It has been widely reported that Mumbai Stock market-listed Tech Mahindra, subject to due diligence, has had its offer accepted to buy a controlling interest in the scandal-hit Indian outsourcer Satyam. News of the bid from Tech Mahindra, which is 31% owned by BT Group, will come as a huge relief to Satyam’s customers.

But the relief felt by Satyam’s current customer base may be short lived. The greater stability the deal brings for Satyam’s future must be balanced against with the very real possibility that the cultural mix between the two organisations may not work – a prediction of several broking firms.

Irrespective of the outcome of the resulting merger, Tech Mahindra cannot be considered the tonic for the rest of the marketplace. When the scale of Chairman Ramalinga Raju’s alleged embezzlement (US$ 1 billion) was announced in January, a huge shockwave ran through the whole offshore market, primarily felt by those using Indian offshore providers. The effects have been twofold. Firstly, with suspicions over the legitimacy of India’s economy added to, companies have begun to review their reliance on India...

Those companies who are offshoring to India are understandably concerned at the prospect of ‘another Satyam’ being discovered, or indeed of other problems surfacing, especially in the light of India’s political upheavals and those of its neighbours, like Pakistan. While there is not a mass exodus from Indian-based outsourcers, geographical risk needs to be reassessed. Proactive risk assessment programmes are being actively pursued, including analysis of levels of dependence on Indian providers, risk mitigation plans and precautionary investigations into providers outside India.

Secondly, the corporate structure of Satyam with a shareholding pattern held overwhelmingly by one family that allowed such a fraud to be perpetrated has been examined, bringing those companies with similar structures under close scrutiny.

These are irreversible effects – so much of an offshoring relationship depends upon trust and this has been ’dented’ if not for the entire Indian IT marketplace, then certainly for the Top Tier providers. Western organisations may now avoid the major players and instead choose perceived ‘safer’ Tier Two Indian IT providers, or look elsewhere towards the emerging destinations previously overshadowed by India’s dominance.

Although Satyam itself may have been rescued, there has been severe short term damage to the reputation of the Indian IT industry. And while there is as yet no evidence of another Satyam-type incident, if a similar situation were to occur, it could be devastating to the rapidly growing Indian economy.