Satyam Chief Admits Huge Fraud … wow, you do not see those thing so often, and you wish you never did. I guess that puts Satyam’s chairman, Ramalinga Raju in the big league side by side with Madoff. I have done a lot of business with Satyam and am quite saddened by the news. Actually, Satyam has been under close scrutiny for quite some time now, especially after reports that the company had been banned from World Bank contracts for installing spy software on some World Bank computers. Satyam denied the accusation but in December, the World Bank confirmed without elaboration on the cause that Satyam had been banned. Also in December, Satyam’s investors revolted after the company proposed buying two firms with ties to Mr. Raju’s sons… Those deals were in fact a last-gasp attempt to fill a hole in its finances, falsely inflated for years by its founder and chairman. Inevitably stocks plunged closing at 39.95 or 78% down reminding everyone about Enron.
I still have a few friends working in the company and hope that these events do not affect them too harshly. The IT job market is far from perfect and who knows what is going to happen with gazillions of contracts Satyam had in the USA. Cisco already announced that “The recent unfortunate developments unfolding at Satyam are not expected to have any material impact for Cisco. At this point, we would not like to comment further and have full confidence in the government and regulatory authorities to address this matter as appropriate.” But what does it really mean in terms of the work which has been outsourced to Satyam; will all the contractors stay? Will they move on in a manner Arthur Andersen auditors ended up in KPMG? Or outsourcing altogether takes a huge hit?
It’s difficult to make any predictions now. I am afraid that this event will have profound and lasting negative impact on outsourcing in general as well as the entire Indian economy.
Is there any silver lining? Well, I am sure that there will be a lot of new business flowing to other top tire vendors across the world. Some smaller providers might get a chance to gain new business and get their hands on good employees in the feeding frenzy that’s likely to follow. And many companies on the buyer side will rethink their outsourcing policies and probably use this opportunity to renegotiate the contracts.