Over the 15 years I have been working in India I have worked with several Engineering Service Providers (ESPs) to deliver a range of services to clients in the automotive and off-highway industries. The relationships have ranged from single project expert support to joint-venture partnerships.

Through this range of experiences, I have been able to see that the biggest common problem these companies face in selling their services in India is meeting the price expectations of the client whilst maintaining their margins.

A common scenario is that the ESP on receiving the RFQ from the Indian client finds a previous proposal for a similar piece of work. Minor modifications are made before the detailed proposal is sent which has largely the same scope, deliverables and consequently price as for their previous, non-Indian client.

The client responds by saying that their price expectation or budget is c.50% of the price being offered by the ESP. On hearing this the ESP’s sales and engineering teams figuratively throw their hands in the air and say something along the lines of “they don’t understand the value”. They may also consider it merely a negotiating tactic.

Start by Appreciating that the Indian Client’s Budget Constraints are Real

ESPs frequently fail to appreciate that Indian OEMs have less money to spend on an engineering programme than a Global OEM. The selling price of a Volkswagen Golf in the UK ranges from £20,000 to £30,000. Volkswagen sold over 730,000 Golfs in 2018. Meanwhile a similarly sized car from Tata, the Nexon has a selling price of Rs.6.5 lakhs to Rs.10lakhs (£7,200 to £11,000). Tata sold 50,000 Tata Nexon’s in 2018. Clearly, when amortising R&D costs over each vehicle Volkswagen can afford to spend a lot more on developing the Golf than Tata Motors can on the Nexon. And this is without taking into account that Volkswagen shares the same platform across more models and brands than Tata does the Nexon.

Once the ESP appreciates that their Indian client legitimately has less money to spend on design and development projects than their European or North American counterparts they can take one or a combination of the following options to meet the price expectation profitably.

1. Reduce the Level of Deliverable to Meet the Specific Requirements of the Client

The Indian client’s requirements are typically lower than their European or North American clients because in many cases the legislative requirements in India are less stringent (although this is narrowing as seen with the introduction of Euro6 equivalent emissions norms in April 2020) and because the expectations of the consumer are lower.

One answer then to meeting the lower price expectations of Indian clients is to reduce the level of deliverables to their minimum requirement level. Don’t over-engineer the solution. The law of diminishing returns also applies to engineering services. As such clients pay proportionally more for each incremental improvement in performance. Recognising that the purchaser of a £15,000 Tata Harrier isn’t expecting the same level of performance as £45,000 Jaguar F-Pace the ESP can modify the project scope accordingly.

In my experience the executives of the ESP often understand this. The problem is the implementation further down the organisation. It can take a considerable amount of work to review each part of a service offering and work out what can be reduced or eliminated.

Then there is the fear that this lower level deliverable will negatively impact the perception of the ESP’s brand. Further it could increase the risk of legal action from the client for inadequate deliverable or even meeting legal requirements that may come in the future.

The calculation from the ESP could well be that for the relatively small size of the Indian market compared to their other markets it isn’t worth the effort and risk. However, with that attitude it will always remain a small portion of their global revenues.

2. Use Lower-cost In-territory Engineering Resources

A common solution is for the ESP to reduce its engineering resource costs by setting up a capability in India. The ESPs that have been the most successful in India tend to be those that have significant resources in the territory. Once such a resource has been created activities can be shared between the offices according to the skills and capabilities required. Having local resources also helps with client liaison, project management and shows commitment to the client and the market which is viewed positively.

However, running an overseas operation can be expensive in the short term. Particularly if an ex-pat is required to run it. A certain scale is required before any economies will be seen. A solution to this could be to outsource certain tasks to a third party with resources in India. Once the model has been proven and a certain scale has been reached the ESP can then setup its own operation in the territory.

  1. Eliminate Unrelated Overhead from the Price

Another option for reducing costs is to remove unrelated overhead from the project. Large, multi-attribute ESPs tend to have expensive infrastructure such as proving grounds or engine test cells. The depreciation expenses are usually distributed evenly over the total number of engineering hours estimated for the year regardless of the activity. Hence a proportion of the price that a client is paying for a CFD analysis of an engine cooling jacket is going towards the depreciation of a climatic wind tunnel which is delivering no value to the project.

Considering the relatively low percentage of hours for Indian projects it should be possible to exclude those hours for the overhead calculation and distribute the costs over the non-Indian projects. This can be done for a limited period while the business is being established.

“Strategic” Discounting Hurts the ESP and the Client

Unfortunately, rather than taking one or more of these options many ESPs simply offer a discount, reducing their margin and taking the view that they will make money on future projects. However, as the disparity in budgets is unlikely to change in the short term, this is unlikely to happen if steps aren’t taken to reduce the costs of delivery. After several loss making projects the ESP may decide that it is not possible to create a profitable business in India and withdraw from the market. This has negative consequences not only for the ESP in lower revenues but also for the Indian clients who end up with fewer options.


In summary, the budgets for engineering services in India are lower than in Europe due to the lower volumes and selling price of the product. However, the deliverable requirements are also lower due to lower regulation levels and customer expectations. As such ESPs can meet the lower price point by reducing their deliverable level to the minimum acceptance level of the client. ESPs can also reduce their costs by using resources in India and by removing unrelated overheads from their hourly rates for India customers at least in the short-term.

After several loss making projects the ESP may decide that it is not possible to create a profitable business in India and withdraw from the market. This has negative consequences not only for the ESP in lower revenues but also for the Indian clients who end up with fewer options.

I would be very interested to receive any thoughts and examples on how Engineering Service Providers (or companies in general) can meet the price expectations of Indian customers. Please comment below, private message or email me at john.roebuck@caepro.com


John Roebuck

Managing Director E: john.roebuck@caepro.com