Davos: India’s burgeoning IT sector has granted its businessmen glamourous places among the world’s elite in Davos, but this year they are on the defensive, looking to rebuild trust after the Satyam scandal.
The last 12 months have been brutal for the reputations of many former high-flying businessmen, none more so than the boss of Satyam, B Ramalinga Raju, who is currently in jail.
The founder of India’s fourth-largest software services company was on the initial guestlist for Davos this year, but is in custody facing charges of cheating and forgery after owning up to multi-million-dollar fraud.
The rest of the Indian IT sector, which has enjoyed years of rapid growth due to outsourcing by multinationals, now faces a crisis of confidence at a time of falling demand due to the global economic crisis.
“It was a ‘caught in the headlights´ feeling,” reflects Vineet Nayer, chief executive of HCL Technologies, India’s fifth-largest outsourcing provider by sales, when recalling the day he learned of the Satyam fraud.
“One day you open the newspaper. It was an unbelievable morning. It seemed impossible that something like this could have happened in India,” he said on the sidelines of this year’s Davos forum.
The incident, he said, had required Indian IT companies to reassure customers and investors about their businesses and is driving a broader trend towards greater transparency.
“One bad apple does not make the whole orchard bad,” he stressed, adding that HCL did double auditing - a second auditor checks the work of the first - and has six independent directors.
“Satyam is a bad incident but I think we are converting that into an opportunity to have an open conversation with customers.”
The sector was also hit by the World Bank in January, which said it had barred a handful of Indian companies, including Satyam, from doing business with it because of accusations of corruption.
Wipro Technologies and Megasoft Consultants Ltd were also named.
Nayer predicted that competition in the Indian sector, which generates $40 billion a year, is set to hot up in the current depressed climate, with global consolidation and the failure of weaker firms.
“Overall, there is going to be a reduction in IT spending. We can’t run away from it. However, I believe there are so many companies providing IT services, that there will be a turn towards quality and value.
HCL, which reported a sharp rise in fourth quarter profit and sales, would look to step on the accelerator in the “tunnel” of the current climate and look to emerge into the light the other end faster than its competitors.
Last month, HCL acquired Britain-based Axon in an $811 million deal that was described as the largest overseas acquisition by an Indian outsourcing firm.
Elsewhere in Davos, the head of Infosys Technologies, India’s second-biggest technology company, warned that the current environment was the toughest since he started his career as a software engineer 30 years ago.
Conditions had deteriorated over the past month and employee bonuses and compensation packages would be cut in the months as the global financial crisis bites.
“This year it’s expected to be very muted the number of people getting increases in salaries and bonuses and promotions. It will be very limited,”
Infosys chief executive Kris Gopalakrishnan told Dow Jones Newswires.
“The velocity of business has slowed down significantly ... The bottom is not yet reached, that’s very clear,” Gopalakrishnan said.