construction sectors. Complete solutions are provided for engineering software development and product life cycle management.
Consulting for process improvement and performance evaluation using tools like benchmarking and quality measurement are offered, as also in the field of global sourcing and logistics.
Majors in the aerospace, hi-tech and telecom industries are eyeing the capabilities and services that engineering services can offer.
A list of well-known engineering service providers in India is presented in Exhibit 1.
There are a number of companies with locally demonstrated capabilities of their competence in engineering design, and these companies definitely have the potential to grow in the ESO sector, considering that the total potential in this field is Rs. 100,000 cr. Given this potential, how can companies, both existing and new ones, market their capabilities?
How can they advertise? Does hosting a website help? How does one go about pricing? Where should one locate the facility? How in short does one go about doing business and growing it? These are the questions that will now be addressed.
Marketing in the ESO Space - The Seven Ps
Marketing of ESO capability involves marketing at the B-to-B level. This requires a lot of modifications to the normal marketing pattern, because we are selling only capabilities and not a product. We do not have to be near the customer, given the communication technologies available today. Promotion helps, but how to do this is the question. Price is important and a high price may indicate better capability. People are absolutely important to the marketing of ESO capability. Physical evidence becomes difficult, especially when companies have signed non-disclosure agreements with their current customers. The non-disclosure agreements become an important aspect of Engineering Services Outsourcing. Process: This is one area where one can leverage upon during the marketing initiative. Place: This factor does not play a major role as long as the company is situated in intellectually stimulating surroundings. These cover all the seven Ps as it is said are the factors in marketing services. These will now be explored in detail, and based on the analysis, recommendations, as to how to go about marketing in the ESO space, will be made.
Product
In the ESO space, that which is being sold is not the product. It is the capability built on the knowledge and facility, and the people in the organization along with access to test facilities to validate the design. For an established organization like TCS, potential customers would indirectly know their capabilities; yet they would have to prove to the new customer, their current level of competency, keeping in mind that technology in all the fields of ESO is continuously changing and moving forward at a rapid pace. Therefore, whether one is a new comer or an `established' player, in this field, the challenge is almost the same.
A reference list of past clients may help, but one cannot bank on this list exclusively, because the canvas of leaders in the engineering field is continuously being repainted by new entrants, as is evidenced in the automobile arena. Companies such as Ford, Chrysler, General Motors, etc., have now been relegated to a place where nobody envies their current engineering capabilities. Even Toyota has announced the call back of a huge number of automobiles in the US. As such, every company will be very careful with its product design, and hence, past references alone may not always work.
But can a company develop an expertise in a field which is required by the customers? For example, an automotive major may be strong in mechanical engineering, but would perhaps not be so strong in electronics and telecommunication fields, or for that matter in the software field. Consider this along with the fact that electronics plays a very major role in the automobile of today, and even more so in the automobile of tomorrow, which would be a hybrid or maybe run on fuel cells or even better, on water fuel systems. These cars would need electronics even to operate them, and a company which develops capability in the field of automotive electronics can definitely contribute.
Therefore, to put it in brief, augmented service with technology is what the customers would be looking at. For this, the ESO company must be able to showcase its capabilities, while displaying its ability to absorb and develop expertise in emerging technologies.
Promotion
The usual advertising and sales promotion strategies used by consumer-oriented industries will not work in the ESO business. Organizing conferences may help; but how should one get the target companies to attend? Ditto with conducting seminars, high profile or otherwise. In the case of advertising, may be some impact could be possible by placing advertisements indicating one's capability in the trade and engineering journals used by the target group. A better bet would be to participate in exhibitions organized by the target engineering companies. For example, if an ESO organization has an expertise in the automotive sector, then it would pay dividends to participate in the Automobile Expos held in the country, where the target company has a design base. This would certainly help. Engineers from the target companies are bound to attend the expo to catch up with the latest developments in their field. This opportunity could be used to attract customers.
Direct mail has been used effectively in the past and may be tried out. Cold calling using databases may or may not help, since design engineers are generally not reachable due to confidentiality reasons. However, it may be worth trying. Having a website may boost the ego of the promoters; Websites do not directly result in sales or contacts in this business.
Price
IT companies have generally worked on a per hour rate for the people who work on the project. The price is quoted based on the number of person-hours the service provider plans for the job. This approach could result in a loss of the order if the time estimate is high; and loss of cash, if the time estimate is low. The alternative to a fixed price for the project may be more acceptable for ESO. The price may be flexible, depending on the complexity of the design. But still, in any case, an estimate of the likely person-hours required would still be essential. It must be remembered that engineering companies generally work on target costs. Therefore, the client would have a target cost for the module which it seeks to outsource. As such, effectiveness, efficiency and economy are the buzzwords in this business.
