• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Peter Schumacher

Adith Charlie

Satyam Computer Services’ pricing has been more aggressive causing its services to cost less than those of other leading Indian firms, and those of European and US providers. And hence there are several good reasons for clients to remain loyal to Satyam — at least until actionable alternatives are available, according to Peter Schumacher, founder, president and CEO of Value Leadership Group, a strategic management consultancy firm.

In November 2008, Satyam had stated that it intends to double revenues from Europe to $1 billion by 2010. The current developments will put an immediate stop to all new contract signings at Satyam, Schumacher said, in an exclusive interaction with eWorld. Excerpts from the interview:

What is your reading of the issues involving the Satyam developments?

This is an inflection point for the sector with negative implications for the Indian offshore services sector and beyond, meaning for corporate India as a whole. After all, the offshore services sector has been the darling of the Indian economic miracle — a shining symbol of the new India.

This case reinforces many entrenched stereotypes of corporate corruption, trickery, and deceit in India that some outsiders have sought to perpetuate. Restoring the credibility and reputation of the sector will take a long time — perhaps years. That is a tragedy. This means that the overall environment just got a lot more challenging. The offshore firms will face more scrutiny from all sides — regulators, clients, capital markets — with broad implications for growth, big deals, access to capital, company valuations, industry consolidation, etc.

In these already tough times, this is like a double whammy. The thing to watch is how hard the SEC (US) and SEBI (India) follow up on Satyam’s corporate governance failure.

Looking at the macro picture, I think this is unlikely to slow the rate of offshoring, though. There is simply no alternative to India as a location. However, customer preferences and market dynamics will change.

After years of being on the defensive, the big winners may end up being European and US firms with offshore capabilities in India, i.e., Capgemini, Tieto, Accenture, IBM, HP, and US-based Cognizant.

Of course, I am assuming that the Satyam episode will cast a shadow on other Indian offshore firms. The burden will be on them to show that their corporate governance practices are above board.

Will this result in a spree of cancellations of existing IT accounts that Satyam services in Europe?

Surely this will put an immediate stop to all new contract signings at Satyam. Once operationally possible, some Satyam clients will start shifting contracts to other providers. However, there will not be some kind of immediate mass exodus. Satyam has many large and long-term engagements. These complex engagements cannot be unwound overnight and just shifted to another provider without careful planning.

Besides, operationally, Satyam has been performing well. Client satisfaction and repeat business are high. Also, clients considering a shift should consider that Satyam’s pricing has been more aggressive than many of its peers, meaning its services cost less than those of other leading Indian firms, and those of European and US providers. So there are several good reasons for clients to remain loyal to Satyam — at least until actionable alternatives are available.

Over the next six-twelve months or so, the size of Satyam will decrease significantly as new signings stop, completed projects are not replaced, and clients move to competitors. How rapid and deep this decline will be is to be seen. While the circumstances at Satyam are much more severe, other large international IT services companies have been facing leadership and ownership challenges and board upsets and they have managed to survive too. The biggest threat to Satyam will be shareholder lawsuits of which the claims will reach into the billions. These should also keep any suitor away from making a move on Satyam. The big question is: Will Satyam be able to settle these suits?

Would this make it increasingly difficult for other IT companies to now gain inroads into the European companies, which appear to be in the process of opening up to Indian vendors?

Indian firms now will face even more growth problems in continental Europe where buyers tend to be more cynical and risk averse. A European executive once told me that he thought the Indian firms were just Bollywood stage images. The Satyam case gives support to these kinds of negative stereotyping and assumptions.

Historically, many companies and industries have faced major challenges of this kind. Offshore firms should seek external expertise and look at case studies from corporations that have faced reputation crises. Companies that aspire to be the best learn from these problems and put improvements in place that allow them to survive and make them stronger in the end.

The bad state of the economy means that many companies are facing a lot of problems. Everyone is fighting fires. The good news is that these circumstances may deflect attention away from the Satyam case. That is, the impact from the turmoil might be less severe. Of course, this assumes that Satyam is a one-off case. If there are more such corporate governance failures in the near future, then all bets are off.

Since deals would no longer happen, would we see large-scale attrition among employees of Satyam and other Indian companies in Europe?

That is almost a given. Recruiters will be all over Satyam’s best people and there will be a great loss of talent within the next six months. Satyam has some good senior staff in Europe. Whenever a crisis like this occurs in any company, the haemorrhaging of talent is inevitable.

adith@thehindu.co.in

More Stories on : Interview | Outlook | Software | Satyam Computer Services Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line