Is Satyam a passing phase?

The early 80s were full of articles in the trade press on the potential of Indian IT. Their key advantage in the number of engineering and mathematics graduates produced per annum was invariably cited as the propulsion engine to future greatness. The liberalisation of markets and the mantra of globalization in early 90s turned a company like Infosys, a poster-child if Indian IT, from a turnover of $5M in 1990 to $1B in 2004. The expected revenue growth of 30% per annum became the norm in Offshore IT companies. The new confident Indian operations like TCS, Wipro, Infosys etc easily met this heady growth target. There was excitement around everywhere on impending Asian century. China and India were seeing double digit growth in their economy. USA was increasingly becoming a debtor of China and people like Premji , Wipro’s Chairman, pointed towards the skills-shortages in USA market. He pointed out that Wipro is not losing its employees to its Indian competitors in American market but to the local employers who could not meet their skill requirements. People from the IT industry like Bill Gates, Eric Schmidt etc also expressed their concern on shortages of skills and they were joined in this chorus by reputable Harvard academics like Michael Porter, renowned for assessing international competitiveness. The Indian juggernaut was unstoppable. These outsources even boasted of moving up the value chain, having proved their credentials on many projects. Then Satyam happened.

Outsourcing to India’s fourth largest IT company was suppose to provide advantages of speed, agility, flexibility and focus but suddenly it has become the main preoccupation and a major distraction. The retailers like Tesco and Boots and manufacturers like Unilever and Nestle, and not to mention a host of financial institutions, are all concentrating on the finer details of their contracts and building tactical responses to mitigate risk. The Indian government is busy trying to safeguard the reputation of India Inc in the aftermath of Satyam saga, whilst the competitors like Wipro and Infosys are in over-drive to project this fiasco as an isolated event. Satyam’s $2B turnover is 4% share of the $50B market but the perceptual damage vis-à-vis governance standards is very significant indeed. When one compares it to Madoff’s $50B ponzi scheme, the scandal is relatively minor. However, the Indian prime minister has rightly recognised it as a stain on India’s corporate reputation. The confidence of IT outsourcing industry has been dented. It remains to be seen whether all the current nervousness passes eventually with minor adjustments or it proves to be a game-changing event.