Engineering Research and Development Services Market Assessment, By Type [Designing, Prototyping, System Integration, Testing, Others], By Application [Automotive, Electronics and Semiconductor, Industrial Manufacturing, Pharmaceuticals and Medical Device

Engineering Research and Development Services Market Assessment, By Type [Designing, Prototyping, System Integration, Testing, Others], By Application [Automotive, Electronics and Semiconductor, Industrial Manufacturing, Pharmaceuticals and Medical Devices, Aerospace and Defense Research, IT and Telecom, Others], By Region, Opportunities and Forecast, 2017-2031F

Global engineering research and development services market is projected to witness a CAGR of 13.58% during the forecast period 2024-2031, growing from USD 422.78 billion in 2023 to USD 1166.60 billion in 2031.

As companies continue seeking further ways to remain competitive in today's fast-moving environment, innovation is increasingly being used as a tool to achieve and sustain market position. Usually, business innovation is time-consuming and, if performed internally, can be expensive. Therefore, so as not to erode the bottom line, companies are increasingly partnering or collaborating with technology providers. Outsourcing the development of technology allows these business enterprises to enjoy the advantage of faster execution and specialized skills that are not available internally. Businesses may quickly secure entry of new products into the marketplace and respond to competitors better while focusing on running the core operations of the business. Outsourcing also allows firms to leverage the latest available technologies and to make use of the best practices, thereby improving the firm's competitive position in the industry.

ER&D services are increasing at a very high rate with emerging technologies such as 3D printing, artificial intelligence, augmented reality, and virtual reality, which are slowly but surely acquiring the right places in the overall technical space of engineering. Implementation of engineering R&D services takes place in diversified industries such as automotive, electronics and semiconductors, pharmaceuticals and medical devices, aerospace and defense, information technology, telecommunications, and petrochemicals. The new energy transition and advancements with regard to AI technology bring new promises in the context of what the industries might be in the future. The sector that primarily demands these services is the automotive sector, especially with an increased demand from the market in the cases of electric vehicles and self-driving options. Similarly, the electronics and semiconductor industries significantly contribute to the ER&D services market due to the ongoing miniaturization of components and the adoption of new technologies. The deployment of AI and GenAI will significantly help financial institutions drive efficiency, target new customers, and serve customers in a personalized manner. For instance, insurance claims, lending, and disbursements can be processed in a matter of minutes.

ER&D services comprise simulation modeling, quality assurance, project management, and technical documentation. The ER&D services sector has been rapidly growing, and improvements are taking place in computers and automation systems. Consequently, the ER&D services market will have enormous growth in the forecast years, owing to technological improvements and the requirement for innovation in various industries.

For instance, in March 2024, Medtronic, an American medical technology company, opened its largest R&D center, the Medtronic Engineering and Innovation Center (MEIC), in Hyderabad, India. The expansion is part of a USD 365.85 million investment over five years to expand the facility and employ 1500 people. At 250,000 square feet of total space, MEIC will provide software engineering solutions and other engineering expertise in the areas of embedded and enterprise software, product security, data engineering, systems engineering, mechanical and hardware design, and quality and regulatory control.

Need for Technological Innovation to Drive Market Growth

In the modern business landscape, firms must prioritize innovation and technological advancement to obtain and maintain a competitive advantage in the market. ER&D services play an important role in this discipline, allowing businesses and academic institutions to overcome R&D constraints and create superior products and services. The use of automated systems, computer technology, and advanced principles such as high-speed computation, bioinformatics, nanotechnology, and data analysis theories in ER&D services has resulted in substantial progress in a variety of industries. Generative AI (GenAI) technologies will impact almost every sector and country going forward. Enterprises have already invested in the cloud, data infrastructure, and large processing power, which will aid AI or GenAI. GenAI will improve productivity and create an innovative impact.

