Has Satyam signaled end of Indian tech miracle?

Stan Beer
Sunday, 11 January 2009 07:03

Opinion and Analysis

According to Jens Butler, principal analyst at tech market research firm Ovum, the question remains open as to whether the Satyam affair will simply mean a consolidation of the number of big players as has happened in the accounting market or something more serious.

Mr Butler believes that all major customers of offshore service providers will now be tightening their due dilligence processes when dealing with any of the providers in low cost offshore markets.

"There is going to a be a huge focus on accountability and the governance associated with a lot of these players," he told iTWire.

"It's not going to be just Satyam. It's going to be the other Indian outsourcers. It's also going to be the IBM's and HP's and anyone else who have operations in India, China, the Philippines and so on."

The above prognosis therefore would not just spell bad news for the outsourcers based in India, China and other low cost markets. It would also weigh heavily on the entire offshore outsourcing infrastructure built up over the past decade by multinational service providers.

And what of the major corporate customers left in the wake of Satyam's untimely demise?

Here in Australia, some of our largest corporations - Telstra, National Australia Bank, Qantas, among others - will now have to face some serious questions. They already faced considerable opposition from various quarters, not least unions, when they went the offshore outsourcing route. Can they afford to simply rollover their existing contracts to whoever takes over from a sold off Satyam?

What happens if another major corporate IT scandal in India breaks in coming weeks or months, revealing a systemic regulatory and corporate governance issue? The shockwaves reverberating across the subcontinent would be devastating and global corporations may inevitably be forced to rethink their entire IT global delivery models. It may end up being a case of companies no longer being able to justify sending their IT services delivery offshore.

No doubt such an eventuality would be welcomed by supporters of the philosophy that all IT jobs should be kept onshore. However, for corporations the de-globalisation of IT services may also mean that the cost of development and delivery would rise significantly.

Of course, it may not be as serious as all that. Satyam may simply be a one-off major corporate scandal. These scandals have happened and will continue to happen all over the world.

As Ovum's Mr Butler says, in coming weeks we can expect the Indian Government to issue all sorts of soothing statements about tightening regulatory processes and corporate governance, designed to reassure the global market place. However, for the opponents of offshore outsourcing and many others such statements will do little to erase nagging doubts that Satyam may well be just the tip of the iceberg.