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Architectural and Engineering Services in India: ISIC 7421

Industry Overview | 01 Mar 2011


  • Indian architectural and engineering services grew by 5% annually between 2000 and 2010 and is predicted to continue growing, accounting for increasing popularity of outsourcing these services to India.
  • Total value of architectural and engineering services reached INR84 billion by the end of 2010. The demand for these services is very cyclical, with high growth in 2004, 2008 and 2009 (11%, 15% and 10% correspondingly), and very low or even negative growth in other years, highly dependent on fortunes of the domestic construction industry. The main buyers of the services are business, with 94% average value share of the market. Government follows with a 4% share, and households have negligible importance at 2% of the market. Yet, by the end of the decade government and households were equally unimportant at 2% of demand each, and companies accounted for the rest. Construction is the main customer segment for architectural services and booming construction in the country gave an additional boost, although some also consider that cheap, but high-quality architectural and engineering services actually gave construction a boost. For engineering services, the main demand comes from automotive, telecom and aerospace industries.
  • Local service providers clearly dominate architectural and engineering services as their turnover exceeded the size of the domestic market with INR91 billion in 2010. The category of engineering services creates the largest proportion of the turnover of local players, with 41% share on average. Other consultancy follows in importance with 32% average share. Architectural services provide 23% of the turnover, leaving urban planning the smallest sector with 4% of local players’ turnover. The recent rapid growth took place due to several reasons: skilled human capital in India in this field, large research and development expenditures by Indian companies in recent years, and growing outsourcing of the services to India due to cheaper prices for skilled labour.
  • Imports are not significant for the industry, given India’s skilled and cheap labour, making it harder for other countries to compete in Indian architectural and engineering services. Share of foreign service providers in India was marginal and trade partners varied over the years, depending on specific deals concluded.
  • With numerous companies in operation, the industry remains fragmented. Engineering and architectural services is attractive and foreign companies are trying to capitalise on this by entering into partnerships with local companies: for example, Nelson, a very large international architectural and interior design firm formed a strategic partnership with SPACE which operates in numerous locations, including India. The industry is increasingly becoming a target for outsourcing of these services by international companies, being able to offer good quality service with notably lower costs than the majority of its foreign counterparts. Among the larger architectural and engineering services outsourcing companies are CAD Outsourcing Group and 3DCities India, which provide architectural, 3D and 2D modelling for various types of real estate. However, to remain competitive in outsourcing in the future, the companies should focus more on specific services, as customers and markets are not only focusing on the price of services anymore.
  • While exports remain relatively low for this service industry, their share increased from 1% of total local players’ output in 2000 to 5% in 2010. Regardless of the relatively small importance, exports increased in value by 22% each year during the decade. Similar to imports, export destinations depended on specific deals that were concluded for engineering or architectural services between Indian and foreign companies. Still, it is believed that while so far only a small component of Indian software and services exports, the architectural and engineering services exports has the potential to become the next big article for India.
  • Business suppliers constitute the largest part of the costs for the industry, on average 65% of the total. Labour costs follow in importance with a 33% average share. However, spending on suppliers grew faster than labour and related costs; therefore the industry spent an increasingly larger portion of its operational costs on suppliers. However, keeping labour costs under control, the industry managed to improve its profit margin EBITDA, which grew from 27% of total turnover in 2000 to 40% by the end of 2010. According to a recent survey, Indian architectural and engineering services will see its revenues per employee and margins only improve in time as it takes more time for an employee to become fully productive in this industry and there is a lot of potential for improvement as the industry matures.
  • The outsourcing to India is expected to continue, with India’s share expected to constitute as much as 25% of the world’s total outsourced architectural and engineering services by 2020. Still, growth largely rests on the premise that construction continues its growth and India remains an attractive outsourcing destination both in terms of prices and quality. Turnover of local service providers is expected to post 11% average annual growth over the next six years given positive forecasts for the development of the Indian economy.

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