You could call it a case of bad timing. Immediately after the World Bank announced a ban on Wipro and Megasoft, both companies went on record to state that revenues from bank projects were immaterial. Analysts too expect only a negligible impact of the ban alone, but feel that implications could be huge, if you couple it with the Satyam fiasco.
Deepak Ghaisas, former CEO of I-flex Solutions, says that disqualification of a vendor by a company is not a first. ?But, this time it came to everyone?s notice as it happened at a time like this.? It is not the event itself that is important. Timing of it is extremely bad too, coming right after the Satyam fiasco. The combination will definitely shake up the very base of Indian IT sector.
Ganesh Natarajan, chairman of the IT industry body, Nasscom and global CEO, Zensar Technologies feels that the impact, however, will be short term. This obviously doesn?t translate into a big business loss for the two companies. While Wipro derived less than $1 million in revenues from the bank, Megasoft last serviced it in 2004 and has even shifted its focus from the onsite staffing services that it used to provide to the bank.
Pointing out that closure of sales order will take more time now, Natarajan says it will add on the woes of the industry in these times of recession.
?As it is, such things are taking a lot of time now due to the economic slowdown and the recent events will just add on to it,? he says.
As an instant reaction to the ban on three Indian IT companies, two of which are among the top five from India (Wipro and Satyam), companies may put work done out of India under the scanner. ?As a fallout of the Satyam episode and the World Bank ban, the layers between the bidding and the allocation of the projects may increase significantly. There are high chances that companies will undertake a great deal of due-diligence before awarding new contracts. All this will lead to delay in the process of offshoring work if any,? points out Harshad Deshpande, IT research analyst, Angel Broking. He adds that as part of the scrutiny process, vendors may now have to disclose a lot more information about their clients and employees. The IT analyst at Religare, Hichens Harrison adds that existing clients too may rethink their engagement and future business with the debarred vendors.
According to the World Bank India spokesperson, it is not the first time that any Indian company has been debarred by the bank. ?Earlier, the bank used to disclose names of companies that were barred from working with World Bank-funded projects. However, the bank policies changed after the Satyam episode and even companies that are barred from doing business with the bank are being brought into the public domain,? he says. In the first kind of list, three Indian companies figured along with an individual. However, in the new list, there are three companies and all of them are Indian IT companies.
But the fact is that it is not only Indian companies that were on the receiving end. In the past, there have been several UK- and US-based IT companies which have met with a similar fate. ?I think it is time that the bank looked inward and implemented a strong code of conduct for its employees. While the practices like these can?t be completely eliminated, the bank has to get strict with its own employees regarding these things. Banning companies alone will not help,? says an expert with an IT consultancy who did not wished to be named.
The ban on grounds of offering company shares to bank employees has also raised a question mark on the practices of the IT industry as far as contracts are concerned. ?Giving a certain share of ADRs to employees and clients is a fairly accepted practice under the US law. Though World Bank, as a matter of its own policy, doesn?t approve of it,? says Raman Roy, CMD, Quatrro BPO Solutions. However, it is difficult to establish whether doling out company shares is a popular practice in the industry. ?All kinds make the world. There have been several times when we have heard of shady deals where vendors have provided improper benefits to secure projects. So, companies have to put in place stricter practices to stop such dealings,? says a deal broker.
Meanwhile, the industry grapevine is that there are possibilities that people from other countries partnered the Satyam project, for which it was banned by the institution for eight years for alleged malpractices, including bribery and non-confirmity to corporate governance. Moreover, sources in the know also say that Satyam?s attorneys are still in negotiations with the World Bank officials. ?We are working out on various issues, including the receivables from World Bank. In the current scenario that the company is in, the new board appointed by the government, is expected to take some leads with the officials of World Bank as well,? sources inform.
While the Satyam episode and the World Bank controversy have dealt a combined blow to India?s Brand IT, the industry is finding some solace in the fact that India?s largest software company, TCS, has been awarded a majority of the work that was being done by Satyam. ?It will help salvage India?s image to some extent,? says an industry analyst.
