Offshore Outsourcing — What Happened To India

March 1, 2009

India got hammered in a flurry of articles and posts all named something like: “The 25 Most Dangerous Cities for Offshore Outsourcing.”  What happened?

India has been the destination for a long time.  Sure wage pressures have been turning those mindlessly seeking the lowest expenses elsewhere…  But India has been hot.  A critical mass of its population is smart, adaptable, and ever ready to take on the hard programming and operations work that gushes in from around the world.  A critical mass of Western business influencers and decision-makers have had some difficulty, though, internalizing that cultural differences in India can materially influence the overall corporate risk pool when they are not effectively integrated into corporate risk management processes.

Cultures where intellectual property and digital information are conceived of differently than, for example, the Mid-Western United States, can be a challenge for U.S. businesses.  When corporate policy and control frameworks were created and tuned for local application, their extension across cultures is not often a good fit.  When the risk issues relate to elevated risks are primarily focused on sensitive information, polity and control “fit” matters.  My experience has been that U.S. financial services corporations exhibit very different behaviors when dealing with this situation.  Some appear to understand that risk management practices need to remain relevant across their operations, and that might mean investing in different ways in different cultures.  Others do not.

So, what about that report last week?  The Brown-Wilson Group’s report “2009, The Year of Outsourcing Dangerously” has spauned a relatively huge tribe of articles and posts about “The 25 Most Dangerous Cities for Offshore Outsourcing.”  Brown-Wilson’s survey identified 10 cities in India that made their list of “The Riskiest 25.”

Delhi/Noida/Gurgaon, Mumbai, Chandigarh, Pune, Chennai, Bangalore, Hyderabad, and Kolkata were all characterized as members of “the 25 riskiest.”  They tended to score higher risk in the “Transnational & Geopolitical Issues,” “Terrorist or Rebel Target Threats,” and “Unsecured and Unprotected Networks, Infrastructure, Technology & Telephone” categories.  Pollution scores also drew some of these cities down as well.  It would be convenient to blame the recent violence in Mumbai, but the survey was completed more than a week before the attacks.

What is going on in the leadership circles making decisions about offshore outsourcing?  How do they reconcile input like that published in this report with behaviors that extend access to huge pools of sensitive information and valuable intellectual property to what some now say are the highest risk locations?  As we continue to invest in risk management strategies, plans, and tooling, we might need to step back and survey the key decision-makers in our organizations.  Are the risks associated with offshoring work integrated into their thinking and personal decision-making?  Unless we can make these risks real — and I am not convinced about this report’s conclusion that Indian locations ought to be so near the bottom — to our senior leaders, they may construct another “bubble.”  In the global financial services businesses, we don’t need another one of those…

— References —

The Brown-Wilson Group’s report “2009, The Year of Outsourcing Dangerously” : http://theblackbookofoutsourcing.com/docs/2009%20Year%20of%20Outsourcing%20Dangerously.pdf

Google search for Brown-Wilson and “The 25 Most Dangerous Cities for Offshore Outsourcing”: http://www.google.com/search?hl=en&q=The+Brown-Wilson+Group+report++2009+The+Year+of+Outsourcing+Dangerously%22&btnG=Search

UPDATE 02 March 2009:  That google search now return more than 2,000 strong hits.  For some reason, this theme has traction.


Corporate Trust Hammered In India Too

January 7, 2009

Individuals and teams across scores of corporations in the U.S. ignored the rules of business and economics that helps hold society together, or they re-wrote them for their own short-term self interest.  Societies across earth are all now paying for that behavior in one way or another.

That moral disease was not limited to the U.S. though.

Satyam (Satyam Computer Services Ltd.) is a global high-tech services corporation based in India.  I have bumped into staff and activities of this company from time to time over the last five years.  Their founder and corporate Chairman B. Ramalinga Raju resigned yesterday after releasing a description of financial fraud that he had led or materially participated in over those same five years.  It will result in suffering far beyond the corporation’s shareholders.  It also highlights the need for effective risk governance and risk management.  Mr. Raju could not have carried out financial fraud of this scale alone.  PWC, one of Satyam’s primary auditors, should come under especially thorough review.  The current story, while still evolving, goes something like…

Satyam Chairman B. Ramalinga Raju resigned yesterday admitting to falsifying company accounts and inflating revenue and profit figures over several years.  He had been with the company for more than 20 years.  During that time Satyam grew from a few individuals to 53,000 employees, having 185 of the Fortune 500 companies as customers and operations in 66 countries.  He ended what was a public confession with: “I am now prepared to subject myself to the laws of the land and face the consequences thereof.” [http://www.slideshare.net/hblodget/satyam-chairman-fraud-confession-presentation?type=document page 5]

Satyam had:
1. inflated its operating profit for the three months ended Sept. 30, 2008 from 610 million rupees to 6.49 billion rupees ($136 million).
2. revenue was inflated from 21.12 billion rupees to 27 billion rupees.
3. reported an operating margin of 24% which was actually 3%.
4. reported a non-existent cash balance of 50.4 billion rupees.
5. reported a nonexistent accrued interest of 3.76 billion rupees
6. reported an understated liability of 12.3 billion rupees.
7. reported a debtor position of 4.9 billion rupees (compared with 26.51 billion rupees reflected in its books). [http://www.slideshare.net/hblodget/satyam-chairman-fraud-confession-presentation?type=document pages 1-3]

“The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of the last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance).  What started as a marginal gap between actual operating profit and the one reflected on the books of accounts continued to grow over the years.  It has attained unmanageable proportions as the size of the company operations grew significantly (annualized revenue run rate of Rs. 11,276 crore in the September quarter, 2008 and official reserves of Rs. 8,392 crore).  The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations — thereby significantly increasing the costs.” [http://www.slideshare.net/hblodget/satyam-chairman-fraud-confession-presentation?type=document page 2] {“crore” refers to ten million, and is a unit in the Indian numbering system}

“Every attempt made to eliminate the gap failed.  As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap.  It was like riding a tiger, not knowing how to get off without getting eaten.” [http://www.slideshare.net/hblodget/satyam-chairman-fraud-confession-presentation?type=document page 2]

Mr. Raju Recommended:
…quickly explore some merger opportunities.
…restatement of accounts.
[http://www.slideshare.net/hblodget/satyam-chairman-fraud-confession-presentation?type=document page 4]

— References —
Yahoo blog:
http://clusterstock.alleyinsider.com/2009/1/satyam-chairman-were-just-a-gigantic-fraud-too
WSJ Article:
http://online.wsj.com/article/SB123131072970260401.html?mod=testMod
Raw Documents:

http://www.hindu.com/nic/satyam-chairman-statement.pdf
http://www.hinduonnet.com/holnus/000200901071434.htm

The Hindu:
Satyam plunges to all-time low.
http://www.hindu.com/thehindu/holnus/000200901071232.htm
Raju quits Satyam; admits to financial wrong-doings.
http://www.hinduonnet.com/thehindu/holnus/000200901071331.htm
Stocks Tumble.
http://www.hinduonnet.com/holnus/000200901071433.htm
Satyam plunges to all-time low; down nearly 70 pc.
http://www.hinduonnet.com/holnus/006200901071432.htm
Satyam irregularities referred to serious fraud probe agency .
http://www.hinduonnet.com/holnus/001200901071431.htm
Satyam case not to impact economy: Plan panel
http://www.hindu.com/thehindu/holnus/001200901071712.htm


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