Satyam's tiger, someone's bear?

PUNE, INDIA: It was like riding a tiger, not knowing how to get off without being eaten, said B. Ramalinga Raju in his confession note.

The about Rs.7000 crore financial fraud coming out of India's IT industry fourth poster boy, Satyam Computer Services is not going to affect the company alone. The effects might reverberate across the outsourcing and offshoring industry and specially for India.

The tiger could turn into a bear for others in the already difficult times.

It is troubled waters for Satyam and surely there are others worrying to get jettisoned together in this tempest. How worth is worrying and what's the redressal available now? Here's a prognosis from some analyst lens.

Bearish woods



There are damaging possibilities looming on areas like client confidence, general industry image and credibility and international competition. There could be strong repercussions of this fiasco on the Indian IT industry. There will undoubtedly be a heightened level of concern and questions being asked, though it is unlikely that the entire industry will be tarred with the Satyam brush.

In the assessment of Partha Iyengar, research VP, distinguished analyst and head of research, India, Gartner for instance, comparisons to the Enron scandal in the US will be made. "Clients are likely to ask (and the service providers should proactively offer to provide) certificates of financial compliance signed by their CEO, CFO, an independent Board member and the external auditor, just as a strong reaffirmation of the credibility of companies' financial statements."

Scoreboards of India Inc. in international markets can also be seen to have impacted in times to come, augurs Ekta Aggarwal, industry analyst, ICT Practice, Frost & Sullivan, South Asia and Middle East.

At the same time, it is unlikely that there will be mass scale additional withdrawal of business to the Indian industry. What's possible however is that the evaluation process of Indian providers will be expanded now to include a higher level of financial scrutiny, which as per Iyengar is something which companies (especially the larger firms) have not been subjected to so far, and they need to be prepared to respond to this scrutiny.

The impact on investor confidence will be much more significant than the impact on client confidence. Ask Dana E. Stiffler, research director, Global Business and Outsourcing Services, AMR Research and the answer is clear. "I would think twice now about buying India, Inc. shares. I would not think twice about engaging an Indian service provider, though I would probably ask more detailed financial health and viability questions."

As expected all players have already begun to reassure customers and investors. As per Arvind Kher, chief strategy officer, Value Notes, client confidence will not be materially affected, provided our regulatory bodies respond maturely and expeditiously. "Nonetheless, at least in the immediate term, every provider will be scrutinized much more closely. Partly as a result of this closer scrutiny, general industry image and credibility will be maintained, although international competition will certainly feel encouraged."

Straw in the storm



What's important for the other industry players now is to ride the storm and survive successfully.

A proactive approach to reach out to clients and prospects, in the form of a letter or one on one call with client management should be put in place immediately. Gartner's Iyengar sees it like this. "The messaging should be focused not just at the IT management in these client enterprises, but the business management as well as the internal audit management, who will undoubtedly be involved in the scrutiny of relationships with the Indian providers now."

Satyam's tiger could bite others too unless a proactive sprint in the safe direction is taken.

Is the industry ready?