Digital Engineering spend set to increase by 1.7X, crossing USD 1 Tn by 2025, says Zinnov

~ Metaverse, 5G, and Digital Thread will catalyze enterprise digital transformation over the next 3 years ~

NEW YORK, Dec. 1, 2022 /PRNewswire/ -- The appetite for digital will continue to rise unabated over the next 3 years, fueled by macroeconomic factors including rise in defense spending, increased semiconductor usage, and a heightened focus on sustainability. Zinnov's analysis reveals that Digital Engineering spends will constitute nearly 53% of the overall Global Engineering R&D (ER&D) spending by 2025, owing to the unrelenting pace of innovation across industries. The study titled, "The Unabated Rise of Digital Engineering," is a benchmark for business leaders across verticals to identify strong partners for faster and more efficient deployment of ER&D-led services initiatives across geographies. Apart from evaluating the Global ER&D landscape, the study also estimates the Global ER&D spend by organizations across verticals. This spend will grow at a 6% CAGR to touch USD 2.03 Tn by 2025, as enterprises double down on their digital investments to fortify their market positions.  

At ~53%, North American enterprises contribute to the largest share of the overall ER&D spend, aided by higher software penetration in the region. In fact, by 2025, Internet firms will account for more than half of the global ER&D spending, the study notes. APAC continues to grow steadily and is poised to surpass Western Europe in the next 12 months. This growth stems from the presence of Hitech verticals in the region, where companies are investing in new-age technologies such as 5G, Metaverse, Digital Thread, and Cloud/AI.

Zinnov believes that even though enterprises' digital priorities may shift, there are a few frontrunners that are catalyzing digital transformation:

Metaverse – Rising investor interest and investments from large tech firms are accelerating interest in Metaverse. The technology is rapidly evolving with sales and customer engagement emerging as prominent themes, and use cases expanding beyond gaming. Metaverse's capability to provide an immersive digital experience that seamlessly blends physical and virtual worlds, lends to Retail and Media use cases.

5G – With 5G estimated to account for 40% of all mobile connections by 2026, enterprises across industries are exploring a plethora of use cases with diverse and dynamic network requirements. This has led Telecom players across the value chain (Telco operators, Network Equipment Providers, Semiconductor companies, etc.) to work on multiple 5G-enabling features and solutions. Some prominent use cases that provide major opportunities for ER&D Service Providers include Network Slicing, Edge Computing, 5G C-V2X, and Disaggregated Networks.

Digital Thread – Smart Manufacturing is increasingly becoming table stakes, with Digital Thread incorporating 'intelligence' at every step – from design, manufacturing, supply chain, to insights, and services. Enterprises are focusing on the IT/OT integrations through Digital Thread by connecting products and creating a flow of information about a product's performance and use from design to production, sale, use, and disposal. From smart manufacturing, remote monitoring, predictive maintenance, to digital twins and asset monitoring, enterprises are partnering with the Service Provider ecosystem to accelerate their Digital Thread-led initiatives.

Cloud & AI – 90% of organizations will have a hybrid Cloud model by 2024, fueled by factors such as cost efficiency, scalability, and agility. 47% of enterprises have dedicated Cloud COEs today, and are collaborating with and investing in Cloud start-ups now more than ever. Also, Service Providers are increasingly working with hyperscaler partners to provide scalability for enabling faster GTM for enterprises. With the global AI market size set to touch USD 127 Bn in the next 3 years, Services-led verticals are leading AI investments to drive better customer experience. AI-powered banking, drug development, and autonomous driving are some of the major enterprise investment areas.

Speaking about the study, Sidhant Rastogi, Managing Partner, Zinnov, said, "Technology is truly at the core of companies across verticals, even in traditional enterprises such as Banks and Industrial companies. The last couple of years have emphasized the criticality of enterprises moving into a digital space from a physical construct, and also transformed the way they provide seamless customer, employee, and partner experiences digitally. This has translated to the increased Digital Engineering spend that enterprises are leveraging to build new digital products and experiences, as well as digitally enable their existing products and services. Enterprises are breaking their legacy barriers and enabling change in operations across the technology gamut."

"As enterprises usher in the next wave of growth, they are grappling with the widening Digital Engineering talent gap. The current gap of 4.46 Mn tech professionals will nearly double to 8.04 Mn by 2026. Enterprises are leveraging a three-pronged approach to bridge this gap – partnering with Service Providers to accelerate their product roadmaps by bringing in product innovation; leveraging Automation to bring in efficiencies; and exploring the gig economy as a talent acquisition strategy. With the macroeconomic scenario evolving rapidly and the heightened focus on digital skills in technologies such as Metaverse, Cloud/AI, Automation, etc., across verticals, Service Providers will play a more critical role in product development in the future."  

