The rise and rise of India Inc. over the last two decades owed its strength to a new generation of entrepreneurs from non-business families who had survived the pessimism and bureaucracy that had long plagued the country. The youth of India found hope in the achievements of these new business stars. And now, in a moment, that sense of admiration has been replaced by shock and disbelief.
The misrepresentations and gaps in corporate governance at Satyam are sure to wind up into a long legal battle which might even take the auditors down with Satyam. Whatever the outcome of the legal battle, the most immediate fall-out is the erosion of trust in India's flagship industry across the globe. And in a services industry that relies on trust to sustain long-term customer relationships, it might take years to undo the damage.
Efforts need to be put in place to check such lapses of corporate governance and ensure that prompt action is taken against the people found guilty in the misrepresentation. The incident also raises a question on the role and effectiveness of auditors who have been hired by the company and might be reluctant to report any inconsistencies in order to keep their contracts.
One might be interested in reading more about the impact of the Satyam fraud at
Nice post to start the year and the blog. However, I would disagree with the conclusion being drawn about the 'death' of Indian IT, etc. I don't think this incident would amount to it. The reasons for it as far i think are,
ReplyDelete1. The final business decisions are led purely by cost factors and demand/supply situation esp. in IT space. India still has edge over others in this particular area.
2. This is the first incident of lack of CG at such a scale. However, we must not forget that India still holds a better competitive position to do business in terms of the governance issues and Indian govt. would try its level best to keep up that image. The other competitors like China (growing) still lacks world confidence in terms of legal framework and capital markets.
The incident is definitely a blot in India's growth story, but I think Indian IT industry and capital markets have matured enough since 2000 to cope up with such situation.
3. MNCs like IBM, CSC, etc. had shown interest in getting hold of Satyam which strengthens the market belief that more business is yet to come to India.
P.S.: The share prices of Infy, TCS, Wipro and HCL have gone up in the hope that they might woo the clients of Satyam. India story is here to stay.
I would not say that this would be the "death" of the Indian IT industry but the setback in terms of trust erosion cannot be neglected.
ReplyDeleteYes business considerations like costs and demand/supply will continue to work in India's favor, particularly in existing business, but considering that personnel costs across the world would be dipping due to rising unemployment (excess supply), the inflow of new projects will be affected.
The intent of MNCs to get hold of Satyam is probably driven by the bargain valuations available at the moment than by a favorable evaluation of the overall business scenario.
I would still beg to differ. The trust issue is more with respect to individual you are doing business with.
ReplyDeleteTodays Eco Times articles talks about 10 global players interested in shifting their Satyam contracts to Infy.
http://economictimes.indiatimes.com/News/News_By_Company/Infosys_beats_all_odds_to_log_33_profit_rise/articleshow/3975408.cms