In June 2024, Google LLC developed its latest quantum processor, the Sycamore, which features 70 qubits, an increase from 53 qubits of its previous model. The advancement makes the new processor roughly 241 million times more powerful than its predecessor. Quantum computers hold significant potential to transform fields, such as climate science and drug discovery, by providing computational speeds that vastly exceed traditional computers.

Advent of Industry 4.0 Fueling Market Growth

The ER&D services market is rapidly expanding as industries continue to digitally transform and integrate advanced technologies such as automation systems, computer technology, nanotechnology, and high-speed computation into various sectors. This includes the development of automated production systems, the invention of advanced hospital tools, and the advancement of power systems and energy solutions. Research and development engineers are at the vanguard of this innovation, using data analysis theories, concepts, models, and current business technologies to propel the market forward. Businesses and academic organizations are making significant investments in ER&D services to achieve a competitive advantage through intellectual property development and technical competence.

For instance, in October 2023, SICK AG introduced SICK Field Analytics, an Industry 4.0 on-premises data intelligence platform designed to enhance the performance of manufacturing and logistics operations. This vendor-agnostic platform quickly integrates with any existing machinery or systems, offering real-time condition monitoring and process insights. It collects and aggregates data from various sources, including sensors and IoT devices, and features capabilities for real-time data display, alerts, and trend visualization through detailed dashboards.

Increasing Consumer Demand and Expectations for Better Products to Accelerate the Market

Consumer demand for new high-quality products and services is expanding the demand for global engineering research and development services. This demand produces a domino effect, establishing itself as the key catalyst influencing both commercial and service organizations' strategic decisions. Customers' increasing selectiveness drives innovation and motivates businesses to continue inventing products that meet or exceed customers' expectations. Technological breakthroughs, product refinement, and service innovation are part of the never-ending quality aim that drives market competitiveness. As a result, considerable focus is placed on research and development to stay aligned with evolving consumer demands and remain at the forefront of the industry. This focus on meeting consumer needs drives market growth and fosters innovation and expertise in the ER&D services industry.

For instance, in April 2024, UltiMaker BV launched the UltiMaker Factor 4, an industrial-grade 3D printer designed for light industrial applications. This advanced printer supports engineering materials and features direct drive dual extrusion, onboard print quality reporting, and a temperature-controlled build volume. It provides high predictability and minimal variance, making it ideal for developing and producing process-critical tools and components.

Government Regulations Will Support the Growth of the Market

Governments and regulatory agencies worldwide are introducing new regulations and standards to ensure product safety and compliance. These restrictions are intended to safeguard consumers and uphold industry standards; however, sometimes, they can pose obstacles for market participants. Companies must manage these complicated regulatory regulations, which frequently demand substantial investments in compliance and certification processes.

For instance, in May 2024, the United Kingdom’s Medicines and Healthcare products Regulatory Agency (MHRA) introduced the AI Airlock sandbox model to test and develop AI as a Medical Device (AIaMD) through simulations of virtual and real-world projects. The model aims to address regulatory challenges for standalone AI medical devices, with the MHRA planning to select four to six projects to test various regulatory issues before these devices are deployed in the United Kingdom National Health Service (NHS). The AI Airlock is intended to establish regulatory guidelines for AIaMDs and will involve collaboration with the NHS AI Lab, the Department of Health and Social Care (DHSC), private healthcare firms, and local governments for post-market surveillance of these devices.

IT and Telecom Segment to Witness Significant Market Share

The IT and telecom segment is anticipated to witness the highest growth in market share due to increased digitization as well as digital transformation across industries. As businesses and consumers increasingly rely on digital technologies, there is a growing need for advanced IT and telecom solutions. The proliferation of technologies, such as artificial intelligence, machine learning, 5G, and the Internet of Things (IoT), is driving demand for innovative ER&D services to develop and integrate these technologies effectively. The global telecom industry is modernizing its communication infrastructure to support 5G and 6G technologies. These high-speed, low-latency networks, combined with edge computing and AI, are set to become the foundation of future business operations. Furthermore, organizations across various industries are undertaking digital transformation projects to enhance operational efficiency, customer experiences, and their competitive positioning in the market. This transformation requires substantial R&D investments in software development, cloud computing, cybersecurity, and data analytics, which fall under the IT and telecom segment of ER&D services.

