Hard times are on the horizon for tier-one outsourcing vendors, according to Australian-based Hydrasight analyst John Brand.
Already outsourcing giants Unisys and CSC have announced Australian redundancies on the back of falling services revenues. Brand says many businesses are choosing tier-two providers because of natural market evolution.
“Tier-one vendors made the initial investment but tier-two vendors have been able to replicate that model fairly easily and for a much lower cost,” he says.
Brand says tier-two providers offer customers a good value proposition as long as they aren’t asked to do something different or out of the ordinary.
“That leaves tier-one vendors being continually forced to look further up the food chain. They are definitely going to struggle over the next few years.”
While tier-two outsourcers have reason to be optimistic, Brand suggests they should be careful not to overdo things.
“The challenge for tier-twos is to continue what they’re doing and manage to grow. It’s natural that some of them will become overly optimistic and make mistakes.”
In the meantime Brand believes tier-one vendors have to move back into the tier-two market.
“They have to start getting real. People haven’t exactly been overwhelmed with success stories from tier-one relationships. They need to push a point of difference — it could be stability or better service — but it must deliver the same returns as tier two.”