Beware of Satyam ambulance-chasers

We’ve been inundated with questions from Satyam’s competitors who have all been eagerly circling the beleaguered service provider’s clients over the past week. As we discussed in our recent piece “Satyam’s Woes Put India’s Services Industry In The Hot-Seat”, we do not believe customers can easily sever their existing services relationships with Satyam without significant issues re-badging personnel, losing critical operational staff, and the expense of transferring H1B-Visas. It often takes clients two-to-three years to establish an effective working relationship with their service provider and we are concerned with the advice several service providers are giving Satyam’s clients that switching will be quick, easy, uneventful and at minimal incremental cost.

While the future of Satyam hangs in the balance, our advice to clients is to remain patient in the short-term before evaluating their future options. Yes, clients should be concerned and seek reassurances from Satyam regarding any imminent service delivery issues. However, they should disregard the propaganda coming from several of Satyam’s competitors, and some of the articles from business publications questioning the viability of offshore outsourcing as a consequence of the Satyam scandal.

Should Satyam be acquired (which we believe likely), then there may be few compelling reasons to move to alternative service providers in the short-term. However, should Satyam start to lose critical staff and their execution suffers significantly, then clients may have little choice but to jump ship and go through the switching pain. Our view is that customers can afford to wait for at least a few weeks to evaluate the situation. It does appear that the Indian government is likely to lend some short-term support to the ailing service provider as it struggles with short-term financial liquidity, so there should not be major cause for panic at this time. Stay tuned for more on this developing saga.

Comments

[Stephen Cohen]

Phil,

Well said - services providers which claim they can switch Satyam clients over with limited costs and complexity are outright lying. Kudos to AMR for taking a stand with this,

Stephen

[Peter Allen]

Sound advice, Phil. Thanks.

We, too, have been inundated with those fanning the flames. Our counsel is aligned with yours.

- The Indian Government is clearly taking steps to assure the continued ability of Satyam to serve its Clients in the near-term;

- A longer-term solution might entail sale of the company, or some form of continued Government interest;

- The service provider community shares a high degree of concern over the fate of Satyam, as this issue is negatively impacting the focus and confidence of Clients – those of Satyam and those of other Providers;

- The sale of Satyam to another service provider is complicated by the nature of the transgressions committed by Satyam management … any buyer would be intimidated by the degree of uncertainty around assumed liabilities and concerned over the value of the asset in the face of potential transition of current business to other sources of service.

That said, it's time for calm heads to allow for clarity of outcomes to develop. If transition is the answer, it must be planned thoroughly.

Peter