India’s Tier-II IT services companies are steadily outperforming larger system integrators, capturing market share and positioning themselves as strong competitors.

Analysts noted that Tier-I companies, previously focused on rivaling global giants like Accenture, are now facing increasing competition from their smaller counterparts.

A BOB Capital Markets report shared that while by FY25, Tier-1 revenue will reach $85 billion, double that in FY15, due to the higher base now, growth may not be as rapid as it was when the base was lower.

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The Tier-II cohort has also been taking away market share from the Tier-I companies due to better execution and their smaller size. Unlike in the past cycles, they have performed better than Tier-I firms largely due to better management teams.

DD Mishra, VP Analyst, Gartner, explained,“Some Tier-II IT services companies are outperforming larger system integrators by focusing on digital revenue streams and avoiding the significant legacy workload burdens many large Indian IT services companies face. These larger companies often concentrate on securing large deals, which come with their fiscal challenges.”  

Growing demand

There is also a growing demand for more flexible and agile IT providers, and a substantial untapped small and medium-size business (SMB) market large players do not primarily focus on. The smaller players who have lower overhead costs, also have a simpler operating model that brings decision-making closer to the customer, he added. “We have observed some of these high-performing smaller players demonstrate greater innovation potential, driving client intimacy more effectively.”

In an earlier interaction with businessline, Pandurang Kamat, Chief Technology Officer at Persistent Systems, said the company can create an advantage for itself over its larger peers with technologies like AI.

“With this technology, we can now compete at much larger tables than what our headcount size would allow, because it’s our headcount plus a suite of AI-powered platforms that make us more competitive to take on larger and more complex transformation journeys for our customers, expanding the universe where we can play, going after a much larger revenue base for us,” he said.