Key service providers in the Indian Auto ESO market

Evolving industry structure

The industry structure of the Indian auto ESO market continues to evolve. There are four types of entities present in the auto ESO market - (i) captives of global automobile players, (ii) subsidiaries of Indian auto/auto component companies, (iii) independent engineering design companies and (iv) Indian IT players - each enjoying unique advantages.

Table 1: Key service providers in the Indian Auto ESO market

Kind of entity	Examples
Captives of global OEMs	GM, Delphi, Ford, Renault, Daimler Research Centre, John Deere, Robert Bosch Engineering solutions
Subsidiaries of Indian auto/auto component companies	Mahindra, Bharat Forge, TACO, KPIT Cummins
Independent engineering design companies	Plexion (88 per cent stake with Mahindra), DC Design, Neil Soft, Tata Technologies
Indian IT players	TCS, Wipro, Infosys, Satyam Ventures, Patni, Geometric Ltd
Source: CRISIL Research

·        Captives - A number of global players have set up their design centres in India to take advantage of the availability of requisite talent pool. The captives handle the maximum chunk of the AESO as of today in India as there are no worries related to IP transfer and domain expertise is also high.

1.       Renault's design centre referred as Design India was set up in Mumbai in 2005 as an observational unit and then transformed into a full-fledged design centre in 2008. The design centre is estimated to concentrate on the overall design process - everything from initial design to the production of mock-ups and prototypes, including the digital design phase.

2.       Robert Bosch Engineering Solutions, a subsidiary of Robert Bosch Gmbh, is the largest design and engineering centre outside Germany for Bosch group. It focuses on engine management, automotive safety systems, driver assistance systems, automotive body electronics, automotive diagnostics as core areas. The company has centres in Bangalore and Coimbatore.

3.       John Deere has its technology and designing centre in Pune established in 2006 for providing services in information technology, engineering, supply management, embedded systems for the company's operations worldwide.

4.       Delphi Technical Centre India provides electronic and mechanical design services to the automotive segments and also electronic design services to consumer good manufacturers. The centre has its core focus on automotive electronics. The centre also concentrates on developing web enabled tools to automate engineering and business processes at Delphi.

5.       General Motors had also established their design centre in India in 2007 at Bangalore with it being an integral part of the GM technical centre in India. The purpose of the design centre was to begin with tweaking the interiors of the global models of GM and the move to developing a full studio capability.

·        Subsidiaries of Indian auto OEMs -

Auto OEMs in India have benefited with the large-scale domestic market and increasing exports justifying investments in research and development. The global parents of the Indian auto players have hence set up technical centres in tie-up with their Indian counterparts. Suzuki has set up a research and development centre along with Maruti Suzuki India Ltd to scale up research for car designs in India as much as its spending in Japan. Similarly, players like Bharat Forge and KPIT Cummins are involved with global OEMs for designing and innovation in product deliveries.

·        Independent engineering design firms: These include companies such as Plexicon, DC Design and Neilsoft. For instance, Neilsoft offers design and detailed engineering services such as design modelling, design validation and design automation across the entire vehicle development programme. These firms are generally small in size and cater to segments other than automotive engineering as well.

·        Indian IT players: This category includes companies such as TCS, Satyam, Wipro, Infosys, etc. These Indian IT giants have entered the engineering service outsourcing industry since its nascent stage in India. Companies like TCS that already offer software solutions for engineering companies have easily expanded their range of services to include product design and development.

Major automotive companies including General Motors, Ford, Toyota and BMW outsource their engineering operations to either third party vendors or captive centres established in India. For example, in 2005, TCS won a major IT and engineering service contract from Scuderia Ferrari for IT and engineering services for its Formula 1 car. DaimlerChrysler established its DaimlerChrysler Research Center (DMRC) in Bangalore to conduct research in the areas of encryption, image signal processing, telematics, fuel-cell modelling, CAD, CAM, CAE and PDM for the company's global requirements. The company has also tied up with TCS for its CAE requirements.

Healthy growth prospects ahead

The India automotive ESO industry can sustain a 25 per cent growth rate, based on the expectation that it will increase its share in the total outsourced engineering and design spend from the current 20 per cent to 30 per cent.

Thus, we estimate India's auto ESO revenues to triple by 2013-14 to $1.8-1.9 billion, assuming a 3-4 per cent growth in total spends on auto engineering and design services over the next 5 years. In comparison, the global auto ESO market will double from $3-4 billion in 2008-09 to $6-8 billion by 2013-14.