People
The importance of having people with the right technical caliber cannot be over emphasized. It is the engineers who will drive the ESO organization. As such, recruitment policies have to be tailored for this. Autonomy and recognition are the key factors for employee retention. Empowerment becomes the prime mover for increased productivity. The specialists have to be nurtured, and accorded due importance. In this business, communication skills are not as important as technical knowledge and creative skills. Excessive command and control can prove to be counterproductive. A case in point is the absence of India's traditional business houses in this business.
Regular training in the most advanced countries would be required to keep the engineers updated on the latest developments. If this is well-practiced, the company will build and retain a competitive advantage .
It may be mentioned that external part-time consultants may come in very handy. These consultants should be experts in their respective focused domains in engineering, e.g., in metallurgy. Engineers may be screened by the client to ensure capability. All the engineers allotted to a project will have to individually sign a non-disclosure agreement with the client.
Physical Evidence
Companies have to invest in suitable testing facilities to be able to demonstrate their capabilities. It is not good enough to talk of CAD/CAM. One has to go beyond this to test the components/modules to the relevant international standards and submit to the client the relevant test results. The test equipment requires periodic calibration with national/international testing laboratories. Alternatively, one should have easy access to certified labs with international accreditation available in close proximity. The office and work spaces need to be well appointed. There is no question of any back office culture in this business. The engineers are at the front end!
Process
Process transparency to the customer is very important. An ISO 9000 certification would definitely help in this regard. In this business, delays in deliveries will not be tolerated, and it can be expected that a delay might result in cancellation of orders, apart from penalties and damages. Periodic updates on project status to the clients are a must, supported by the latest communication tools. Most projects will be of considerable duration, and payment may be made in phases, depending on the progress achieved.
Place
The company should be located in an intellectually stimulating environment. This would imply that the location is a major city which has adequate infrastructural and communication facilities, where consultants are available, and where a good standard of living is facilitated. In brief, there must be an ecosystem in the town/city which will facilitate the service. This ecosystem should be able to support technology growth, manpower replacement against attrition, have recognized testing facilities, have prototype production shops, etc. For example, in the field of electronics, mechanical and electrical engineering, Bangalore may be preferred to most other locations in India due to the presence of CEDT (Center for Electronic Design & Technology) in the Indian Institute of Science, ETDC (Electronics Test & Development Center), CPRI (Central Power Research Institute) and CMTI (Central Manufacturing Technology Institute).
Quality, Cost, Delivery and Service
All said and done, what does the customer look for? Simple: QCDS.
Q - Quality
C - Cost
D - Delivery
S - Service
The customer expects quality in the engineering service, which will ensure reliability, safety and risk-free service of the end product, while, at the same time, meeting fully the functional requirements he may specify. Needless to add, the design/service must meet the relevant international and national specifications on quality. The customer would also reward for any innovative ideas implemented.
Cost-wise, the customer does not expect the cheapest. He would expect value for money and, at the same time, want that it should meet his target cost requirement. This calls for a careful and realistic estimation of costs. Remember, the client does not make money on the design, but on the product in which the design is embedded.
Delivery is the key, since time to market new innovations and designs is of utmost importance. If the capability to deliver is not there, the order should not even be accepted. Indians have been known to seek compromises on deliveries; this is really a no-no situation.
As regards service, we talk about updates, service instructions, maintainability of the part, etc., depending on the application. Also, any field failures due to the inputs provided by the ESO company should be avoided at any cost.
Conclusion
With Rs. 100,000 cr at stake, Engineering Services Outsourcing is indeed big business. Existing companies in this business in India and other engineering or non-engineering companies wishing to diversify into this arena should understand the nature of marketing orientation that is required. The first key factor is to establish the outfit in a suitable eco-system that is in proximity to test and development centers. Hiring competent engineers is the next step. Participating in exhibitions organized by the target group is the next major requirement. Organizing seminars as a route to publicity would be an advantage. Pricing as appropriate to the job will definitely be of great help. Quality is adding value beyond the expectations of the customer. This will help to bring in repeat orders. Service starts when the design ends and may be needed throughout the life cycle of the product. Customers expect it.
Welcome to a brand new business field!
Author's Profile
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A Lakshminarasimha, Associate Dean, IBS Bangalore. The author can be reached at lakshmiindia.in@gmail.com
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