How will the Satyam scandal hit Oz?
Analyst firm Ovum said today that Satyam's financial scandal would not significantly affect overall outsourcing trends in Australia, although some customers might reassess their contracts with the Indian giant.
The scandal broke yesterday, with Satyam's founder and chairman B. Ramalinga Raju releasing a letter stating the company's balance sheet for the quarter ending 30 September had inflated cash and bank balances by 50.4 billion rupees (AU$1.44 billion).
Satyam's local chief
Deepak Nangia
(Credit: Satyam)
Raju resigned over the scandal and could face a jail sentence. He said in a letter to the company's board that the cover up "was like riding a tiger, not know how to get off without being eaten".
Ovum analyst Jens Butler told ZDNet.com.au today that the pressure to reduce costs in Australian businesses was stronger than any local fallout that might result from the scandal. Satyam's Australian chief Deepak Nangia has not yet commented in detail on the issue, although he said it had not scuttled Satyam's substantial investment plans in Geelong.
Satyam currently has about 1,800 workers allocated to its Australian division, with 1,000 based in-country and about 800 working from offshore centres.
"If you are signed up to a three- to five-year contract [with Satyam], and you may be only one or two years into that contract, the cost of getting out of that contract is going to be pretty high," Butler said.
He added that while the Indian giant had a few local contracts, its business did not represent a "huge amount" of the Australian outsourcing market. Satyam's major local clients include Qantas, Telstra, NAB and SunCorp.
"From a buyer perspective, the biggest issue is going to be making sure the key operational staff from Satyam stick around," Butler said. Subsequent to the scandal, Satyam's board has set up a task force to assess the damage.
Ovum analyst Jens Butler
(Credit: Ovum)
Although the scandal is unlikely to affect Australian outsourcing contracts in the long term, Butler did state that it might result in a reassessment of contracts up for renewal in the short term or a takeover of Satyam by either a US or Indian firm.
"Interestingly, it appears Tech Mahindra, the sixth largest [Indian] joint venture with BT, has already approached Satyam," he said. "If you look at their share prices, most Indian players are down by about 70 per cent to be brutally honest." Butler also mentioned IBM as a possible takeover firm.