The fire sale of troubled IT service provider Satyam has provided some relief to customers but will the new owner be seen as a good long term partner?
Satyam's new owner, Tech Mahindra, will have pressing matters to resolve other than dealing with imponderables such as the extent of liabilities from lawsuits filed in the US by investors. The full scale of the accounting fraud, thought to be worth $1bn, is not yet known.
The uncertainty since Satyam's former chairman admitted to falsifying its accounts has left its mark on customers.
Regaining customer confidence will be one of the first challenges the new owner will have to tackle in order to stabilise the company. This must be done before it can think about taking Satyam forward.With hundreds of global corporations as customers this is easier said than done.
Forrester Research recommends that all Satyam customers have a plan B in case they do not see the company that buys it as a good fit.
"To protect their own interests and ensure continuity of service, clients need to accelerate finalisation of their plan B and keep a close watch on which firm buys Satyam to decide if and when to pull the trigger to shift to that plan B," says Forrester analyst Sudin Apte.
Chemicals company Ciba, which uses Satyam for application support, said in January when the fraud scandal broke that it was reviewing its options. And international football federation Fifa, which signed a seven-year deal with Satyam in 2007 worth $200m to develop an event management system and intranet, said it was monitoring the situation.
Robert Morgan, director at Hamilton Bailey, which advises outsourcing service providers, says,"Satyam customers are being attacked every day by Satyam's competitors."
Mike McNamara, director of operations and IT at Tesco Global, told India's Economic Times in January that Satyam had a job on its hands regaining trust and retaining customers.
"Trust is a critical factor in all our outsourcing decisions, and all I can say is there is tremendous competition among companies such as Infosys, Wipro, TCS and Satyam," he said.
These customers will sit tight until Satyam's takeover is complete before making decisions. The costs associated with changing suppliers are high and there are complex contractual issues to address.
But high-profile customer losses already revealed include the National Australia Bank (NAB), which suspended an IT project because of uncertainty about the supplier's future, and US insurance firm State Farm.
Andy Gallagher, consultant at Compass Management Consulting, says customers will now be confident of a service and there will not be a mass exodus.But he says many of the big customers will now treat Satyam as a new supplier and the new owners will have to work hard to ensure service levels are high.
"Itwill have to provide a high level of visibility and will have to prove itself," he says, adding thatthe biggest challenge will come within two to three years when contracts are up for renewal.
Gallagher maintains thatmany customers will be happy that an Indian company has taken over Satyam.
"Companies that signed contracts with Satyam did it because they wanted to receive a service with the Indian mentality," he says.
Morgan at Hamilton Bailey agrees. "These customers are looking for the offshore thinking rather than the Western type because they can continue to negotiate," he says.
"It was important that Satyam remained Indian and has the backing of a holding company that has billions of pounds."
Gallagher sayscustomers will not be worried about Tech Mahindra's financial position because it is backed by large group Mahindra & Mahindra.He adds thatother Indian suppliers were quick to prove their financial viability following news of the Satyam fraud breaking.
Mahindra & Mahindra chairman Anand G Mahindra sayshe will contact the heads of major customers to reassure them.
"Customers will be reassured by the size of the Mahindra & Mahindra group as well as its leadership," saysKris Lakshmikanth, chief executive at Indian recruitment company Headhunters.
Peter Brudenall, partner at law firm Hunton & Williams,sayscustomers will have some relief that a significant company has taken over. "Customers will want to let the dust settle a little before passing judgment on the deal as a whole," he adds.
In the words of Satyam chairman Kiran Karnik, the company has been rebornafter being driven off course. Whether Tech Mahindra is the right driver to steer it back on course is yet unknown, but it will offer the Indian mentality alongside the financial backing of a huge conglomerate.