Mahindra Satyam Asia

The truth hurts in "India's Enron" scandal

Satyam means "truth".  The name marks an ironic twist of fate for the once-proud IT services provider. In January 2009, Satyam Computer Services publicly announced a massive company scandal (widely referred to as "India's Enron") that shocked corporate India, alienated many of the tech giant's clients and sent its name value into a downward spiral.

A global IT consulting and services provider serving more than 400 clients in 60 countries, including 30-plus global solution centers, the firm is one of India's largest software exporters; some 96 percent of annual revenue comes from outside the country.  Satyam targets clients in 19 industries, offering services in business strategy, technology planning and implementation, outsourcing, testing and supply chain management, among other areas.

Since the scandal emerged in January 2009, however, there is very little, including the information above, that can be said about Satyam's business that is not prefaced by the phrases "prior to the scandal" or "since the scandal", the "scandal" being the resignation of founder and Chairman B. Ramalinga Raju as he confessed to falsely inflating the firm's profits by more than US$1 billion.  It is a scandal that rocked the entire world of Indian IT services and outsourcing, decimated the value of Satyam's stock price and forced the sale of what remained of the firm to the highest bidder.

Tech Mahindra becomes savior

In February 2009, a government-appointed board was put in place to guide the disgraced firm. Before the scandal, Satyam had been a desirable acquisition. Hungry suitors included IBM, Wipro and Hewlett-Packard. Post-scandal, the IT swan had transformed back into an ugly duckling that few firms wished to acknowledge.

However, Satyam's knight in shining armor eventually arrived in April 2009, as fellow IT services firm Tech Mahindra announced it had agreed to buy a controlling stake in Satyam. Initially, the firm snapped up 31 percent of Satyam for INR 17.6 billion through its Venturbay Consultants unit, after receiving approval from India's Company Law Board.  The Company Law Board then approved a further purchase by Venturbay in July 2009, a deal which increased Tech Mahindra's holding to 43 percent.

At the time of the purchase of the initial 31 percent stake, Tech Mahindra announced that Satyam Computer Services will continue to operate as a standalone business unit under the new corporate identity of Mahindra Satyam.  After the buy-in, Tech Mahindra became India's No. 4 IT firm behind TCS, Wipro and Infosys. In the transition, Tech Mahindra's biggest challenge will be to restore (and expand) Satyam's client base, as well as repair the firm's tarnished reputation.

Modest beginnings

The spectacular demise and sale of Satyam belies its humble roots. Founded in 1987, the firm began on a very small scale, outsourcing 36 engineers to U.S. companies. The firm timed its arrival into the burgeoning outsourcing market perfectly, and experienced rapid growth within just a few years, something aided in no small part by a critical expansion into software services. Having gone public on the Bombay Stock Exchange in 1992, Satyam now has now has 37 offices in India, five in China and two in Japan, plus locations in Australia, Hong Kong, Korea, Malaysia, New Zealand, Singapore, Taiwan and Thailand. 

While its ownership may have changed, the company continues to offer IT consulting and solutions to industries including aerospace and defense, automotive, banking and financial services, chemicals, education, energy and utility, government, health care, industrial equipment, insurance, infrastructure, life sciences, manufacturing, media and entertainment, nonprofits, process industry, real estate and construction, retail, semiconductor, supply chain management, telecommunications, and travel and logistics. Established in 2002, subsidiary Satyam BPO (formerly Nipuna Services) manages most of its business process outsourcing work and has about 2,400 employees. Another subsidiary, Satyam Infoway, became India's first private internet service provider when it debuted in 1998.

Clients coming and going

Up to the revelation of the accounting scandal, the firm had been a tech consulting giant and India's fourth-largest software exporter, with operations in 57 countries and a regular client list of over 570 national, international and multinational companies, including 185 members of the Fortune 500.

The biggest question facing the company is in whether the deal with Tech Mahindra will be enough to win back the trust of many of Satyam's clients, some of which jumped ship as word of the scandal broke, Indeed, in the three months following the unveiling of the scandal, some 23 clients terminated their service agreements completely, with 43 others partially or completely withdrawing without going as far as to terminate their agreements.  Some of the big losses were firms of the caliber of Agilent Technologies, retail home improvement chain Lowe's, and electronic payment service provider Euronet Worldwide. Of course, with an ongoing global recession, there are no guarantees that all of the losses were directly attributable to the scandal, but customer retention nevertheless remains the firm's biggest and most immediate concern now that the immediate questions over its survival appear to have been settled. If it's any indication of where the firm's headed, Tech Mahindra reported that Satyam had won a total of 215 new business orders and new clients by the end of March 2009. While it declined to name any names, the firm did reveal that the new clients are primarily US- and Asia Pacific-based companies.

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Mahindra Satyam Asia


Bahadurpally Village
Qutubullapur Mandal, RR District
Hyderabad 500-855
Phone: +91-40-3063-3535
Fax: +91-40-2309-7515
www.mahindrasatyam.net

STATS


  • Employer Type: Public
  • Stock Symbol: 532755, TECHM
  • Stock Exchange: BSE, NSE
  • CEO: C P Gurnani
  • 2009 Employees: 41,622

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