Satyam scandal will change global outsourcing rules

Companies may find it difficult to trust the Indian outsourcing community as the allegations of accounting fraud at Satyam Computer Services have raised serious concerns about its operations and survival, according to a new report.

Booz & Company's report indicated that firms working with now troubled Satyam are anxious as to whether or not it will survive and its current customers need to determine how this will affect their operations.

"Customers will no doubt expect much higher standards of financial transparency and due diligence after this; and every company needs to set up a systematic way to analyse current outsourcing relationships and develop workable risk mitigation against short-term service disruptions," said Ramez Shehadi, a partner at Booz & Company.

The Satyam scandal sent shock waves through the global IT community, making top executives worldwide wonder if it was an isolated incident, or a watershed in the globalisation story of Indian business.

"Companies with long-term relationships with Satyam have one primary concern: Satyam's survival," said Shehadi. It will not be in a position to invest significantly in client engagements, staff development or R&D; all critical elements for an IT services company; and it must spend a great deal of time and resources working through its accounting issues and dealing with extensive external regulatory investigations in both India and the US.

Despite most Indian IT and BPO companies stating they will not poach Satyam employees or clients; several firms are trying to wean away Satyam clients. 

On the positive side, most of the outsourcing work in India is done out of centres in Hyderabad, Bangalore, and Chennai – home to many Satyam competitors. Plans for the absorption of staff and clients are expected to be drawn up by competitors within days, and shifting to take place within weeks. For Chief Information Officers, the possibility of this upheaval has caused a concern regarding the operational resilience of these new relationships.

"We recommend Satyam's clients move quickly to assess the damage and put in place contingency plans for service continuity," said Shehadi. They must determine their exposure to, and reliance on Satyam, with a comprehensive inventory of the projects Satyam was working on.

Source: www.business24-7.ae, By a Staff Reporter