India's top three outsourcers are beating out smaller rivals by offering more and increasingly sophisticated services and expanding their global reach, according to Forrester Research.

Revenue at the three companies, Tata Consultancy Services, Infosys Technologies and Wipro, is outdistancing smaller Indian outsources. Their share of the outsourced IT services market in India has grown from 40% in the Indian fiscal year ended March 31, 2007 to 46.4% in the year ended March 31, 2008, said Sudin Apte, senior analyst at Forrester, in a telephone interview on Wednesday.

These companies are now better able to compete with large multinational service providers, Apte said.

Besides greater revenue, the top three companies are more profitable, and take in more revenue per person employed than their smaller competitors, according to Forrester. By their ability to improve productivity and a focus on creating intellectual property, these companies can grow their revenues without significantly adding more staff, Apte said.

The next three outsourcers by revenue – Cognizant, Satyam, and HCL Technologies – are holding their ground to an extent by focusing on a few vertical markets. The risk for these companies is that they may spread themselves too thin. In some cases their leaders are unable to decide on whether they should focus on a few market segments, or try to address a larger number of markets, Apte said.

There are many outsources in India, but they aren't likely to be merger or acquisition targets because they don't offer either specialized knowledge nor access to a dedicated client base, said Apte.

Most of the large number of Indian outsourcers are faced with low revenue growth and poor profitability, according to Forrester. They aren't likely to close down, either, as long as they make small profits, Apte added.

The IDG News Service is a Network World affiliate.