Design outsourcing a challenge

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The Technology Network

Design outsourcing a challenge
Bruce Rayner
My-ESM

03/01/2005 10:00 AM EST
URL: http://www.my-esm.com/showArticle?articleID=60403950

Here's a news flash: Survey finds the outsourcing of design work is on the rise.

A survey of more than 300 engineering and business managers conducted in December by Electronics Supply & Manufacturing and EE Times offers insight into what, where and why companies are outsourcing. It also suggests some of the causes for low satisfaction levels with the practice.

About 60 percent of respondents said their company outsources some design work today. That figure is much higher-84 percent-for large companies (sales over $500 million). Design outsourcing includes chip and board design, software development and full-system design.

While the lion's share of the outsourced design work goes to consultants in the United States, the survey found that nearly half of all companies outsource design work to Asia. Offshore outsourcing is higher among large companies.

Design outsourcing is no panacea, however. Nearly one-third of the respondents from large companies said design outsourcing was a net liability, compared with 22 percent for midtier companies (sales from $10 million to $500 million) and 13 percent for small firms (sales below $10 million).

Why the difference? For one thing, large companies are more likely than smaller ones to outsource the design of a complete system. Second, large companies prefer to work with original design manufacturers (ODMs) and, to a lesser extent, contract manufacturers, while small and midtier firms favor design consultancies. The rules of engagement are different.

Large companies are more likely to send their design work to China and India. While the intent is to take advantage of low-cost labor, large companies surveyed indicated that after the United States, the most negative outsourcing relationships were in India (25 percent) and China (20 percent). A higher than average percentage of large companies said that managing design outsourcing was "far more difficult than we first imagined."

At the top of the list of complaints cited by large companies is the increase in project risk and the negative impact on the unit cost of the product as a result of outsourcing.

What's the takeaway? Design outsourcing may be on the rise, but don't underestimate the need for effective relationships management.

Methodology

ESM and EE Times sent electronic invitations to 11,000 readers in management positions who are involved in outsourcing decisions. The 303 completed responses represent a plus/minus 5.5 percent confidence interval. The survey was conducted between Dec. 15 and Dec. 31, 2004, by Beacon Technology Partners (Maynard, Mass.) for ESM and EE Times.

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