Tier-2 Indian IT Providers Creating A Strategic Position In The Offshore Mkt

Tier-2 IT service providers will create a strategic position for themselves in the Indian offshore IT market and continue to play a key role in the buyer portfolio through focused differentiation initiatives and unique value proposition; according to the Survival of the Differentiated – The New Mantra of Success for Tier-2 Service Providers report by Everest Group.

The study examines the Tier-2 Indian IT service provider landscape and illustrates the distinctive value propositions of five leading Tier-2 IT providers: Headstrong, Microland, MindTree, MphasiS and Sonata Software.

Everest group estimates the Indian offshore IT services market at US$27 billion, which commands about 50 percent of the global outsourcing industry. Tier-2 or mid-sized IT service providers in India earn revenues between US$100 million to US$1 billion and currently account for approximately 30 percent of India’s offshore IT services market.

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But, these tier-2 providers continue to face increased challenges in form of aggressive buyer-driven service provider portfolio rationalisation, increased competitive pressures from global and Tier 1 Indian majors, limited mindshare of capabilities among global buyers, and market speculation about acquisition in this segment. The study states that despite the challenges and uncertainty associated with their segment of business, Tier-2 service providers can continue to play an important and meaningful role by identifying the need for differentiation and focusing on specialization. Moreover, these suppliers need to re-evaluate their portfolio of offerings to identify select core offerings that will drive their growth, along with investing in building deep vertical specific expertise catering to specific buyer needs.

“Tier-2 providers have carved out an important role in the market and, when leveraged optimally, can often deliver superior value in comparison to larger providers,” said Eric Simonson, Managing Partner, Research. “While the value proposition for small and mid-sized buyers is well understood, the success of Tier-2 service providers in serving large buyers is contingent on their ability to demonstrate a differentiated value proposition.”

“Tier-2 providers typically differentiate themselves by specialising along three distinct themes: industry vertical, service offerings and geographic market focus. In select instances, service providers combine two of these themes to create ‘super specialised’ offerings,” said Amneet Singh, Vice President, Research.

Jimit Arora, Research Director, added that the examined five Tier-2 providers recognised the need for differentiation and specialisation in an intensely competitive marketplace and are well-positioned to see long-term success.

“‘Generalist’ or sub-scale providers need to re-evaluate their portfolios and select core offerings and focus segments that will drive differentiation in the broader marketplace,” said Arora. “Additionally, providers must build deep vertical-specific expertise to demonstrate differentiation in light of increased buyer emphasis on industry knowledge for ADM (Application Development and Maintenance) services.”