The Engineering Services Industry Report

The trillion-dollar global engineering services market continues to see steady compound annual growth rates as the sector benefits from globalization and steady economic growth in developed and developing countries as Internet penetration increases, populations grow, and economic activity rises around the world. The need for additional infrastructure drives innovation in the sector as suppliers focus on newer, more efficient methods for the designing and constructing processes. Growing infrastructure is also causing engineering service providers to bolster their skills and interact with other providers to satisfy client demands.

Key Market Trends

The engineering services industry is being highly impacted by technological advancements, including the adoption of the Internet of Things (IoT), artificial intelligence (AI), virtual reality, augmented reality, 5G, software as a service (SaaS), engineering analytics, quantum computing, and blockchain on a global scale in a wide range of capacities across different sectors. Engineering service providers must adapt their business models to focus on emerging technologies and their integration with manufacturing and engineering services, using the IoT to improve production processes and enhance energy use, resource allocation, and asset management. This adaptation is crucial to realize the full potential of these growth opportunities. These technologies include data, sensors, embedded electronics, machine-to-machine adoption, and other digital transformative solutions such as automation and smart manufacturing to optimize production processes and supply chain management.

Engineering services companies also invest in creating smart cities, low-code development, and environmentally friendly building services.

As architecture, design, and engineering projects continue to become highly complex, firms require significant input from engineers of diverse backgrounds. Demand for such services is expected to grow significantly in the coming years.

Growth in the engineering services industry is also stimulated by circumstances that include:

• Increasing technical complexities regarding product development and manufacturing
• A need to reduce costs
• Shorter product lifecycles
• Demand for innovation
• Increasing tie-ups between ESPs and Original Equipment Manufacturers (OEMs)

As clients demand more complex solutions and shorter product lifecycles, there is a growing need for the use of subcontractors through the outsourcing of engineering services. Shorter-duration solutions result in renewed managed service contracts, helping engineering services outsourcing businesses to perform well. Additionally, some engineering companies opt to use outsourcing of these services as an extension of their own capabilities.

Many sectors enlist engineering services, including automotive, industrial manufacturing, healthcare, chemical, aerospace, telecommunications, IT, energy & utilities, and others. The telecommunications industry is leading the demand for engineering services as demand for global connectivity through voice, data, and Internet services increases. Telecommunications companies need engineering services to expand and optimize their networks and provide infrastructure for cloud computing. This reliance is only expected to continue to grow as global connectivity needs continue to evolve.

The right resources, the right process, the right buyer – the right time is now.

Other sectors leading to heavy demand for engineering include the automotive, construction, electrical engineering, and civil engineering sectors.

Engineering in construction end-use is seeing accelerated growth, as there is a significant demand for infrastructure development and urbanization trends. Tech advancements in construction methods, such as Building Information Modeling (BIM), prefabrication, and sustainable building materials, are also shaping the landscape. These shifts require engineering expertise for designing energy-efficient systems and integrating renewable innovations into projects. This is creating great opportunities in emerging markets and in private sector investment.

Electrical engineering is on pace for rapid expansion thanks to its key role in the integration of digital technologies across many industries, the advancement of renewable energy, and the development of smart infrastructure. This growth stems from the rising demand for skills regarding new technologies that are essential for optimizing industrial processes and improving connectivity. Further, the global demand for renewable energy sources is driving a need for electrical engineers who can design efficient energy systems and integrate them into existing grids. Adopting electric vehicles and their associated infrastructure also creates opportunities for electrical engineers in areas such as battery technology and power electronics.

Engineering firms that specialize in environmental consultancy, pollution remediation, and sustainable design are playing critical roles in advancing environmental efforts to shape a more sustainable future through innovative environmental solutions. This is due to escalating global concerns and regulations aimed at addressing environmental issues, including emissions control, waste management, and environmental impact assessments.

M&A

As delivery methods for engineering services continue to change, engineering firms must either look to acquire new technologies or diversify into higher-value advisory services and focus on forming strong client relationships. Mergers and acquisitions are a resourceful path to establishing these services in a highly competitive market.

M&A strategies are also vital to creating growth and uncovering new strategic pathways. Larger companies look to acquire smaller companies in order to remain relevant, close talent gaps, expand to new regions and strengthen their portfolio of offerings. This increased consolidation results in the prevalence of more one-stop service providers.

Because larger engineering services firms have more developed infrastructure and economies of scale, they are able to easily outbid smaller firms. This makes it problematic for the smaller firms that are trying to keep up and stay profitable. As a result of such challenges, many small engineering services companies are forced to rethink their options and consider partnerships with larger firms through acquisitions.

Additionally, private engineering services companies may face succession issues because they typically have one or two founders who eventually plan to retire. When these particular business owners choose to exit the company, in many cases, the next generation either cannot afford to buy out its departing leaders or is unwilling to do so. In these situations, M&A transactions are an ideal way for middle-market leadership to solve succession-planning issues, form a strong exit strategy, and set up the future trajectory for the company.

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