The Effect of Satyam's Revelation

Filed in archive Outsourcing News on January 10, 2009

Photo courtesy of iStockphoto, Image# 5721341

As you've all seen by now, Satyam (one of the biggest Indian-based outsourcing companies) is in the midst of an earnings misstatement crisis. Like many other companies, Satyam was subject to substantial pressure to show results, particularly as the world economy deteriorated.

Whether the fraudulent statements by Satyam or the Indian governments late-but-strong reaction to it will affect the outsourcing business as a whole remains to be seen, but there is no doubt that it casts a pale on the statements of strength in the face that many Indian outsourcing firms made in the face of the global financial crisis.

No doubt, this crisis will be difficult for Satyam and its employees. However, it may also prove to be a turning point for Indian outsourcing vendors and large Indian companies and could have a silver lining - particularly if it brings more recognized financial reporting discipline to all players in the industry.

Glowing annual reports and boundless, unrealistic optimism have long been part of India's sales pitch. For the more cynical among us, these statements always seemed a bit suspect. Perhaps now the puffery will die down a bit and a more realistic view of the business model will evolve.

Like most aspects of the global economic crisis, Satyam's downfall was caused by the pressure to "keep up with the Jones's." The vicious cycle of upward pressure may finally begin to fade, hopefully leading to a period of rational optimism.