However, over 20 mid-size service providers with annual revenue in the range of $100 million to $1 billion still account for about 30 percent of the business, according to Everest. Smaller players with less than $100 million in annual revenues account for another 10 to 15 percent of India's offshoring revenue.
There are problems ahead however for mid-size outsourcers, according to Everest. Smaller providers are losing out as large customers consolidate the number of service providers they use.
As competition heats up from the larger players, some mid-size providers may lose out because they do not have the "mindshare" or recognition of global customers, Arora said. Mid-size players also get often talked about as targets for acquisitions, which may drive away potential customers, he added.
The problem is particularly acute for "generalist" companies that have attempted to clone large service providers in their service lines and strategies. They are likely to struggle or get acquired, Arora said. Some of them are dependent for most of their business on a few customers, which is a high risk, he added.
The generalist player is competing mainly on price with the larger players, and this is not a sustainable model in the long term, Pai said. Even if such a business is acquired, it will not be at high valuations because the large companies can instead expand organically, he added.
Mid-size IT service providers are however likely to remain relevant and continue to play an important and meaningful role in the future, according to Everest. But first they have to specialize and differentiate, Arora said.
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, he added.
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