Satyam scandal – Can other Indian outsource vendors be Trusted?
January 18, 2009
You have been reading a lot about Satyam accounting scandal, various news about questioning Indian capitalism, trust and integrity and accounting practices of other Indian companies. Yes, Satyam accounting fraud creates moral and ethical issues for other Indian companies but you cannot compare Satyam with other Indian outsource vendors. Satyam accounting scandal is well planned and executed by a single company and it is not unique to emerging economy like India. You can blame Satyam for undermining international trust on the Indian outsource industry and it definitively increases scrutinization of all other outsource relationships with other Indian outsource vendors. To understand the long-term impacts on Indian outsource industry you need to ask following three questions and find answers for it.
1. Is Satyam scandal is unique or there are wide spread accounting and financial issues with other Indian outsource vendors?
Definitively Satyam is not the last bad apple; there might as well be other Indian companies may emerge as the economy further weakens. However, Satyam is definitively not the norm for corporate governance in other Indian outsource companies. Several good outsource vendors still exist in India, they follow good corporate governance and follow high international standards in corporate accountability and these companies will certainly continue to be the success story of Indian outsource industry.
2. Is Satyam scandal creates a long-term trust and moral issues for the Indian outsource industry?
No. Satyam scandal emerged at the wrong time, as the IT/BPO industry is facing significant slow-down due to global recession and the clients have been thinking other alternatives like homeshoring, nearshoring, etc. Other than the timing of Satyam scandal there will not be any long-term impact on the outsource industry. Though Satyam accounting fraud is big in the recent memory for all of us, we all know that it is not the first case; following are some examples of major accounting scandals that rocked the entire world:
South Korea based Daewoo Group
Hyundai Motor’s embezzlement case
And we all know about Enron, WorldCom, Adelphia Communications Corp, Madoff
The corporate scandals have been happening all over the world and it will continue to happen, you cannot slam a country or an industry based on few bad companies.
3. Can Indian government and Indian outsource bodies like Nasscom do anything to avoid accounting fraud like Satyam?
Well I do not know anything about accounting so I cannot comment on it, however I do know that no matter how transparent the Indian companies are, they can still do lot of improvements to gain back the Trust in the outsource world. I am sure the Indian government, Securities and Exchange Board of India, SEBI, and Nasscom can do lot more to make the outsource vendors to be more open and transparent in their corporate accounting practices.
Bottom line Satyam accounting fraud should definitely be a wake-up call for the entire Indian outsource industry, the Indian government should take proper actions on the wrongdoers to restore the confident and trust of the global community. All the Indian outsource vendors must do damage control on their part and must adopt an effective corporate governance policies to bring fairness and openness in all their activities to win back the TRUST of everyone. Somewhere I read a quote about trust that said,
“Trust is like a vase, once it is broken; though you can fix it, the vase will never be same again”
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8 Responses to “Satyam scandal – Can other Indian outsource vendors be Trusted?”
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As the Indian PM told India Inc should bring back the corporate ethics and exhibit highest accounting standards to bring back the trust of all the people. Let us all hope that the Satyam scandal is an isolated incident and did not affect the rest of the India Inc.
Nice blog, I hope the Satyam scandal is isolated incident and other Indian businesses have good accounting standards. In the business week blog, the author tells that China will gain from the Satyam scandal.
What happened after China’s Lead poisoning? Did US reduce their toy imports from China? Did US start looking into other countries? The answer is “NO”. Any scandal if it is not widespread then things will come back to normal and I think same with the Indian outsource industry.
Research firm Gartner predicts Satyam will not exist next year due to financial constraint ($125 million for payroll) and it will be difficult for Satyam to sign new clients due to its current crisis. Gartner also said that offshore outsourcing is relationship business and any vendor must spend money on client engagement, staff training, and R&D, Satyam is not in a position to do any of these, which are crucial for any outsource vendor to be successful.
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