A recent Forrester study, Surviving The Offshore Vendor Polarization Puzzle, reveals the plight of Tier 2 and Tier 3 service providers — neither are they growing nor do they have focus. With Infosys, Tata Consultancy Services and Wipro taking most of the share of the outsourcing pie, and the remaining shared among Cognizant, HCL, and Satyam, very little is left for the smaller players.

With even the multinational service providers entering the Indian market, these Tier 2 and 3 providers need to gear up to increase their share in the overall outsourcing market. In an attempt to do so, Forrester analyst Sudin Apte states, “many firms will shed up to 30 percent of their current customers to pursue a more specialized strategy and rebuild competitiveness.”

The study also state that “margin pressures do not allow them — Tier 2 and 3 providers — to invest enough in building specialization or take proactive initiatives such as process consulting or cultural workshops to help customers ramp up. The result? The majority of sub-billion-dollar firms is falling prey to a staff augmentation deathtrap and is increasing headcount without corresponding returns.”

Another Forrester study, The Polarization Of Indian Offshore Providers Accelerates, released earlier in March this year had warned customers “that (those who) are interested in continuing to leverage offshore resources need to plan for the probability of their current offshore provider either going out of business or being acquired.”

The recent study brings out the counterpoint that service providers are now going to be selective about their customers. However, Forrester does leave a note for the customers to “reassess their provider’s survival readiness and review their supplier selection criteria in response.”