BPO Jitters to Remain Till the Mess Clears

by CXOtoday Staff    Jan 08, 2009

While the industry, still trying to retain normalcy a day after the scam unearthed, has mixed reactions, analysts said the IT companies will have to be ready to face more client queries, but there is no reason to be nervous.

Sunil Mehta, country manager of Quint did not rule out the possibility of Indian BPOs losing business. "Outsourcers could possibly lose future new business. This could add up and have a further negative effect on the already under pressure BPO industry as a whole."

"So the industry will definitely feel jittery due to any such adversity, albeit only for a short while till the mess is sorted out," said Mehta. "They should all have proper corporate governance and maybe go beyond just one external auditor and have a double audit in order to reassure clients, industry, stakeholders, and the country at large."

"Every company, certainly large companies, they have very close relationship with customers. The CEOs and senior management of the Indian industry have a close relationship with the senior management of the customer companies," said Narayana Murthy, non-executive chairman of Infosys. "We have a lot of transactions where we have demonstrated class, quality and integrity, so I don’t think all of that will be destroyed just because of one bad apple."

Murthy said that the IT industry has to communicate to their investors and customers and all potential investors that Satyam is indeed an isolated case of mis-governance and must all be prepared to answer further questions so that the investors get an enhanced level of comfort. "The most important first step for regulatory authority of India is to get the bottom of this and take a swift and decisive action to bring the guilty to whatever punishment they deserve."

"What has happened here is nothing compared to the PNZI scheme and the NASDAQ founder. Also PwC is a global ACC firm that is established in most of western Europe. Links with ACC firms are yet to be proven unlike the Enron case, and even if
that happens, it would be business as usual," said T.R. Madan Mohan, partner, Browne and Mohan.

According to Gordon Coburn, chief financial and operating officer at Cognizant, "Such a situation reinforces the value and importance of strong corporate governance and the many additional controls imposed on U.S. companies that are subject to the Sarbanes-Oxley Act."

"Indian IT companies should be cautious and prepare to address client concerns, but not necessarily be ‘jittery’ or withdraw into a shell or be defensive," said Partha Iyengar, distinguished analyst & head of research of Gartner India.

"Comparisons to the Enron scandal in the US will be made. Clients are likely to ask (and the service providers should proactively offer to provide) certificates of financial compliance signed by their CEO, CFO, an independent board member and the external auditor, just as a strong reaffirmation of the credibility of companies’ financial statements."

How will it affect revenues of Indian IT companies? "It is unlikely that there will be mass scale additional withdrawal of business to the Indian industry as a result of this issue," said Iyengar.

"It is likely however that the evaluation process of Indian providers will be expanded now to include a higher level of financial scrutiny, something which the companies (especially the larger firms) have not been subjected to so far, and they need to be prepared to respond to this scrutiny."

"There will undoubtedly be a heightened level of concern and questions being asked, though it is unlikely that the entire industry will be tarred with the Satyam brush," he said.

Companies that proactively declare and make strong affirmations of their financial reporting credibility will remain unscathed, he said. Enterprises should also proactively create messaging for their clients, as well as arm their sales and account management team with the appropriate management responses. A lack of a cohesive response to questions, or any perception of being ‘unprepared’ to respond to increased scrutiny in this regard will raise alarm bells with clients.

"A proactive approach to reach out to clients and prospects, in the form of a letter or one on one call with client management should be put in place immediately. The messaging should be focused not just at the IT management in these client enterprises, but the business management as well as the internal audit management, who will undoubtedly be involved in the scrutiny of relationships with the Indian providers now," said Iyengar.

More stories on the Satyam Scandal:

NYSE Halts Trading Satyam Stock
India Inc Asks: Was the Board Really Unaware?
PwC Role in Satyam Fiasco will be Probed: ICAI
Was Satyam Just Plain Unlucky?
Satyam to Undergo Stringent Scrutiny
Raju Admits Fraud in Satyam Balance Sheet
R. Raju’s Letter to the Satyam Board
Satyam Dims India Shining Story
Foreign Firms Wary as Satyam Trial Looms
SAP, Oracle Assure Customer Support