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Industry debates Satyam scandal

Industry debates Satyam scandal

Industry representatives are divided on whether Satyam Computer Services’ accounting debacle will affect customer perceptions of offshore versus Australian services providers.

In one of the biggest scandals to rock the IT services industry, the Indian outsourcer’s chairman, Ramalinga Raju, revealed that it had inflated profits and cash balances by millions, understated liabilities and overstated credit amounts for several years. He then abruptly resigned.

Ovum principal analyst for IT services, Jens Butler, predicted Satyam’s illegal accounting practices would subject the broader industry, and particularly outsourcers with offshoring operations, to tougher regulations and customer scrutiny. At the same time, cost savings associated with offshoring would be tempered by customer demand for lower risk, he said.

“There will be a huge focus on organisations with operations in India or offshore, as well as around systems integrators’ governance, compliance, accountability and cash flow,” Butler said. “In Australia especially, we haven’t really been impacted by these problems before – Enron, for example, didn’t hit us here.

“The risk component associated with offshoring to any Indian or other player will have risen – the whole industry will be tarred by this brush.”

Adding fuel to the fire, the World Bank last week revealed it had blacklisted fellow Indian outsourcer, Wipro, from contracts between 2007-2011.

UXC Business Solutions Group managing director, Cris Nicolli, said it was time for the industry to start backing Australian companies and cited new business opportunity.

“It puts a cloud above the returns and benefits of going offshore,” he said. “People base their decision on the risk return and costs savings, but risk has been discounted somewhat as customers haven’t had a problem like this in a holistic sense until now. This turns the table.”

Satyam has a significant Australian customer base including Qantas, CBA, Telstra and NAB. Many are reviewing contracts and setting up contingency plans in the event Satyam falls. Butler said this could open up opportunities for local, mid-tier players around short-term project and consulting work.

“The cost to kick Satyam out of an organisation on a five-year contract would be substantial, so I don’t expect big contracts to necessarily go to a UXC, SMS or ASG,” he said. “The opportunity will be around short-term projects.


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