Zinnov's Assessment of ER&D Service Providers

Zinnov's assessment of global ER&D Service Providers this year is unique because it captures the SPs' depth of hyperscaler partnerships to enable services across consulting, design, building applications and modernization, integration and testing services in the ER&D space. The study covers SPs' electrification capabilities, along with the geographic evaluation of high spending regions such as the US and Europe, where the primary parameters analyzed include investments, client success, and delivery capabilities for Engineering services.

For this study, Zinnov evaluated ~50 Global ER&D Service Providers across the following areas:

Overall

• Overall ER&D Zones
• ER&D Zones – Small and Medium Service Providers 

Horizontals 

• Digital Engineering
• Digital Engineering – Small and Medium Service Providers
• Data & AI Engineering
• Data & AI Engineering – Small and Medium Service Providers
• Experience Engineering
• Experience Engineering – Small and Medium Service Providers
• Industry 4.0
• Overall Hyperscaler Services
• Hyperscaler Services – Small and Medium Service Providers
• Hyperscaler Services (AWS) – Top 10 SPs
• Hyperscaler Services (Microsoft Azure) – Top 10 SPs
• Hyperscaler Services (Google Cloud) – Top 10 SPs

Verticals: Automotive, Aerospace, Consumer Software, Enterprise Software, Industrial, Semiconductor, Telecommunication

Micro-verticals: Software Platform Engineering, Telehealth, and Electrification

Service Providers evaluated: Accenture, Accolite Digital, ACL Digital, AFRY, Akkodis, Apexon, Aspire Systems, AVL, Bertrandt, Brillio, Capgemini, Caresoft Global, Cognizant, Cyient, Daffodil Software, EDAG, eInfochips, Encora, EPAM, Expleo Group, e-Zest, FEV, Global Logic, Globant, GS Lab|GAVS, Happiest Minds, HARMAN DTS, HCLTech, IAV, Ignitarium, Infovision, Innominds, Intellias, Itransition, Kellton, KPIT, L&T Technology Services, Marlabs, Mphasis, Nebula Cloud, Ness Digital Engineering, Persistent Systems, Quest Global, R systems, Sacumen, Sasken, Softdel, Sonata Software, Tata Elxsi, Tata Technologies, TCS, Tech Mahindra, Trigent, UST, Virtusa, VVDN Technologies, Wipro

¹Z1000 represents Top 1000 global ER&D spenders across 20+ verticals

About Zinnov Zones

Zinnov Zones is an annual rating published by Zinnov which assesses Global Service Providers based on their competencies, capabilities, and market success. Since 2009, Zinnov Zones (previously known as GSPR – Global Service Provider Ratings) has become one of the most trusted reports globally, for both enterprises and Service Providers to better understand the vendor ecosystem across multiple domains such as Digital Transformation, ER&D Services, IOT, HIA, and Media and Entertainment.

This is the thirteenth consecutive year that Zinnov has assessed Service Providers for their ER&D capabilities. The detailed ratings and contact information of Service Providers are available at: https://zinnovzones.com/ratings/e-r-and-d-services/overall/2022  

About Zinnov

Founded in 2002, Zinnov is a global management and strategy consulting firm, with presence in New York, Santa Clara, Houston, Seattle, Bangalore, Gurgaon, Paris, and Pune. Over the past 20 years, Zinnov has successfully consulted with over 250+ Fortune 500 enterprises to develop actionable insights to help them accelerate their Engineering journeys to create value – across dimensions of both revenue and optimization. With core expertise in Digital Engineering, Digital Transformation, Innovation, and Outsourcing Advisory, Zinnov assists clients by:

• Growing revenue for companies' products and services in newer markets through account intelligence, market entry, and market expansion advisory;
• Advising global PE firms in asset shortlisting and target evaluation, commercial due diligence, and value creation;
• Helping global companies outline and drive their open innovation programs, design and operate accelerator programs, and enable collaboration with start-ups across specific use cases and predefined outcomes;
• Enabling global companies to develop and optimize a global engineering footprint through center setups, and technology and functional accelerators to achieve higher R&D efficiencies, innovation, and productivity;
• Structuring and implementing Digital Transformation levers enabled by technologies like AI/ML, Cloud, IOT, and RPA.

With their team of experienced consultants, subject matter experts, and research professionals, Zinnov serves clients from across multiple industry verticals including Enterprise Software, BFSI, Healthcare, Automotive, Retail, and Telecom in the US, Europe, Japan, and India. 

For more information, visit http://zinnov.com.

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