by CIO Staff

Forrester: Small Outsourcers Squeezed Out in India

Mar 16, 20072 mins
IT Leadership

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Small and midsize outsourcing companies in India are getting marginalized as customers look for larger outsourcers with big brands and strong financial results, according to Forrester Research.

Staff also prefer to join larger Indian outsourcing companies, Sudin Apte, Forrester’s senior analyst and country head for India, said on Friday. In a tight labor market, small and midsize companies have to compete for staff with large Indian outsourcers and the Indian operations of multinational services companies like IBM and Accenture.

As a result, the revenue gap is widening between India’s smaller outsourcers and the top three, Tata Consultancy Services (TCS), Infosys Technologies and Wipro.

The top three companies are expected to account for 41 percent of India’s outsourcing export revenue in the Indian fiscal year that ends March 31. Three years ago, the same three companies accounted for 26 percent of outsourcing export revenue. The gap is likely to widen further as the revenue growth rates of the top three are almost double that of other Indian outsourcing companies, Apte said.

While the top three Indian outsourcers have annual revenue ranging from about US$2 billion to $3 billion, most of the other small and midsize companies have revenue of less than $500 million a year, except for three companies that have annual revenue of about $1 billion. The small and midsize companies are still growing, but revenue growth is slowing down, and new customer additions have slowed down as well, Apte said.

The small and midsize outsourcers have to differentiate to survive. These companies generally spread their limited staff and monetary resources too thinly among different services and lines of business, according to Apte. “They usually want to be mini-TCSes or mini-Wipros,” he said.

Small and midsize companies are better off if they pick a few service lines, and vertical markets, and focus on creating domain expertise, Apte said. They also have to invest more in their marketing, and in processes offshore, besides investing in skills for negotiations, deal management and customer engagement management, he added.

-John Ribeiro, IDG News Service (Bangalore Bureau)