Satyam episode will impact credibility of IT firms
The biggest impact of the whole Satyam episode is on the credibility of Indian IT services firms.
What a fall it was! And I am not even talking of Sensex or standards of corporate governance in India. The biggest impact of the whole Satyam episode is on the credibility of Indian IT services firms.
Unlike product companies, issues of transparency and governance are not two levels isolated from the customers. You may not stop buying a good product because the maker is corrupt; but you do not hand over execution of part of your business to a company whose business practices you suspect. And when even in the Indian media, there is very little differentiation between the promoters and the company, you can hardly expect that from media in US and Europe.
In the past, a simple violation of do-not-call regulation has been used to paint the Indian BPO industry as being unreliable; this one is a far more serious and genuine concern. I am sure, while we discuss corporate governance and investor confidence in India, the media in the markets where these companies do business in, will use this to question the credibility of the entire IT industry.
Over the years, the Indian IT industry has painstakingly marketed itself as one that is absolutely world class in its ethics. What has helped is that the top three companies - TCS, Wipro and Infosys - have actually invested a lot on this area and many others have reaped the benefit of their image.
Well, I am not suggesting that others are not transparent or unethical, but it is a fact that many have not been as proactive to invest in this area and market it aggressively. And the real bad takeaway from this whole crisis is not just that Indian firms will be asked questions, it is that the onus of proving will lie on them, even if that makes added investments on regulatory compliances of the markets that they do business in, not just in the service delivery part but in the organisational level as well. That can be a very costly proposition in a tough market.
The worst is yet to come? Apart from the credibility crisis - which incidentally is the biggest crisis for the Indian IT industry in its history, which I think is bigger than the anti-offshoring campaign of John Kerry in 2004 - one just hopes that this is the lowest point in the story. While one hopes so, there is something that tells me that it may be just a wishful thinking.
You can compare it with the economic downturn. It started as sub-prime crisis, turned soon to “credit crunch”, then to “financial crisis”, then to “financial meltdown” before ending up as a full-fledged recession. The Satyam story started as a “misadventure” by its promoters; soon turned to become “a question of corporate governance,” before Raju’s letter admitted that it was an outright fraud. That was about promoters and how they managed Satyam. This has implications for other stakeholders such as the auditors, the other financial investors associated and so on. In fact, when they finally questioned, what they did question was the Maytas investment, which was a much less serious offence than what has been admitted now.
I am sure, like the Western meltdowns, Satyam’s fall would not be isolated. We will see a greater part of the story in the days to come. Well, we used to informally - and if I may add, somewhat fondly - called the top six India-centric offshore service vendors as SWITCH companies, the acronym consisting of the first letters of their names - Satyam, Wipro, Infosys, TCS, Cognizant, and HCL.
With Satyam’s fall, it is reduced to WITCH.
SWITCH was a metaphor for the offshoring wave.I just hope the new acronym does not reflect the way global companies look at Indian vendors. And what a drastic change that would be!
Das is editor of Dataquest, a Cyber Media publication. Views are personal
Unlike product companies, issues of transparency and governance are not two levels isolated from the customers. You may not stop buying a good product because the maker is corrupt; but you do not hand over execution of part of your business to a company whose business practices you suspect. And when even in the Indian media, there is very little differentiation between the promoters and the company, you can hardly expect that from media in US and Europe.
In the past, a simple violation of do-not-call regulation has been used to paint the Indian BPO industry as being unreliable; this one is a far more serious and genuine concern. I am sure, while we discuss corporate governance and investor confidence in India, the media in the markets where these companies do business in, will use this to question the credibility of the entire IT industry.
Over the years, the Indian IT industry has painstakingly marketed itself as one that is absolutely world class in its ethics. What has helped is that the top three companies - TCS, Wipro and Infosys - have actually invested a lot on this area and many others have reaped the benefit of their image.
Well, I am not suggesting that others are not transparent or unethical, but it is a fact that many have not been as proactive to invest in this area and market it aggressively. And the real bad takeaway from this whole crisis is not just that Indian firms will be asked questions, it is that the onus of proving will lie on them, even if that makes added investments on regulatory compliances of the markets that they do business in, not just in the service delivery part but in the organisational level as well. That can be a very costly proposition in a tough market.
The worst is yet to come? Apart from the credibility crisis - which incidentally is the biggest crisis for the Indian IT industry in its history, which I think is bigger than the anti-offshoring campaign of John Kerry in 2004 - one just hopes that this is the lowest point in the story. While one hopes so, there is something that tells me that it may be just a wishful thinking.
You can compare it with the economic downturn. It started as sub-prime crisis, turned soon to “credit crunch”, then to “financial crisis”, then to “financial meltdown” before ending up as a full-fledged recession. The Satyam story started as a “misadventure” by its promoters; soon turned to become “a question of corporate governance,” before Raju’s letter admitted that it was an outright fraud. That was about promoters and how they managed Satyam. This has implications for other stakeholders such as the auditors, the other financial investors associated and so on. In fact, when they finally questioned, what they did question was the Maytas investment, which was a much less serious offence than what has been admitted now.
I am sure, like the Western meltdowns, Satyam’s fall would not be isolated. We will see a greater part of the story in the days to come. Well, we used to informally - and if I may add, somewhat fondly - called the top six India-centric offshore service vendors as SWITCH companies, the acronym consisting of the first letters of their names - Satyam, Wipro, Infosys, TCS, Cognizant, and HCL.
With Satyam’s fall, it is reduced to WITCH.
SWITCH was a metaphor for the offshoring wave.I just hope the new acronym does not reflect the way global companies look at Indian vendors. And what a drastic change that would be!
Das is editor of Dataquest, a Cyber Media publication. Views are personal