Thursday, September 3, 2009

Satyam Computer Scandal: Danger Sign for Indian Outsourcing Sector?

For the last few days, Indian media has remained very busy with covering Satyam Computer scandal involving the accounting fraud of Ramalinga Raju. It has really rocked the image of Indian outsourcing industry as Satyam Computer was considered to be one of the most success stories of outsourcing sector. This scandal has again raised some serious questions about outsourcing to India. You know that, many companies of America, Europe and Australia are now outsourcing their works to Indian companies and in fact, many Fortune 500 companies were clients of Satyam Computer. This shows the extent that richest companies in USA are getting dependent on outsourcing.

The main concern related to this scandal is the level of corporate governance inIndia. Thanks to high economic growth in the last one decade, some Indian companies have really become large and are employing thousands of employees. Information technology related outsourcing projects have made them even bigger and they have grown in size a lot in the last one decade. Growth in size did not necessarily all the time match with improvement in corporate government. The example of Ramalinga Raju is perhaps not enough to reach into a conclusion that the corporate governance in India is not up to the mark of international standard, but it is something that has seriously shaken the positive image of large Indian companies. Some people are asking a serious question that how could just one man do all the accounting fraud and keep accounting fraud of over 1 billion dollar out of everyone’s eyes. So, it has really put some serious questions about the level of corporate governance in India. If the business community in India is afraid about this scandal then we have to understand that American companies are even more worried about this scandal. American companies specially Silicon Valley are worried because they have outsourced a lot of jobs to the companies like Satyam Computer in the last one decade and now, they are becoming concerned whether it is the beginning of a meltdown in large companies of India. If large companies in India suffer a meltdown because of some more serious frauds like Satyam Computer then it will seriously and adversely affect Indian business. For example, I am not sure if any American company will be directed affected by the scandal, but they are now very worried whether their project will be completed in due time. They have adequate reason to be worried because in American, time is really money.

The American and European companies have more reason to fear than just accounting fraud. In 2006, we saw an incident of the arrest of an Indian call centre worker for alleged data theft. No only that, Channel 4 of UK carried out a controversial documentary on data theft in the call centers. This thing created some negative publicity in England about outsourcing. At that time, Indian companies could easily say that the arrest of the man for data theft was just an isolated incident and the documentary of Channel 4 was blown out of proportion. I do not know if they were write or wrong that time, but there is no doubt that there are enough reasons to be worried about the Satyam Computer scandal.

More than data theft, there is some serious concern about call center workers becoming affected with HIV Aids. In 2008, there was a report that many call centre workers were suffering from pressure of working whole night at call centers and to get relief from such pressure, they were getting involved in physical relationship and this way, they were running the risk of having HIV Aids. This report came in September 2008 and generated some media attention, but after that there was no follow-up report about it. If in the coming months we can see serious problem about HIV Aids infecting call center and outsourcing workers then it will bring even more negative publicity for the sector.

Two days ago, BCC published a shocking report about an Indian call center male worker sending unwanted love messages to a woman in England. Many of us know that British companies like British Telecom have outsourced many of their jobs to India and what happened was that an Indian man talked to a customer of British Telecom in England for a service related matter. He talked to the British girl and got personal information like the email and then started sending emails and text love messages. This created a lot of annoyed felling in the girl and, she complained to police and it created a lot of bad publicity in England about outsourcing workers of India. British Telecom has confirmed that they have taken appropriate action about this matter, but we are yet to know what appropriate action has been taken. I like to believe and I do believe that it is just an isolated incident, but you have to remember that when British Telecom opened a call center five years ago, that time it was a very unpopular move among trade union leaders in UK. So, any kind of negative publicity will surely have very bad indication on the outsourcing industry in India.

One positive thing about the whole problem is that Indian government has so far acted wisely. Yes, some people have tried to say that these things were small issues were isolated incidents and some people in India have also this feeling that often incidents are blown out of proportion and Indian outsourcing field gets too much undue negative publicity in the western media. However, one thing that we have to remember is that accepting the problem is necessary because the problem exists. Until now, the western companies were only concerned about data theft and the protection of their data. Now, they have something more to be worried about and it is the level of corporate governance in India. This time, the Satyam Computer scandal is getting a lot of media coverage inside and outside of India. So, there is no scope to put it aside. The Indian companies have to assure the Western investors that they are trying their best to minimize this kind of incident. Of course, in any country, we can never expect perfect business environment and data theft and mismanagement of top officials of large companies happen everywhere in the world. These things happened in USA too in the past. So, it is natural that it will happen in India in future too. What is important is that Indian government officials learnt to deal with them in a natural manner and Indian business leaders also leant to deal with these kinds of issues.

(This entry was first published in January 2009. Because of a technical problem, the entry had to be deleted and I am reposting again now.)

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