The reported $1 billion accounting fraud at Satyam Computer Services and the World Bank’s ban on business with the outsourcing firm and two others, Megasoft Consultants and Wipro, for “improper benefits to bank staff” has damaged the Indian IT brand, but the industry remains in good shape to bounce back.

Analysts have estimated that a large chunk of Satyam’s clients—possibly as much as one-third—will move to other service providers, particularly those that have high client overlap with the company such as Infosys, Tata Consultancy Services (TCS) and Wipro. However, many of Satyam’s outsourcing contracts are large, long-term engagements that cannot easily be unwound, so an immediate mass exodus is unlikely to materialize.

Wipro may have more overlap clients than Infosys, but the World Bank ban on doing business with it for four years will probably make some companies think twice about using the firm. Nevertheless, Wipro predicts there will be industry consolidation and that it can benefit.

Gartner expects increased scrutiny of Indian service providers’ governance and financial status. Together with the weakness in the banking and financial services sector, another large client market, the recent corporate governance concerns could not have come at a worse time for the Indian outsourcing industry.   Source: The Asian Banker

BIIA Newsletter Febraury – 2009 Issue