Satyam users sit tight as bidding process begins

Satyam's users are not jumping ship en masse following the $1bn fraud scandal that hit the supplier, but are considering their options and ensuring they have a back up plan. Those that have said they will drop Satyam may change their minds depending on who acquires Satyam.

Satyam's customers are not jumping ship en masse following the $1bn fraud scandal that hit the supplier, but are considering their options and ensuring they have a back up plan. Those that have said they will drop Satyam may change their minds depending on who acquires Satyam.

Despite reports to the contrary, Satyam's competitors are not seeing anexodus of major customers. Satyam's major clients are ensuring they have an alternative if they are forced to replace Satyam rather than going through the pain and taking the risk of changing suppliers.

Since Satyam former chairman B. Ramalinga Raju, admitted he had falsely reported the company's results to the tune of $1bn, there have been reports that customers have been leaving in their droves.

This week it was claimed in several news reports that the company had lost 46 customers since news of the fraud broke.

Satyam is currently going through a bidding process where interested acquirers are looking at confidential information and proposing takeover plans. Companies such as IBM, Hewlett-Packard and CSC are said to be interested.

Mark Lewis, partner and head of outsourcing at law firm Berwin Leighton Paisner, says with the exception of a few US firms that immediately said they would cut ties with Satyam he does not know of any that have actually made the split. He believes many of the companies that have said they will drop Satyam will wait until it is acquired before actually doing so."

"You can make a decision based on governance, ethics and the need to appear to support good corporate governance. In theory that is good, but the practice of migrating services is not easily done," says Lewis.

"They will wait to see who acquires Satyam. It will probable be a blue chip company and in the meantime the Indian government will ensure Satyam is run properly because there is a lot at stake."

Bindi Bhullar, head of marketing & alliances Europe at HCL, says he is not seeing Satyam's major customers drop the supplier. "Lots of people are looking at a plan B and are talking to other suppliers but as far as I am aware none of Satyam's big customers have made the split."

He says there will be certain userswho will get nervous and sever ties, but changing suppliers is not straightforward. "It is not easy to change suppliers, because there are always detailed contract negotiations which can be very complicated

He says most major customers will have these contracts and will probably prefer to stay with Satyam and wait for it to be sold. "But the longer this goes on the more uncertain customers become."

Andy Gallagher, consultant at sourcing consultant Compass Management Consulting, says Satyam is still actually low risk compared to starting from scratch with a new supplier. "You have to balance the risk of continuing to do business with Satyam against the risk of changing suppliers."

"They will wait until they know the answers to two questions," adds Gallagher. "Who will buy Satyam and how long can Satyam continue to provide service to us?"

"The risk is reasonable low at the moment and until they get answers to the two questions, businesses are putting all their efforts into developing a plan B. They are getting it ready but will notinvoke it until they know it isviable and what the real risk of doing business with Satyam is."

He says many companies were caught flat-footed by the Satyam crisis and as a result did not have a contingency plan. "They do not want to jump from the frying pan into the fire."

Satyam is under the wing of a national government and is likely to be acquired by a strong company. Businesses may have to be seen to distance themselves from a company that has seen a massive internal fraud, but when it comes down to business it could be more risky to replace them with an alternative supplier.

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