Furthermore, Satyam customers that do not currently operate captive entities in India are likely to find that there is insufficient time to create such operations. In response to these limitations, the industry may turn to "build-operate-transfer" agreements, under which new outsourcing vendors would hire the Satyam employees (in a manner that does not breach their customers' nonsolicitation obligations) to operate the outsourced services for a defined period, after which the outsourced operations may be transferred to captive entities of the respective customers.
3. Disruptions to customers of other outsourcing vendors
The disruption of outsourced services will not be limited to Satyam's customers: Current customers of other outsourcing vendors can also expect near-term impacts on their outsourced operations. Apart from the inevitable strains to these vendors' infrastructures as they accommodate business from Satyam, customers may see the most experienced and skilled personnel on their engagements reassigned to the transition of former Satyam accounts. In addition to vigilantly monitoring service-level agreements, existing customers may mitigate such disruptions by exercising their contractual protections regarding personnel experience requirements, skill sets and attrition rates.
4. Opportunities for multinational vendors
Apprehensions regarding the financial standards of "India Inc." might benefit multinational outsourcing vendors, which are positioned to proffer outsourced services from India free of negative perceptions regarding that country's financial controls. Following Satyam's announcement, Indian vendors have taken measures to dispel customer concerns, and in the long term, the scandal may benefit India's outsourcing industry by accelerating the maturation of financial controls. However, in the immediate aftermath of the scandal, the likes of IBM, Accenture, Oracle, and SAP appear well positioned to acquire work from Satyam as well as newer customer opportunities.
5. Re-evaluation of Sarbanes-Oxley compliance by outsourcing customers
The Satyam developments may raise concerns for public-company filers regarding their compliance with Sarbanes-Oxley Act provisions pertaining to outsourced operations. Under guidance from the SEC and the Public Company Accounting Oversight Board (PCAOB), customers have generally relied upon SAS 70 reports prepared by the vendors' auditors in order to attest to the financial controls over the outsourced operations. The apparent failure of Satyam's internal controls may raise uncertainty regarding continued reliance on such reports, and with 10-K season approaching, outsourcing customers may seek further guidance from the SEC. It remains to be seen if these developments will, in the longer term, trigger a reassessment of the SAS 70 standard and reliance on same by the PCAOB and/or SEC.