The ban slapped by the World Bank on Wipro and Megasoft following the Satyam saga seems to have raised more than just eyebrows. And rightly so. After all, the Indian software industry – perennially in the media limelight for the right reasons – is the centre of our sterling economic growth. Several Indian software companies have been showcased in the international markets as benchmark companies. However, the string of events that have taken place since December 2008 seems to have created a blot on Indian software companies re-emphasizing the negative opinions that arose from certain quarters every now and then. These incidents also raise serious questions on the systems, regulatory norms and disclosure practices of India Inc. Not to mention that this gives an opportunity to staunch anti-offshorer’s to walk with ‘I-told-you-so’ smirk in their face.
Are these notions justified?
It appears that we are looking at these isolated incidents with a magnifying glass. In April 2001, The New York Times published a story, accusing New York-based Computer Associates (CA) for malpractices, and inflating profits and earnings by using `pro forma, pro rata’ method. How is the Satyam incident any different from the ‘aggressive earnings management’ performed by CA at the broad level?
Also, Frauds, scams and allegations are not quite uncommon for the Indian outsourcing Industry. For instance, in 2005, Australian media alleged illegal sale of customer data by a BPO based at Noida, India. I am not sure how successful National Association of Software and Service Companies (Nasscom) was in bringing in the alleged perpetrators, if any, to justice. In 2002, the Chief of the software company Polaris was arrested (and later released) by the Indonesian police, after the company’s Banking customer, Artha Graha, filed a complaint alleging deficient performance in the software deployed by the Polaris. During the same year, the Department of Company Affairs cracked the whip by prosecuting several companies including Cyberspace, DSQ Software, Pentamedia Graphics, Nakshatra Software and Goldfish Computers. Some of the charges that were levied on these companies included placing incorrect statements in the prospectus and fraudulently inducing individuals to invest money. A year priot to that, Silverline Technologies was charged with insider trading.
What it means to Indian software companies?
‘Pooh pooh’ing the sequence of events in the name of isolated incidents doesn’t seem right either. Considering the Global financial crisis, the recent set of events is a double whammy. The acts of Satyam, considering the size and the reputation it held in the past, and the Whiplash of World Bank certainly seem to have certainly dented the image of the Indian software Vendors. Several Industry players experts opine that these events are a blot on the Indian software industry.
Globally clients will be reluctant to move new engagement offshore. Indian offshore vendors should also expect accentuated levels of scrutiny from global clients prior to off-shoring. A greater emphasis on Governance at the Program/Project level will be expected by the Clients as well. The impact is likely to bigger on the European front, considering their level of risk-averseness. Indian software companies may lose the small advantage (of penetrating the European market) they got after years of long and hard fought battles.
What needs be done?
Software companies needs to first address the immediate concerns of the clients, by delivering the existing projects on time without cost and time over-run. This will enhance their confidence in the vendors. Also, India Inc. needs amended Acts that plug the holes, ensure better disclosures, and bring-in greater transparency. Else, scams such as these will keep popping every now and then over time.
Madhan Gopalan, the author, is a Consultant with Ness Technologies. The views expressed here are his own and not necessarily that of his Employer. He can be reached at gmadhan72@yahoo.com
