By the star
SATYAM’S fall from grace has been much discussed.
Besides tarnishing the accounting image of all Indian companies, this saga has newfound consequence to the outsourcing industry as a whole. With one of its stars being jolted into the spotlight for the wrong reasons, the entire industry is left to lick its wounds and consider the profound impact to the perception of the industry in the midst of challenging times.
Though unfair, the saga has affected confidence in India as a preferred choice of outsourcing destination. Recently, India’s IT industry suffered a major blow with the barring of Wipro Technologies and Megasoft Consultants from doing any work with World Bank.
These and other similar outcomes have alienated a number of clients from outsourcing companies in India. With the belief that the Satyam scandal may not be an isolated case, people are now starting to question the viability of other Indian companies as well.
Collectively, these events have a disastrous impact on the outsourcing industry for India and the IT industry as a whole. The question now is to what degree will this saga continue to beset Satyam and India, and more importantly how does the world perceive this?
A question of bad timing?
Indeed, the news could not have come at a worse time. Already struggling amidst the backdrop of a weak global economy, the global outsourcing industry now faces a new obstacle – an erosion of confidence.
Consider this. Even before the Satyam scandal broke out, companies were already trying to undercut one another with ridiculously low rates with some companies in India believed to be willing to offer up to a fifth off its competitors’ price.
Following the scandal, outsourcing companies will now have to confront another real obstacle on top of a slowing global economy.
Many questions are now posed after Satyam’s demise. How would customers now guarantee that the outsourcing company that they invest millions of dollars in, would not suffer the same fate as Satyam? What about shareholders and more importantly, financial institutions?
All these factors combined place huge strains upon even the largest outsourcing companies in the world when one can no longer count on a solid reputation to close deals or obtain financing backing.
Satyam’s collapse was so sudden and so badly affected the company that it reportedly didn’t have the money even to pay salaries in January (although subsequently they managed to secure some funding for this). Imagine, if this could happen to the first ever Indian Internet firm to be listed on the Nasdaq, the fear factor is exponentially increased for other smaller outsourcing or IT companies.
The prospects are becoming more daunting when anti-outsourcing voices are growing louder by the day, emanating from the US. Coupled with a weakened US economy, outsourcing companies that used clinch large contracts from American companies may need to brace themselves for a hard landing, especially those based in India.
Closer to home
Whilst the Satyam incident is mostly detrimental to outsourcing companies in India, there might be a reprieve for other countries that are building on their outsourcing competencies and trying to benefit from a slice of the Indian monopoly on major outsourcing deals.
Albeit the slice is thinning, I believe we will see more companies considering options aside from India.
Countries with burgeoning outsourcing companies like Philippines and Malaysia are likely to benefit from this.
Malaysia’s appeal lies not only with its reputation as one of the top ranked outsourcing countries in A.T. Kearney’s yearly rankings, but with external factors as well.
With the strengthening of the US dollar against the ringgit, there is now greater impetus for US firms to invest in Malaysia. There is also the huge untapped Middle East market that has yet to jump on the outsourcing bandwagon and Malaysia could be well poised to benefit from its close ties with countries in that region.
Nonetheless, Malaysia faces challenges from countries like China. Upon hearing about Satyam’s fall, a China IT outsourcer introduced a “zero cost transitioning” carrot to lure customers to switch alliance.
With the market thinning, competition is fierce and Malaysian outsourcing companies need to be more aggressive to capture every available potential.
* Opportunity for Malaysia's outsourcing company to get a slice of india's strong IT market? Much effort, R&D and motivation needed to get hold a slice of this IT fat cake.