For instance, in May 2024, HCL Technologies Ltd. (HCLTech) announced the acquisition of Communications Technology Group (CTG) assets from Hewlett Packard Enterprise (HPE) for USD 225 million. The deal is expected to enhance HCLTech's engineering services for global Communication Services Providers (CSPs) by providing access to top engineering talent, intellectual property, and direct relationships with CSPs. The acquisition will involve around 1,500 CTG employees and 700 contractors across various countries, including Spain, Italy, India, Japan, and China. Additionally, HCLTech is set to acquire a range of service offerings related to Business Support Systems (BSS), network applications, service cloudification, and data intelligence.

North America Dominates Engineering Research and Development Services Market Share

North America is at the forefront of the global ER&D services market, fueled by significant investments in software, the internet, and healthcare. The region is home to some of the largest global companies, including leading e-commerce and technology firms, which are top spenders in ER&D. Its focus on technological innovation and the smooth integration of embedded software is set to drive substantial growth in the near future. With a robust focus on technological development, North America's engineering sector is set for long-term expansion, supported by ongoing innovation and the convergence of software within traditional engineering frameworks. This strategic adoption of cutting-edge technologies underscores the region’s commitment to leading global market advancements. Consequently, North America stands out as a dynamic hub for engineering excellence, offering a thriving environment for firms to innovate and excel in an increasingly competitive and technologically sophisticated landscape.

For instance, in June 2024, Evonik Creavis GmbH’s strategic innovation unit and business incubator, Creavis, launched an innovation satellite with laboratories and offices in the Greater Boston area, Massachusetts, the United States. This facility will initially focus on research and development in healthcare innovations, including nucleic acid-based medicines. Evonik’s Venture Capital initiatives in the healthcare sector will gain from its positioning in North America's prominent life sciences cluster.

Future Market Scenario (2024 – 2031F)

Companies are expected to increasingly invest in research to develop cutting-edge solutions in areas such as AI, machine learning, and advanced manufacturing.

The push towards digital transformation across various sectors will drive substantial growth in ER&D services as businesses will need to integrate new technologies such as IoT, 5G, and blockchain into their operations.

As environmental concerns drive demand for more sustainable technical solutions, ER&D efforts are expected to shift toward developing green technologies and sustainable practices, such as energy-efficient systems and eco-friendly materials.

With the growing complexity of digital infrastructure, investment in cybersecurity R&D will increase, and companies will focus on developing advanced security solutions.

Key Players Landscape and Outlook

The competitive landscape of the global engineering research and development services market is marked by a mix of established players and new entrants, creating a dynamic environment that spurs innovation. Companies are constantly striving to differentiate themselves and gain market share, often through strategic partnerships, mergers, and acquisitions to enhance their capabilities and expand their geographical footprint. Heavy investments in research and development are being made to produce advanced products and solutions that meet shifting consumer preferences and industry demands. This competitive intensity is driving ongoing improvements and contributing to a vibrant and evolving market ecosystem.

In June, Cognizant Technology Solution Corporation agreed to acquire Belcan LLC, one of the leading global supplier of ER&D services, for USD 1.3 billion. Belcan provides mission-critical digital engineering services across various industries, including aerospace and defense. The acquisition will expand Cognizant's ER&D capabilities, built upon its IoT and digital engineering leadership, and establish a leadership position in the high-growth aerospace and defense industry.

In April 2024, Infosys Ltd. agreed to acquire in-tech GmbH, a German engineering R&D services provider, focusing on the automotive industry. The strategic acquisition strengthens Infosys' capabilities and demonstrates its commitment to global clients in their digital engineering journey. in-tech offers services such as system design, consulting, advanced electronics platform development, and automotive-specific software and hardware validation.