The Financial Benefits of Outsourcing Engineering Services
Engineering services are essential to the success of any business designing or building physical products, physical infrastructure, software systems or anything else. However, hiring full-time in-house engineering teams costs a lot. That’s why so many companies are outsourcing as their way to get high-quality engineering talent at a fraction of the cost.
The global engineering services outsourcing market is projected to grow at a CAGR of 23.4% from 2025-2030, reaching a value of $2.6 trillion.
This growth is being fueled by businesses realizing that outsourcing gives them practical and financial benefits they can’t find elsewhere. Let’s explore some of the key financial upsides companies stand to gain.
Cost Savings
The most obvious financial benefit is substantial cost reduction. When you outsource engineering needs instead of handling them in-house, cost savings come from:
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Avoiding expensive engineer salaries and overhead. Full-time engineers in markets like the U.S. and Europe have high salary expectations. The average software engineer in the U.S. costs are $123,052 per year, including benefits and taxes. Outsourcing can decrease these labor costs by 50% or more.
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No equipment, infrastructure, or training costs. Outsourcing engineering teams already have world-class tools and infrastructure as well as broad expertise. The client avoids major capital expenditures and learning curves.
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“Pay as you go” flexibility. In-house teams often lead to overstaffing during normal periods in order to handle spikes in workload. Outsourced capacity can scale up and down to precisely match immediate needs.
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Time zone advantages. Distributed teams allow 24/7 development, reducing overall project timelines and costs by up to 67%.
Learn more about software engineering services: https://www.luxoft.com/services/engineering-services.
Software engineers in India and Eastern Europe are highly skilled and far cheaper than their Western counter-parts. Salaries on average are between $29,400 and $46,700, and outsourcing providers can take advantage of a large pool of talent to provide competitive rates. Typically the cost savings are from 50% to 70% of that in using in-house teams.
Access to Specialized World-Class Talent
Another major financial advantage of outsourcing engineering is it allows access to elite talent across multiple disciplines.
Building world-class internal teams requires tremendous and ongoing investment. Retaining top engineers also carries major risks due to high competition and turnover costs estimated at 1.5-2x the annual salary.
Outsourcing engineering to an established provider grants access to specialized veteran talent across software, mechanical, electrical, civil, and chemical engineering as well as user experience design, quality assurance, and more.
These outsourced teams possess domain expertise in fields like automotive, aerospace, telecoms, medical devices, and electronics. Such elite expertise is financially out of reach for most companies to build internally.
Faster Speed-to-Market
Engineering outsourcing also accelerates product cycles and speed-to-market thanks to round-the-clock development. Handing off critical engineering work allows internal teams to focus on core competencies.
According to a Deloitte study, 62% of executives believe outsourcing engineering services enables faster delivery of products and services. Specific financial benefits related to speed include:
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Quicker market entry to seize revenue opportunities
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Faster innovation cycles to stay ahead of competition
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Lower risk of schedule overruns which increase costs
Shorter development timelines also lead to earlier achievement of sales projections and revenue goals. Outsourced engineering is especially beneficial for companies without deep engineering bench strength or needing skills that are not available internally.
Improved Quality and Reliability
Many engineering leaders initially worry about quality and reliability when outsourcing mission-critical initiatives. However, experienced outsourcing partners provide equal or higher-quality outcomes.
Advanced engineering service providers invest heavily in rigorous quality management, including ISO and CMM certifications. Most maintain robust internal standards, testing, code reviews, documentation, and security protocols surpassing what clients could implement internally.
Significant quality advantages stem from the outsourcer’s sweeping domain expertise, technical specialization, and concentration of top-notch engineering talent. Relying on internal-only capacity greatly minimizes risks related to skills gaps, understaffing, or turnover.
Studies by Deloitte, KPMG, and other analysts highlight outsourcing quality as exceeding or matching onshore team performance for a majority of companies. Common improvements cited after outsourcing include:
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Products with higher reliability (less downtime)
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Fewer engineering/programming defects
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More precise matching to specifications
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Better documentation and maintainability
Access to superior-quality engineering ultimately provides substantial financial value by minimizing expensive rework, recalls, and reputational damage.
