Outsourced engineering services show solid growth

The downturn strengthened outsourced engineering. Now the recovery is further proving the validity—and cost advantage—of using outsiders to engineer new products.

Rob Speigel, Contributing Editor; Edited by Suzanne Deffree, Managing Editor, news -- EDN, July 15, 2010

The economic downturn also drove work to independent design companies. “Many companies downsized over the last few years, but outsourcedengineering companies did well,” says Adam Tavin, chief executive officer of Focus Product Design Inc, a designengineering company. “The work still needed to get done, even though companies had downsized.”

Analysts note that companies in the electronics industry have recently become comfortable with outsourcing. “In the past three years, more work is getting outsourced,” says Mukesh Dialani, research manager at IDC. “At some level, confidence has grown in what engineering vendors have to offer. Outsourced engineering has been validated with successful outsourcing engagements.”

Outsourced design is attractive in a number of areas. Some companies use outsourcing to keep old products alive while their in-house team focuses on new products. “We saw clients who kept their legacy products going for a small investment in outsourced engineering,” says Rafael Cruz, vice president of engineering services at Avnet Inc. “The new engineering let them continue to derive revenue from legacy products instead of obsoleting them.”

For some companies, including large manufacturers in the United States, design companies have become sources of specialized expertise. Companies are also turning to outside design for expertise they need but don’t have sufficient demand to build in-house. “Companies are wrapping new technologies, such as lighting or wireless capability, around their core competence, and they see outsourcing as a means for quickly adding a new competence from an expert,” says Arrow’s Femrite. “Our customers are focusing much more on the competency of their design partners than having them in their own yard.”

Companies are outsourcing anything from entire products to pieces of designs, such as boards or software. “We see outsourcing needs for a broad range of items, from proof of concept to compliance testing to software development to system-on-module customization to ASI C design,” says Femrite. “Most of the time, companies pursue third-partydesign support for pieces of their system outside their core competence. We see fewer fullturnkey design contracts.”

Emerging technology is also a candidate for outsourcing. For many companies, it’s more cost-effective to buy cuttingedge technology rather than hire for it. “We’re seeing a lot of growth in ‘green’ engineering,” says John Myung, vice president of sales and marketing at Focus Product Design. “In automotive, companies are looking for new battery design. We’re also seeing more design work for companies analyzing solar panels.”

Companies doing outsourced- design engineering range from distributors and component suppliers that support their customers’ product development to specialty design services. “Specialty-design houses [are] specific to different sectors, [such as] medical or industrial,” says Eric Miscoll, a principal at Charlie Barnhart and Associates. “What they have in common is their expertise in building products.”