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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

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.

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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.

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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.

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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.”

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