Scandal Unnerves Offshoring Clients

The news last year was that Indian outsourcers were behaving more like their U.S. counterparts: moving up the value chain into software development and consulting and even acquiring Western companies.

The news this year is that the bad habits of U.S. companies translate, too.

Evidence that Indian companies are catching up in some not-so-good ways came with the announcement that Satyam Computer Services Chairman Ramalinga Raju had resigned amid a scandal that involved falsified earnings and assets. Satyam (the word means “truth” in Sanskrit) was India’s fourth-largest software services provider. Shares in the company promptly collapsed, and mass layoffs seem likely to follow.

“It was like riding a tiger, not knowing how to get off without being eaten,” wrote Raju of the fraud in his tell-all resignation letter. He concluded: “I am now prepared to subject myself to the laws of the land and face the consequences thereof.” It was later reported that he had attempted suicide.

The immediate question for Western companies, of course, is the viability of doing business with Satyam. Not only is its reputation tarnished, but it could lose talent to rivals.

A larger issue is the integrity of the Indian market as a whole. Fraud happens in India, as it does everywhere else, but other Indian IT companies, including Wipro and Infosys, have reputations for running clean shops. And India has regulatory machinery that, while imperfect, offers some hope of catching the bad guys–more so, perhaps, than one would find in China. But further revelations of problems at Indian companies could have a chilling effect on the subcontinent.

Possible winners in the affair: IBM and Accenture, which have extensive operations in India and relationships with many large Sat-yam customers. Also, as American companies, both are insulated from the whiff of scandal attached to Indian firms.