With all due respect, I will have a slightly different view. Though I have posted it in my
blog, I have posted it here as well!

Satyam’s case is not one in a million; rather it is very much practiced in many Indian IT services companies. As some wise man has said it – “You are not a thief as long as you are not caught!” As far as I know, there are many following various corrupt practices and hopefully, this incidence will do some soul searching. However, I am more worried with the impact it is going to have on Indian IT Services and most important of all, whether we have learnt the real lesson in all these hustle and bustle.

Short Term:

1. More Hand Holding Will be Required by IT companies:

Clients across the globe will now be double checking their outsourced partners after this fiasco and the western media such as NYT, WP etc. have been roughly vocal on it and some even have claimed it to be the death of outsourcing. Also the perceived lack of support the new Obama administration will now weigh heavily.

Considering this backdrop, IT companies will have to try harder to sell to other companies for new contracts and convince with all the possible data to sale their company.

2. The Eco-System is going to be Very polluted:

I am sure that Satyam is now down the drain and if employees are smart they will seek other routes. And there comes the catch. When you have over 50,000 employees flooding the market and at the same time the market condition is very bad for jobs, the most valuable asset in any IT company (the employees) will now be sold very cheaply.

The only good bet can be from some other company who is going to buy it. However, with recent statements from one company – “We are not going to buy a tainted company” – good companies may not come forward easily. Also, I believe, in such scenarios, people should refrain in making this kind of statements.

3. Market confidence on IT companies is going to be Volatile:

This is an era of open and wide communication available in many mediums. Prudent investors will always know about the company a bit before investing and the signs from IT companies are not positive.

In one company, the executive chairman is well above the stipulated retirement age and his son has joined his team (on what basis!), and in another one the CEO of the company has been fined for selling more shares than required.

Medium Term:

1. Contracts solely based on Low Valuation are going to Vanish:

It is no secret that Satyam has got most of its contract due to its low valuation. All its so called top tier clients have come to Satyam as its prices are much lower, sometimes even 50% lower!

At the same time when the market is moving towards more fixed price projects, more IP based work etc., the day of pure cost arbitrage is almost nearing end. Also there is competition from others low cost destinations such as Vietnam, Philippines, Mexico etc.

Ironically, this will be a good sign for the IT services companies in the longer run – the whole industry stated with cost advantage in mind.

2. Tougher Times ahead in Y2009 and Y2010:

2009 is going to the telling year for India Inc. and I expect it to continue till 2010 middle and may recover around Q3/Q4 of 2010 fiscal. Amidst all the gloom and doom and with every other company laying off, cutting costs and added to it the current scandal of Satyam, IT services companies are definitely going to have a hard time to get back on track. I do not know about the long term impact and in technology industry it is actually foolish to think of it.

I do not see any impact on it on changes in Corporate Governance. Make no mistake; India is not the US, where the government bails out companies like GM, Lehman and the feds finally put in their rule in the short terms to change the status-quo. India is unique and the Govt. Of India is criminally negligent on simple day to day to living of its people – forget doing anything on Corporate Governance. Other companies are very much tuned towards to the US model of corporate and I do not see it being changed much. Rather the lesson is for all of us here.

Lesson:

It is easy to point finger at others and say that s/he is wrong. However, I believe, we are all part of this in one way or another. Neither do I like the statement that investor confidence will be down and they may not look back at India – a normal investor should not expect 30 % percent growth y-o-y on every IT company they invest with.

It is high time that we say that it is alright to have 10% percent growth, it is alright to be sub-1 Billion Dollar Company, it is alright to have a lower package and it should start from the very people who have made 30% percent growth a foregone conclusion. I am convinced that the whole super fast growth mentality has led to this situation.

Yet another piece of the puzzle is how they built out fabulous real estate across geographies if all those revenues, earnings and cash balances were all cooked up. Who knows, true to tech traditions, Raju may even turn around and say all of that is an illusion, kind of 3D virtual reality gotten way too real.

I just pity the client facing people of Satyam in days to come.