The terror attacks on Mumbai were just a tremor for the country’s tech industry compared to the shocks coming from the Satyam scandal. Earlier today, Ramalinga Raju, Satyam’s founder and longtime chairman, admitted in a letter to the board that he had been cooking the books for years to make up for revenue and profit shortfalls. Read the details in this report by my BW colleague, Manjeet Kripalani. In his letter, Raju wrote that the cover-up finally got the best of him: “It was like riding a tiger, not knowing how to get off without being eaten.”
This admission will have a crippling impact on Satyam. Its chances of getting new business are nil. Don’t expect its current customers to abandon the company overnight. That’s not easy in a tech services business where the operations of the client and service provider are so interwoven. On the other hand, it’s possible that the company may collapse financially, in which case clients will have no choice but to flee.
Which brings us to a bigger shock: This betrayal of trust could have a major impact on the entire Indian tech services industry. The industry has spent 20 years building up credibility with Western clients, but this disaster will make many US and European clients rethink their reliance on Indian outsourcing. Don’t expect offshore outsourcing to fall off a cliff, but there will be serious repercussions.
There’s another impact that most people won’t be aware of. Raju, through his Byrraju Foundation, has been a leader in bringing economic development to farm communities in his home state of Andhra Pradesh, and also in providing emergency medical services to people of the state state. Will all of this collapse now?
This guy seemed to be a model citizen. But all that is gone now. It’s a tragedy not just for him and the employees of Satyam, but for the entire country.
