Satyam Computer Services Ltd.

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Satyam Computer Services Ltd.

Mayfair Centre
1-8-303/36 Sardar Patel Road
Secunderabad, 500 003
India
Telephone: (+91 40) 2784 3222
Fax: (+91 40) 2781 3166
Web site: http://www.satyam.com

Public Company
Incorporated: 1987
Employees: 3,850
Sales: $1.09 billion (2006)
Stock Exchanges: New York
Ticker Symbol: SAY
NAIC: 518210 Data Processing, Hosting, and Related Services; 511210 Software Publishers

Satyam Computer Services Ltd. has been a pioneering force in the global information technology (IT) outsourcing market—the company prefers the term "right-sourcing"—since the late 1980s. The company provides a full range of IT services, including software and systems management and development, engineering solutions, infrastructure management, and enterprise business solutions. Satyam also serves the business processing outsourcing (BPO) market, in particular through majority held subsidiary Nipuna, providing back office, customer care, product and technical support, human resources, finance and accounting, and many other related services. The company also provides e-commerce and web site development and management operations, including web-based financial, supply chain, customer relationship, and other services. Satyam operates on a global level, with offices in 55 countries, and more than 30,000 employees serving nearly 500 companies, including more than 150 Fortune 500 corporations. The company offers outsourcing services through its network of offices throughout India. Satyam also provides onsite services, as well as offsite operations in 15 development centers in the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, China, Singapore, Japan, Malaysia, Australia, and India. The company has also been developing a network of "nearshore" offices, filling the gap between the offshore and onsite segments. As such, Satyam's Canadian operations provide services to the North American markets, while its Chinese offices serve the Asian region, and its Hungarian office provides similar services to the European market. Satyam is listed on the New York Stock Exchange and is led by founder and Chairman B. Ramalinga Raju, and his brother, cofounder and CEO Ramu Raju. In 2006, the company posted revenues of $1.09 billion.

INVENTING OUTSOURCING IN 1987

Ramalinga Raju came from a wealthy agricultural family based in Hyderabad, India. The family originated from the small village of Jallikakinada, where Raju's grandfather, a farmer, had built the family's first fortune. When the family's business collapsed, however, the Rajus moved to Hyderabad, where Satyanarayan Raju, father of Ramalinga, built a new fortune as one of the first to begin growing grapes on an industrial scale in the region. By the 1970s, the family's wealth permitted it to send the younger Raju to the United States, where he earned an M.B.A. Returning to India, Raju took over the leadership of the family business, adding cotton mills and entering the construction sector. In this way, Raju laid the financial foundation for a new interest: information technology.

Raju had encountered computers in the United States during his studies; by the mid-1980s, Raju had recognized that the growing computer industry, and the rapid incorporation of computer technology into the corporate market, would create a demand for a new type of specialized service. Raju also understood that corporations, by then operating in an increasingly competitive global market, would seek out means of cutting costs and developing greater efficiency. This led Raju, joined by brother Ramu, to establish Satyam Computer Services in 1987, deriving the company's name from their father's name. Nonetheless, as Raju told Dataquest, Satyam was founded "more as a hobby than anything else. We didn't see it as a major commercial activity to begin with. But very quickly we realized the high potential in this area."

Through the end of the 1980s, Satyam worked on developing and refining its business model. Backed by the family fortune, the Raju brothers were able to develop the company without profit pressures. The same financial security also allowed the company to take a risk, launching what some consider the world's first IT outsourcing company.

In 1991, Satyam convinced its first client, John Deere, to adopt its outsourcing model. Convincing Deere, which remained reluctant, was only part of the hurdle, as Satyam also had to overcome the reservations of U.S. authorities. In response to these concerns, Satyam took the bold step of opening up an office, dubbed Little India by the company, directly across the road from John Deere's headquarters, connecting the two buildings with a 64 Kbps data connection. During an initial six-month trial phase, Satyam forbid its employees from having any physical contact with John Deere, as well as simulating other aspects of the outsourcing relationship, even "losing" the occasional message between the two companies. The trial proved successful and, backed by its first outsourcing contract, Satyam became one of the first companies to establish a dedicated 64 Kbps satellite-based link.

Satyam quickly built on its success with John Deere, attracting a growing number of corporate customers and outsourcing contracts. In order to meet demand, the company invested in building up an international network of development centers. The company's decision to build a varied base of operations, with offices not only in India but throughout the world, became part of its "right-sourcing" concept. For Satyam, right-sourcing involved developing the flexibility to adapt its offering to specific customer needs. In this way, the company was able to provide purely remote outsourcing services, as well as services in closer proximity to the customer. The willingness to open development centers close to its customers, thereby helping to counter perceptions of risk involved in outsourcing, also proved an important component in convincing corporations to adopt the company's services. Another factor in Satyam's success was its early decision to launch itself as a public company in 1992.

From the mid-1990s, Satyam began building out its network of development centers. In order to do this, the company created a series of subsidiaries in Japan, Singapore, England, and elsewhere, to serve largely as marketing offices. The company also launched a number of niche subsidiaries around the world, targeting specific or local markets. One such subsidiary was Dr. Millennium, established in order to provide Year 2000-compliant (Y2K) services.

