2 posts tagged “satyam”

The Indian Outsourcing industry came into its own about a decade ago. Since it set sail, it has encountered two major storms. The first was in 2001-02 when large parts of the tech industry were affected (the "dotcom bubble", 9/11 and all that). Companies like TCS, Infosys and others that were routinely doubling revenues (and profits) year on year came down to a less frothy but more stable 30-40% growth. The top 4 among them also became "billion dollar companies" between 2003-2005.

The second storm, of course, is the current one. The top tier outsourcers are now 5 billion dollar companies and still look on-course to make 20%+ profits and grow at least in the low double digits. The sad circumstances surrounding Satyam have, of course, had the effect of making stormy waters choppier still and left a gaping hole in the hull of one of the top 5 ships - through which the captain of that ship appears to have spirited away vital supplies.

However, this storm is so different from the previous one. For starters, at that time these companies were, at best, tiny supply ships that were servicing the global financial (and other) supertankers - which were in rude health (unsinkable, in fact) as their captains kept taking on new cargo at every port of call, expanding their crew and egging them on to sail ever faster - easily silencing talk of risks such as running aground, hitting icebergs or corrosion. Then in late 2007, most of them seemed to hit 'subprime' icebergs all at once and started taking water. A couple sank outright. For the others, lifeboats are out, cargo and crew are being jettisoned. In general,survival is the only short-term goal.

However, the outsourcer supply ships - which also grew much bigger - were always relatively cautious and risk averse and are still in relatively fine fettle:  no real leaks or iceberg hits (except the self inflicted Satyam mishap). Since their supertanker clients are mostly in dire straits and are just trying to keep lights on, the supply ships are seeing lower demand for their usual services. The amount they can charge for their shipping services is going down. But they are still more than covering their costs and are, in fact, still making decent profits.   

It is a tricky situation for them to be in.They know that the supertankers they service are ignoring ports of call that they would have otherwise have gone to, not upgrading and refitting their ships and throwing qualified crew and sometimes precious cargo overboard. In other word, they are just 'keeping lights on'. The question for the supply ships is whether they should hunker down and ride out the storm by employing similar tactics - such as reducing crew by sending any sailors not directly servicing the supertankers back to the shore, throwing some overboard and asking apperentices not to join now. That, at least, is what they're doing in a big way. To be sure, they are doing other things also - such as buying the supertankers 'non core' land based assets and, in some cases, offering to participate using unconventional models in some upgradation projects that the supertankers want to do but cannot afford to fund fully. But most of this is being done only after making sure that (short-term) profitability is not adversely impacted. In other words, they don't seem to be particularly risky.

The captains of the outsourcer supply ships routinely share platforms with the captains of the supertankers in various world forums. The outsourcer ship staff are increasingly invited to the supertankers' bridges to help chart the route and are not just confined to engineering. A lot of hard work has gone into changing perceptions to get this point. Will sacrificing some short term profits and striking bold risk-sharing deals with the supertankers while also continuing to maintain a healthy "bench" of sailors help? After all, to strike such deals, you need people going aboard the supertankers, walking the decks, examining the moving parts and making recommendations (none of which will be paid for by the beleagured supertankers).

So hunker down, try to preserve profit and wait for dawn or take some well-thought but inherently risky steps to try and rewrite the equation?

How would you like it if a company whose name is "truth" gets embroiled in a vast accounting scam? As a contender for the worst corporate story in a year that has had many, the 'Satyam' (Truth in Sanskrit) story is a formidable entry.

The Satyam saga seems truly bizarre, shocking and saddening. Comparisions to Madoff on one one hand and Enron to the other are natural. I work for one of their competitors. It must hard to be an employee of Satyam at this time and it is not hard to imagine the uncertainty and insecurity one would feel. It isn't a great time to be out looking for a job anyway and the circumstances and timing make it so much worse.

It would also be hard to be a Satyam client, particularly a manager with a large Satyam team handling critical functions. The team members will doubtless be distracted and it is always unsettling to be in a situtation where the very existence of the vendor providing services is in question. If I were such a client manager, I would probably take some time to express solidarity with the team and ask my vendor management folks to not precipitate any action - such as terminating the contract immediately. At the same time, I would ask my other vendors to stand by and be ready to step up if the need arises (though not immediately begin transitions). The main threat would be no so much the company closing down but panic stricken employees jumping ship. Chances are, those employees at client locations outside India would have even fewer communication channels from Hyderabad (Satyam's HQ) and would feel truly cut off - esepcially as some of their senior managers would be busy looking out for themselves. So take care of your Satyam consultants - talk to them and gradually start diversifying. Hang on to them until a clearer picture emerges. Knee jerk wont help.

Finally, the top management of the company had to have known this or at least had strong suspicions. So it will be difficult to buy the idea that this could have been a one person show. Needless to say, there is no reason to assume that such egregious behavior is pervasive in the industry. It is not.