In the meantime Satyam continues to deliver on its customer commitments. It has even signed at least one new European contract. However, until there is a long-term plan for the business we doubt that many more clients will have the confidence to sign new contracts with the company. Unfortunately, the jitters caused by Satyam will also affect decisions to buy from other Indian vendors, and we expect the established Western vendors to take advantage of the situation where they can.
Satyam is Indias Enron in terms of the shockwaves it has sent through India Inc, and in time we expect significant regulatory changes in India aimed at tightening corporate governance and ethics. However, overall we expect the Satyam debacle to have more of a beneficial effect on Indias IT services industry.
It is already forcing Indian vendors to be even more transparent. Last weeks earnings calls were dominated by Indian CEOs reassuring investors of their commitment to increasing governance. Many vendors, most notably HCL, also increased the detail in their earnings. We expect this to quickly become the fashion for the rest of the Indian industry and the rapid response will do much to rebuild trust.
Clients need cheap offshore services more than ever. Far from harming other Indian vendors, the effective removal of Satyam from the competition will be a boon to large and medium-sized Indian vendors. Many of Satyams clients multi-source their offshore projects with other Indian vendors, and therefore are already in touch with its larger Indian competitors. They effectively have an open door to poach the business.
A sale of Satyam to another medium-sized Indian vendor, perhaps even a BPO pure play, would also help to consolidate and mature the market, with the potential for any number of interesting new faces to take the helm. Already the leading tier-two player, HCL Technologies, has benefitted from the current situation by becoming the de facto fifth-ranked player in India. Satyams board has confirmed that its staff numbers are correct as reported, so any acquirer would be sure to jump into the top tier of offshore vendors, with a workforce that has a strong delivery reputation and impressive client relationships.
The Satyam crisis is certainly edge of your seat viewing, and will remain so for the next few months. During that time we expect to hear more examples of Western and Indian vendors poaching Satyam clients and more gory revelations from the investigation into its accounts. Ultimately, while the Indian industry has been shaken and will probably get stirred around a bit too, in the long view 2008 will be remembered as a year that made India, and its IT services industry, stronger.
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