I’ve always been intrigued by Satyam’s operations here in Cyberjaya. They hire hundreds of Malaysian graduates but leave them idling without work for months at a time. Hence, it wasn’t too big of a shock to me when I read today’s New York Times article regarding how the CEO of Satyam had cheated his shareholders and the general public.
Satyam Computer Services, a leading Indian outsourcing company that serves more than a third of the Fortune 500 companies, significantly inflated its earnings and assets for years, the chairman and co-founder said Wednesday, roiling Indian stock markets and throwing the industry into turmoil.
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“This development is going to have a major impact on Satyam’s business with its clients,” said analysts with Religare Hichens Harrison on Wednesday. In the short term “we will see lot of Satyam’s clients migrating to competition like Infosys, TCS and Wipro,” they said. Satyam is the fourth-largest outsourcing firm after the three named.
In the four-and-a-half page letter distributed by the Bombay stock exchange, Mr. Raju described a small discrepancy that grew beyond his control. “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew,” he wrote. “It was like riding a tiger, not knowing how to get off without being eaten.”
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On Dec. 30, analysts with Forrester Research warned that corporations that rely on Satyam might ultimately need to stop doing business with the company. “Firms should take the initial steps of reviewing the exit clauses in their current Satyam contracts,” in case management or direction of the company changed, Forrester said.
The scandal raised questions over accounting standards in India as a whole, as observers asked whether similar problems might lie buried elsewhere. The risk premium for Indian companies will rise in investors’ eyes, said Nilesh Jasani, India strategist at Credit Suiss
The crisis might potentially have an interesting impact in Cyberjaya because Satyam has hired hundreds of young Malaysian graduates and is building a mega campus in Cyberjaya. If business confidence in Satyam drops tremendously and clients opt for other Indian service providers like TCS, InfoSys or MPhasis, then a lot of Malaysian Satyam employees could find themselves out of employment. On the other hand, it could potentially free up a lot of IT talent in Cyberjaya and provide opportunities for employers to expand their talent pool in a market that is currently facing a major shortage of skilled workers.
More interestingly though will be to see the impact this crisis has on the confidence of the industy on Indian players in general. The fallout created by this crisis could be a blessing in disguise for countries like Malaysia and the Phillipines who are actively competing with India in the IT Services industry. The Mumbai terrorist attacks coupled with fraud some parties are comparing to the scale of Enron could rattle the entire IT services industry and change the entire landscape of competition for non-Indian players. Will companies ever fully trust their IT infrastructure on another Indian player?
These are extremely interesting times to live in.