Innovation and Emerging Technology Expertise
Outsourced engineering also fuels innovation initiatives. Advanced outsourcing partners pour resources into next-generation infrastructure, research projects, and accumulating elite skills.
Areas like IoT, AI/ML, AR/VR, blockchain, 3D printing, quantum computing, and more require massive investment to cultivate internal talent. Partnering with outsourcers who have established expertise in such fields allows the quick leveraging of emerging technologies without major hiring or training costs.
Consider autonomous vehicle systems that blend mechanical, electrical, and software engineering with AI/ML technologies. Very few companies can realistically build internal teams to develop innovations in this space. Outsourced engineering brings such emerging technology expertise to life affordably.
Protection From Economic Downturns
Engineering outsourcing also offers financial protection against market volatility and economic downturns. Unexpected events, as demonstrated by the COVID-19 pandemic, can significantly impact budgets, headcounts, and engineering productivity.
Attempting to scale in-house engineering teams up or down in sync with macro conditions is extremely difficult. Outsourcing offers vastly more flexibility to align critical engineering capacity and costs with business needs.
When markets decline or demand drops, outsourced capacity can be reduced without layoffs or severance costs. Conversely, production can be increased quickly when conditions improve. This adaptability allows closer financial alignment to market realities.
Transitioning Engineering Functions Successfully
The financial benefits clearly illustrate why outsourcing engineering makes strong strategic sense. But how can companies transition critical engineering work successfully?
Keys to unlocking maximum financial value include:
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Take an iterative approach. Start with small, non-critical pilots focusing on new products/technologies to build trust before taking on mission-critical initiatives or legacy systems.
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Choose partners carefully based on industry expertise, engineering depth, communication abilities, and cultural alignment.
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Invest heavily upfront in establishing structured processes, specifications, design protocols, and security controls before scaling up.
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Expect a learning curve as internal and outsourced teams align. Monitor progress closely at first.
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Focus on clear requirements, transparency, and maintaining continuity of architectural vision and tribal knowledge throughout projects.
The Outlook for Outsourced Engineering
The engineering services outsourcing market is projected to continue robust growth as more companies embrace the tangible financial benefits.
Forbes reported that 87% of businesses relying on outsourced product development teams planned to maintain or increase their outsourcing levels moving forward. Perceived risks related to quality, security, and communication have fallen considerably based on successful industry track records.
Grudgingly attributed to the very factors that ought to have resulted in a tarnish for outsourcing—intensifying price competition and shrinking product lifecycles—is outsourcing growth. The clash is between tighter budgets and the impatience to innovate as fast as customers want to be delighted in hyper-competitive global markets.
Disruptive technologies such as AI, IoT, blockchain, quantum, etc., also increase stakes and require increased investment for engineering competency. Such emerging risks are future-proofed financially through flexible, specialized outsourced teams.
Realizing the Promise of Outsourced Engineering
The financial rationale for outsourcing engineering services is quite convincing. Global competition is requiring businesses to achieve more innovation with fewer resources.
Engineering outsourcing provides access to multi-disciplinary technical talent along with expertise in the latest technologies – all at a fraction of traditional costs. The result is enjoying world-class engineering capabilities otherwise out of financial reach.
Unlocking such financial benefits depends on selecting the right partner and investing diligently to build collaboration models. However, the long-term payoff makes engineering services outsourcing difficult to ignore.
The global market for outsourced engineering is growing in the trillions rapidly, and companies have to ask themselves no more ‘if’ but ‘when’. Although the new generation includes outsourcing as an option for access to skilled partners, it’s best to take an iterative approach to outsourcing and integrate them into the innovation initiative to drive better financial outcomes.
Engineering is becoming increasingly distributed and decentralized, and there will be very much no tomorrow! This is where savvy companies will embrace the transition of ‘outsourcing talent’ and use outsourced talent and expertise to bring sustainable cost advantage and fuel disruptive innovation. Such a strategy only makes sense financially, and its financial benefits are going to only grow in coming years as engineering becomes the focus globally.
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