In 1995, Satyam set up another subsidiary, called Infoway, in order to provide electronic data interchange (EDI) services. Yet given the low level of Internet development in India, Infoway proved ahead of its time. Instead, in 1998, Infoway adopted a new business strategy, becoming one of the country's new generation of Internet Service Providers (ISPs). Because Indian regulations prevented companies from listing on the country's stock exchanges if they could not show at least three years of profitable operations—an impossibility for an Internet company at the time—Satyam Infoway became the first Indian technology company to list its stock on the NASDAQ.

COMPANY PERSPECTIVES

Core Purpose: "To leverage information, knowledge and technology to enhance human endeavor." Satyam develops and deploys intelligent applications in technology for diverse situations meeting varying requirements. Satyam helps businesses and organizations push the limits of excellence, and helps optimize their strengths.

Over the next several years, as Infoway grew into a major Indian ISP, the two companies' operations diverged sharply. By 2002, following a series of extreme fluctuations of Infoway's share price, Satyam announced its intention to sell its control of the subsidiary. As part of that process, Satyam bought out Infoway's software division for nearly $7 million.

In the meantime, Satyam's outsourcing services had continued to develop strongly. A major milestone for the company's operations came in 1998, when it signed a joint-venture agreement with GE Industrial Systems, a division of the U.S.-based General Electric Company. The agreement created Satyam-GE Software Services Private Limited, which built its own World Design Center, focused on the creation of software and CAD/CAM/CAE systems as part of GE's product development operations.

Other partnerships followed, such as a joint venture created with Venture Engineering Services in 2000. The company also continued to build up its global presence, opening a development center in Dubai, called the Middle East Solutions Center, in order to support its operations in that region, in 2001. The company then added a new headquarters for the Asian Pacific region in Singapore, and strengthened its presence in Australia with the opening of an Offsite Development Center in Sydney in 2001. Also that year, Satyam confirmed its stature as one of the world's leading outsourcing firms with a listing on the New York Stock Exchange.

REORGANIZING FOR THE NEW CENTURY

Satyam entered China in 2002, a strategic move designed to allow the company to maintain its place among the leaders of the highly competitive global outsourcing market. The opening of its Chinese offices helped boost Satyam's presence particularly in the Japanese and Taiwanese markets, while also gaining access to the lower wages of the Chinese market.

Satyam also underwent a companywide reorganization. As part of that process, Satyam shed many of the niche subsidiaries it had built up in the late 1990s. At the same time, the company moved to consolidate its network of international subsidiaries. These were reabsorbed into the parent company, and instead restructured as foreign offices within the company. In this way, Satyam developed a more integrated network of operations, with greater cost efficiency.

Satyam added a new Global Solutions Centre in Malaysia in 2003. The following year, the company added a development center in Canada, as part of its effort to introduce "near-sourcing" services for the North American market. This same effort led the company to Hungary, where its development center provided Satyam with greater proximity to the European market. The company also launched plans to open operations in Brazil, while also expanding its domestic presence with the opening of a development center in Calcutta. In the United States, Satyam added a new office in Detroit, the Automotive Center of Excellence, built at a cost of $2 million, as part of its effort to reinforce its presence in the global automotive market. In 2006, Satyam won a contract with General Motors worth $150 million, as part of GM's $15 billion IT outsourcing budget.

KEY DATES

1987:: Satyam Computer Services is founded by brothers Ramalinga and Ramu Raju in Hyderabad, India.
1991:: Satyam persuades John Deere to become its first outsourcing client.
1992:: Satyam goes public on Indian stock exchange.
1995:: Company founds Infoway as an electronic data interchange subsidiary.
1998:: Infoway adopts new strategy and becomes an Internet Services Provider (ISP); Satyam forms global joint venture with GE.
1999:: Infoway goes public, becoming the first Indian technology company to list on the NASDAQ.
2002:: Satyam spins off Infoway as separate company; company lists shares on New York Stock Exchange.
2005:: Satyam acquires Citisoft in the United Kingdom and Knowledge Dynamics in Singapore.
2006:: Company announces plans to open development centers in Guangzhou, China; Hungary; Brazil; and Calcutta.

Also in 2006, Satyam reinforced its strategic shift toward the Chinese market, announcing plans to open a new operations center in Guangzhou. In this way, the company hoped to build up its operations in Japan and Korea, as well as directly serve the southern China market. By then, the company had also completed two acquisitions, of Citisoft Plc, based in the United Kingdom, which focused on the investment management sector; and Knowledge Dynamics Pte Ltd., based in Singapore, which operated in the data warehousing and business intelligence sectors. Both acquisitions were completed in 2005. By then, too, Satyam had sold its remaining 32 percent stake in Infoway, in a transaction completed in November. By the end of that year, Satyam's revenues had risen past $1 billion for the first time. With the global outsourcing industry firmly established in the mid-2000s, Satyam looked forward to years of future growth.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

CA Satyam ASP Private Limited (50%); Citisoft Plc (U.K.; 75%); Knowledge Dynamics Pte. Ltd. (Singapore); Nipuna Services Limited; Satyam Computer Services (Shanghai) Co. Ltd. (China); Satyam Technologies, Inc. (U.S.A.); Satyam Venture Engineering Services Private Limited.

PRINCIPAL COMPETITORS

Goldstone Technologies Ltd.; KCP Technologies Ltd.; Tata Sons Ltd.; Infosys Technologies Ltd.; Jaypee Group; Ocimum Biosolutions; Autodesk India Private Ltd.; Mastek Ltd.; NIIT Ltd.; DSQ Software Ltd.; Rolta India Ltd.; PentaMedia Graphics Ltd.; Ramco Industries Ltd.