Indian outsourcing firms are beginning to feel the threat of emerging nearshore competitors as major outsourcing customers now prefer working with local providers instead of farming out all projects to India and other offshore locations.

According to a report by the Economic Times of India, CPM Braxis of Brazil, Ness Technologies and Softek of Mexico are among the strong rivals of India’s leading technology firms such as Infosys, Tata Consultancy Group (TCS) and Wipro. Despite the expansion of these Indian firms in emerging markets such as Eastern Europe and Latin America, they are hampered by a stiff competition from other emerging international rivals.

A source quoted by ET said that some customers who have a great percentage of their offshore resources in the country are now recognizing their need to consider the third category of that are niche and local.

Representatives from an outsourcing advisory firm, Everest Group, said that local suppliers have more advantage over other offshore competitors in terms of new business from new outsourcers. According to their research on six emerging providers, there has been a yearly average compounded growth of 25 percent in the previous years.

CPM Braxis is one example which had $567-million reported revenues in 2008. Its clients include ABN Ambro and GE.

Indian technology firms who plan an overseas expansion consider mergers and acquisitions opportunities from these emerging suppliers.

According to an unidentified source, who is an executive from tech firm, by the ET, they have been in talks with Softek and Globant although he could not give any further comment.

Amneet Singh, vice president of Everest Group agreed that when it comes to capabilities and size, these companies are likely to be good acquisition targets for firms in India.

Also, their strong presence in the most rapidly growing markets for IT services makes them attractive.