Believe in Yourself, Analysts Advise India Inc.

by Sonal Desai    Jan 14, 2009

Were the recent disclosures made by Indian IT companies to the stock exchanges, a form of pressure let-off?

Caught in the fallout from the Satyam scandal, many companies are making public statements even if they are insignificant now, said T.R. Madan Mohan, partner, Browne and Mohan. "The manner in which we reacted only brings out the inferiority complex in us. We still think, Oh! What will the US say, ‘What will the World Say?"

"Outsourcing is a $64 billion industry in India. We have a head-start over the others, and it is high time we stopped reacting like this," said Diptarup Chakraborti, principal research analyst at Gartner.
Wipro made the disclosure that it will not be able to directly bid for any World Bank (WB) projects till 2011, to the Bombay Stock Exchange. Another US-based IT company, Megasoft that also has offices in India too made a similar disclosure the same day.

A day after the World Bank made public that Wipro has been barred, none other than Azim Premji, chairman Wipro personally addressed employees saying that the company had done nothing unethical. Premji’s internal communication to the employees came a day after CEO Girish Paranjpe signed on a similar statement that was published in corporate announcements at BSE.  

While the companies maintained that the mails were a move to put straight their positions before employees and customers, analysts said that the recent happening is a pure pressure let off from Indian IT companies.

The World Bank said that the IT firms were ineligible to bid for direct contracts from 2007-2011 citing conflict of interest’ as the reason. This shows that the bank is blacklisting firms for collusive practices with its staff, inappropriate documentation of invoicing. However, in this case, the firms are not blacklisted because of loss of data, inappropriate service, etc. In fact, the World Bank CIO was asked to resign once it was clear that the WB bureaucracy was equally culpable in these matters.

According to WB, Wipro’s ADS offering to its employees through a Directed Share Program constituted ‘providing improper benefits’. However, according to Wipro, 90% of the companies in the US resort to DSPs to popularize their brand. So this incident is not one-off, nor is Wipro the only company that has used this financial ingenuity to popularize its brand.

And what does this mean for the Indian IT and media, "There is a need to rightly position the issue, that of the malice of dealing with the government and bureaucracy. It is simply a statement of here was the rot within the hallowed walls of WB that encouraged bribery and the fall out of the companies that compromised," said Mohan.

Chakraborti said that there is a need to communicate to the market that this is not unique to Indian firms. Even so-called developed country firms from Germany, UK, USA are barred periodically.

So what needs to be done now? Said analysts and G.V. Kumar, managing director and CEO of Megasoft Ltd., one of the companies barred by the WB, "We have to explain the situation to employees and customers. Who knew that the WB would come with something from 2007, today? Hopefully, we should be able to convince our customers as well."

Chakraborti said that the debarment will certainly have a short and near term impact. "It is not complete destruction. This is somewhere in between. The Indian IT outsourcing did not happen because America wanted to be kind to India. India provided excellency, others started copying our model. There will be skepticism, clients will raise questions. This is a good wake-up call. All the same, let us not hype this issue beyond what it is worth. We are not villains in an otherwise perfect world."