IT's growth search takes them to doors of mid-market firms
India's $280 billion-plus technology outsourcing industry is expanding its focus to the underpenetrated smaller and mid-market enterprise segment, chasing growth beyond its traditional base of Global 2,000 and 5,000 companies in a sluggish market.Industry watchers see strong opportunities as corporates with annual revenues typically between $1 billion and $5 billion accelerate digitisation amid the rapid rise of artificial intelligence (AI).Fundamentally, as growth in the larger clients has been sluggish, IT services companies are looking at portfolio diversification, and the mid-market offers strong opportunities in this space, said Jimit Arora, chief executive officer of US-based research and analyst firm Everest Group. 'For mid-market companies, tech-enabled transformation deals are largely greenfield opportunities, and they are looking to leapfrog prior S-curves and move to value creation through AI,' he said.While the large and mid-tier IT service providers did not respond to queries, industry experts said the emergence of AI and ongoing digitisation have compelled smaller and mid-sized corporates to beef up investments in cloud, cybersecurity, and broader tech transformation. Mid-market enterprises are typically late adopters of technology. Until now, their tech adoption was largely limited to back-office functions and basic IT infrastructure—areas served by small and mid-sized outsourcing firms Now, as many of these enterprises across the world scale up and move from the unorganised to the organised sector, their need for advanced technology transformation is rising sharply.Several factors are driving large IT companies to target these clients, experts said.'They are often more agile in decision-making, present a lower barrier to entry, and offer greater opportunities for services such as tech modernisation, cloud adoption, cybersecurity and managed services,' said Nitin Bhatt, technology sector leader at EY India.Another industry executive pointed out that large, conventional clients of IT firms, are increasingly setting up global capability centres (GCCs) in low-cost regions like India, which help them insource their technology capabilities. This has further pushed India's strong outsourcing companies to scout for growth beyond.India's IT outsourcing business grew slower by low single digit at around 3% in constant currency terms in FY25 to more than $280 billion. Traditionally, a double-digit growth sector, the IT industry grew slowest in decades in FY24 at 1.2% and is expected to grow by 3- 5% in FY26 due to weak technology demand post high-growth Covid phase and disruption from AI.Large enterprises still account for over 60-70% revenues of the top five Indian IT services firms—Tata Consultancy Services (TCS), Infosys , HCLTech, Wipro and Tech Mahindra , according to data intelligence platform UnearthInsights.However, beyond the Global 2,000 list lies a less-explored segment of over 40,000 companies worldwide, each generating between $500 million and $5 billion in revenue, Bhatt said.Recognising this opportunity, IT companies have now developed tailored and often sector-specific go-to-market strategies and playbooks for mid-market firms.According to data shared by Bhatt, the segment has a total addressable market for tech services estimated at $300-400 billion.As per Everest data, mid-market in North America alone is a $110-130-billion IT services market and is expected to grow at about 8-10% compound annual growth rate (CAGR) over the next three years.Presently, the overall technology spend across corporates is around $1.3 trillion.Arora of Everest sees the diversification thesis play out in the IT services sector, which shows companies looking at new frontiers for growth – be it newer geographies of Asia Pacific, Latin America and Middle East, or new client segments like mid-market firms.While both large and mid-tier IT services companies make a play for this market, Arora foresees greater success with the mid-sized outsourcing companies that are in the sweet spot of size and agility.
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