World Bank could consider itself lucky for canceling their IT contract with Satyam. Several crucial business processes of global majors including General Electric, Nestle, ArcerlorMittal, Honda, Goodyear, BMW, General Motors, and Qantas could be faced with an uncertainty, thanks to question marks hanging over Satyam?s fate.
Satyam, a strong player in package implementation space, is crucial to their ERP systems, which is considered the backbone of IT infrastructure. Insiders expect some to consider switching vendors in the long term, but they will have to live with uncertainty on many of their crucial business processes.
Real impact will be known once more details emerge. ?This will surely have a business impact but we will have to wait for more details to understand the depth of the problem. Clients will definitely strengthen their due diligence and could look at alternatives, but it is too early to say anything,? said Infosys MD & CEO S Gopalakrishnan. “It is going to be business as usual for the company for some time as switching business will be tedious. Definitely the incremental business of the company will suffer,?? said Hitesh Agrawal, head, research, Angel Broking
Rivals are already firming up strategies to woo embattled software services company?s customers and even look at poaching the employees servicing the client along with the contract to ease the transition of the deep-entrenched business processes. While HCL, which has just acquired Axon (strong in package implementation space like Satyam), is seen to be a strong contender, many others are learnt to be hatching plans to woo Sataym?s customers. “This is happening at the worst time. With the economic crisis, clients are consolidating their vendors as a cost saving measure. This could prove very disadvantageous for Satyam at this time,” said Harshad Deshpande, IT research analyst, Angel Broking.
Satyam boasts of who’s who of the corporate world as its customers. According to last annual report, Satyam has two customers with annual revenue run rate greater than $100 million, and more than 50 exceeding $10 million. At the end of fiscal 2008, Satyam had 617 active clients, with more than 180 on the US and Global Fortune 500 lists. The company is also the official IT services provider for the 2010 and 2014 Fifa World Cups. In the BFSI vertical, Lehman Brothers and Merrill Lynch are its clients, while all major auto companies like GM, Toyota, Jaguar, Ford, Nissan, BMW etc contribute to its revenues from the manufacturing vertical. It has names like Unilever, Nestle and ITC, while in pharma it services GSK, Novartis, Johnson and Johnson, Pfizer etc. Source say Arcelor Mittal is one its biggest clients.
Apart from having a presence in all traditionally strong sectors like BFSI, telecom, manufacturing, retail etc, the company’s strength’s lie in system integration and application integration. “The work that Satyam does is very core to the functioning of its clients. This is the reason why switching vendors is not easy,” said Ashutosh Gupta, vice-president, investment relations, Evalueserve. He added there are large teams that work on individual projects and there is a lot of institutional knowledge embedded in the mind of people.
Analysts like Forrester were advising Satyam’s clients to start shifting work if management change issue is not resolved in 6 to 9 months. Companies like GE, which work with Indian offshore vendors, are likely to be the first ones to consider migrating. Grapevine suggests one semiconductor client could be exploring ways to restructure its contract.