The idea of Detroit outsourcing the design of a truck or car to a company based in India still strikes most experts as far-fetched. But not Jeffrey D. Sage. Over a 28-year career at General Motors (GM) and as a global automotive consultant at IBM (IBM), where he led the design of the innovative Mercedes-Benz (DCX) car plant in Vance, Ala., Sage has watched the evolution of design outsourcing from the inside.
In 2004, he took a career leap by moving from Detroit to Puna, India, to join engineering-services firm Tata Technologies. His goal is to help build a company that can develop a passenger car from concept to finished design. "I think we are only a couple years away from seeing this happen," predicts Sage, now Tata Technologies' chief operating officer. "It is imminent."
Whether or not the Big Three are ready to take such an outsourcing plunge, Tata Technologies is getting ready to serve them. It already employs more than 2,000 engineers in India with experience in designing car interiors, bodies, engines, electrical systems, and more. And they also specialize in related jobs such as designing production lines or analyzing crash-test data.
SEEKING RELATIONSHIPS. Now, Tata Technologies is expanding outside of India. In November, it paid $93 million to acquire Incat, a $150 million design and consulting firm that divides its headquarters between Novi, Mich., and London. Incat employs more than 800 engineers serving clients such as Ford (F), DaimlerChrysler, and Boeing (BA). On Jan. 9, Tata added CEDIS Mechanical Engineering, an auto-engineering services firm based in Stuttgart, Germany.
The two acquisitions are indicative of the next big push by India's outsourcing leaders. They're loaded with top-notch, low-cost engineering talent. What the Indian companies lack are strong relationships with big U.S. and European customers.
But such mergers can also benefit U.S. and European design and consulting firms, which often have trouble finding enough experienced engineers. "For the last five years, we have been resource-constrained," says Incat President Warren Harris, who helped found the company in 1989 and is staying with the merged operation. Incat insists it's not cutting its U.S. engineering team to make room for lower-cost Indians, either. To the contrary, it's looking to hire 100 more experienced U.S. engineers and is offering salaries of $100,000-plus.
"END TO END." The merged company says it's starting to land deals that neither partner would have won on its own. For a truck to be built by a U.S. manufacturer Tata Technologies isn't allowed to name, for instance, it's developing all of the doors, the hood, and equipment hatches.
While most outsourced design shops do less complex work such as interpreting crash-test results or using 3-D computer simulations to search for design flaws, Sage says that's changing fast. More and more auto makers and top suppliers are hiring contractors to handle development of entire subsystems. "Instead of asking for help on a transmission or door panel, they want you design a complete power train," he says. "Outsourcing has been around for decades, but what's new is the depth of work."
That's where Tata Technologies hopes it will shine. The game plan is to serve as an "end-to-end auto design house," says Sage. Most Indian rivals, such as Wipro (WIT), HCL, and Infosys (INFY), are info-tech specialists that got into engineering services because they had staffers with backgrounds in mechanical engineering. Tata Technologies is an offshoot of Tata Motors, India's premier auto maker and one with a long history of engineering. It also works closely with another sister company, Tata Consulting Services, India's largest software and IT services company.
HIRING FRENZY. Tata Technologies differs from most independent U.S. engineering firms, which tend to be small and specialized. Tata Technologies' workers handle most design for Tata Motors, so they have experience in everything from conceptual design to financial production. "If you map out the entire vehicle design process, we have the capability to supply every piece of it," says Sage.
Tata is still hiring anywhere from 100 to 150 additional engineers each month. "If you want engineers out of college, the supply is unlimited," Sage says. When Tata Technologies advertised for 200 experienced engineers last year, recruiters interviewed 1,000 qualified applicants in each of the three Indian cities they visited.
What does this mean for the U.S. engineering work force? Both Sage and Harris believe demand will remain strong at home. Even though Indian engineers earn a quarter of what U.S. counterparts with equal skills make, Indian wages are rising 15% to 20% a year, compared with 5% or less in the U.S., Sage says. So it's only a matter of time before the salary gap closes.
And it means U.S. engineers need to be redeployed to higher-value jobs. "The talent here is overpriced for what it's doing," Harris says. "We can play a big role in freeing up those individuals" to spend more time on innovation.
Engardio is an international senior writer for BusinessWeek
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