Has Satyam signaled end of Indian tech miracle?

Stan Beer
Sunday, 11 January 2009 07:03

Opinion and Analysis

With the new year less than two weeks old, the question on the lips of many tech industry watchers is whether the Satyam fraud scandal means the party is over for offshore outsourcing. While Satyam is just one company, the extent and audacity of the financial fraud is such that gazes are turning toward other low cost outsourcers operating in poorly regulated markets.

While Satyam has been described as India's Enron, the comparison is really an understatement of the gravity of the situation for India as a nation. The damage that has been caused by this sordid affair has already tainted the Indian outsourcing industry - not just IT but also BPO - in the minds of many.

With its founding boss now in custody, there is little doubt that Satyam will cease to exist in its present form. The prevailing view is that it will be broken up and sold off to other Indian service providers. The company has many valuable contracts from first tier customers on its books. Those customers, however, will now face questions from their shareholders about the risks associated with the offshore model.

Satyam was a first tier offshore outsourcer - one of the big four on the sub-continent. If this thing could happen to such a big player in the nascent Indian global high tech corporate world, what about the other three even bigger players? What about the burgeoning number of smaller players in India?

Is the Satyam affair just a one-off corporate incident or is it an endemic problem, symptomatic of an immature and lax national corporate regulatory culture? In the current climate of a global economic downturn, the boards of large companies may have a hard time convincing shareholders and employees alike that the latter is not the case.

In most cases, one rogue corporate activity does not a disaster make. If that were the case, the home of corporate scandals, the US, with its Enrons, Worldcoms and sub-prime mortgage fiascos, would have been out of business long ago. However, India is not the US. It is a newly emerged economy - an economic miracle - fuelled by the economic activity created by companies in the exact mold of Satyam.

If the mold is found to be flawed and cracking, then so too may be the economic miracle.

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