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1/9/2009
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IT Customers Closely Monitor Satyam Scandal

Many companies rely on the outsourcer based in India for vital technology operations like supply chain management and business intelligence.

Satyam Logo

They're keeping a close eye on it for now, because by Monday, the situation for Satyam customers could be vastly different.

Many companies rely on the outsourcer from India for vital technology operations like supply chain management and business intelligence. It's too early to tell how their relationships with the embattled Indian outsourcing firm -- and with outsourcers in general -- may change as a result of a major accounting scandal at Satyam, but with the future of Satyam up in the air, customers risk significant disruption of their IT processes.

Those companies that had contingency plans in place -- by multisourcing, keeping some redundant expertise in-house, or instituting processes to help quickly redirect services in the case of an emergency situation -- should have an easier time recovering if Satyam should fail. For example, one Satyam customer, an IT executive at a major financial services company, said in an interview that his company uses Indian outsourcers primarily for extra IT capacity and also has a relationship with competitor TCS, so it's a bit buffered from Satyam's problems.

A Ford spokesman said the company also has a number of existing relationships with other Indian outsourcing companies. It's unclear whether Ford can or will ditch Satyam as a vendor. "We are currently evaluating the situation and are not prepared to make any comments at this time," he said. Still, those additional relationships could prove critical.

The fallout could be big. On Friday, Satyam chairman Ramalinga Raju -- who revealed earlier this week that his company had, for years, manufactured revenue and profit margins -- was arrested. Meanwhile, the Indian government's Company Law Board fired Satyam's remaining board members and said it would replace them with a new slate of directors. Those moves come on the heels of a growing number of analyst reports suggesting Satyam is insolvent and could soon go out of business without help, putting 53,000 employees out of their jobs and exposing customers already smarting from a down economy.

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