Indian Outsourcing Scandal A Wake-Up Call to U.S. Companies
American companies may finally be reassessing their need to outsource to India, a step that I believe is long overdue. Last month's terrorist attacks in Mumbai caused some firms to think twice about moving their operatiopns offshore, according to this report.
And the situation hasn't been helped any with the recent revelation that the chairman of one of India's largest IT outsourcing firms, Satyam Computer Services, is involved in a $1 billion scandal involving inflated profits and faulty balance sheets. Probably wishful thinking on my part, but maybe the terrorist and financial bombs will cause the financial services, retail, media, manufacturing and other U.S, business executives so anxious to save a buck by farming out their IT operations to cheaper third-world locations the wisdom to bring that business back to the U.S. services channel?
The Satyam scandal, one of the largest in Indian corporate history, has rightly raised fears the other Indian outsourcing firms could be involved in similar fraud. Not that it really matters. According to a New York Times report, Satyam alone serves as the back office for one-third of the Fortune 500, including Cisco, General Electric and the U.S. government itself. In some cases, it served as the accounting department for some of these Fortune companies! Now the Satyam scandal is being compared in scope to the Enron fraud, and some of the large U.S. corporations have egg all over their face.
These people haven't learned a fundamental rule of business: You get what you pay for. And by paying for cheap service in third-world countries, you are going to get into a world of trouble. Will Satyam finally teach these misguided U.S. executives the error of their ways?