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1/9/2009
06:45 PM
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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

Other than suing Satyam's leadership individually, there could be little redress for companies caught without contingency plans, according to licensing and technology attorney Shaalu Mehra. "Companies can look to their contracts regarding termination clauses, but those are going to be of little comfort if Satyam goes out of business," Mehra, a partner at Perkins Coie and chair of the firm's outsourcing and India practices, said in an interview. "Customers should treat this as a priority-one disaster and put in plans to switch as quickly as possible."

The financial services executive said his company is "very, very concerned" about Satyam and has a team in India closely monitoring the situation there. So far, the company is taking a wait-and-see approach and isn't cutting its business, but may still change course, and when the dust settles there will likely be a full review of what happened. It's clear Satyam experienced an unexpected fall from grace. "People are a little shocked in the sense there was no indication of a problem," he said. "They generally did good work."

Though he believes his company only has minimal exposure to risk, he expects few of his colleagues in other companies have planned for problems like this. "Everybody's kicking themselves now," he says. "I think a lot of people are going to get caught short because they didn't think about contingencies, especially skills." Many American companies use outsourcers as a cheaper source of skilled labor than would be available in the United States.

Nissan North America, which signed a multimillion-dollar contract in 2006 to outsource most of its IT systems and application support to Satyam, isn't taking any chances. A spokeswoman said Nissan is busy "taking appropriate steps to ensure the continuity of Satyam-supported systems and applications." It's unclear how much exposure Nissan has to risk, though with U.S. sales dropping by more than 30% in December, the last thing Nissan needs is to have critical IT operations on the fritz.

Airplane manufacturer Cessna, which has a small relationship with Satyam, said it's watching the situation with interest. Frozen foods company Bird's Eye Iglo Group said it had no comment to make "beyond business as usual." Caterpillar said it's in a quiet period and would have no comment for now.

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