Are retail and CPG engineering next growth segment for engineering service providers?

Engineering services traditionally started with the manufacturing industry. Engineering service providers started helping manufacturers in designing and testing cars, aircraft, industrial equipment among others. Then engineering services spread its wings in the software industry and started helping independent software vendors (ISV) in designing, testing and maintaining their software products. Some software engineering service providers are able to differentiate from IT service providers claiming they work on products which require similar rigor as manufacturing products with architect, platform, scalability, security, latency, usability vs. applications.

Now next wave is coming of enterprise platforms which require similar rigor as software products. These enterprise platforms are across different industry verticals – BFSI, retail, healthcare, utilities, travel, logistics, media, etc. These enterprise platforms are the backbone of digital transformation. These enterprise platforms are enlarging the addressable market for engineering service providers beyond manufacturing and ISVs. According to my research, this is the fastest growing segment in engineering services today. Here similar to software products space, engineering service providers will compete with IT service providers.  

Among enterprise platform engineering, retail is starting to stand out. In the last couple of days, quarterly results of three major India IT service providers TCS, Infosys, and Wipro are announced. I was looking for engineering service deal announcements in their results. All three service providers mentioned one engineering deal each and these deals surprisingly are in retail and CPG segment – TCS with a middle eastern retailer, Infosys with Kraft Heinz and Wipro with a US retailer.

Retailers are also investing heavily in Global Inhouse Centers (GIC) or captives. In Manyata Tech Park, Bengaluru, you can find who’s who of the retail industry with their GICs.

So why retail engineering could be a growth driver for engineering service? I can think of two reasons

1. Survival: No industry has been impacted by digital disruption as much as retail has. It primarily led by Amazon. There are so many bankruptcies or near bankruptcies in retail. If retailers need to survive competition from the e-commerce, they need to both join them by building their digital channel and but also think of in-store customer experience with new technologies and personalization.
2. Cost: Retail industry has one of the lowest margins among all industries. So cost is a major factor. They don’t have the liberty to invest heavily in digital unlike some other industries. Retailers need to be prudent with their technology investment hence they have strong value proposition of offshoring by service providers and GICs.

Are there any other reasons I am missing out ?