Could Indian outsourcing be in trouble? - Top Stocks Blog - MSN Money
 
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Could Indian outsourcing be in trouble?

Posted Jan 07 2009, 01:40 PM by Kim Peterson
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One of the biggest outsourcing firms in India has been caught up in a huge accounting fraud -- and the scandal is big enough that American companies might think twice about who they outsource to in the future.

Executives at Satyam Computer Services (SAY) said the company has been cooking its books, grossly exaggerating profits and cash balances for years. In fact, $1 billion that the company says it had were nonexistent, according to The New York Times. Satyam has done work for a third of the Fortune 500, including General Electric (GE) and General Motors (GM).

The short-term impact? Customers will immediately switch to Satyam's competition. In the long term, U.S. companies may take a hard look at their outsourcing, particularly at the accounting practices and regulatory structure in other countries.

The scandal has “put a question mark on the entire corporate governance system in India,” one asset manager in New Delhi told Reuters.

Shares of Satyam fell nearly 80% in response to the news, and trading was halted on the New York Stock Exchange. The company's chairman and his brother, who was the managing director, have resigned.

Satyam had already been operating in shady territory. The company had planned to spend $1.6 billion on two construction firms -- both partly owned by the chairman and his family. Investors were incensed, and demanded that the sale be stopped.

And the World Bank said last month it would stop doing business with Satyam because of inappropriate business practices.

Here's what others are saying about Satyam's news:

ZDNet: "At this early stage, it is not possible to say exactly how Satyam engineered the fraud but regardless, it draws into question the general viability of the Indian outsourcing market."

Indian asset manager Jayesh Shroff: "“It’s a shocker. People will no longer be willing to take income statements at face value. This has also raised questions about cash holdings of other companies.”

Forrester executive Sudin Apte: "It's going to impact the Indian outsourcing industry. Customers are going to be concerned about offshoring firms in India."

The Wall Street Journal: "What (the chairman) failed to understand is the general intolerance for corporate opacity these days -- a byproduct of the global financial crisis. Still to be seen is just how well this degree of scrutiny sticks when Indian companies are back in a bull market."

Comments

 

I am glad this happened, so glad. I am sick seeing how much outsourcing our country does. As much as its great that America is trying to help the world and all by giving other people jobs in other countries who are non americans... I think it needs to stop. The people that actually buy the services and goods from these foriegn countries should be the ones getting the jobs. We need to take care of America before we take care of china, india, taiwan, south america, mexico, pakistan, jordan, (and anywhere else you see MADE IN FOREIGN COUNTRY). America used to make the best, best, best quality goods out there, now you buy stuff from other countries that is poorly ma de and just sucks. American companies should take care of their 99% American consumer body. American companies need to stop being greedy, because when all the jobs will be gone from america, who is going to afford their products? Even if its made for 10 cents in China, what American will buy it when that american can not afford to buy it because their job has been outsourced?

Barak Obama needs to stop the spending spree, TAX TAX TAX companies that outsource, and highly reduce taxes from American businesses and companies. That way, Americans will be able to have more jobs, and things might actually get better. But ofcourse... why would any politician care, even the president? If they ever cared about the people, they would have changed things long ago, or start now.

Outsourcing has become so big in India thanks to the American companies that India is itself outsourcing to Uruguay.

Do not forget capitalism works both ways ! If you want to sell junk food like McDonalds or Cola or Fried chicken,  export arms and what not you also need to give some thing back to those countries. Capitalism and globalization is not ONE WAY trafic. Remember cheap and efficient labor wins.

Without doubt, this is an extremely alarming situation....a strange aspect of this whole matter is that this fraud has been almost indirectly aided and abetted by a Global Accounting & Consulting Firm, PwC who apparently gave a clean chit to Satyam's Account Books . . not sure why.

I am also sure that this is still to be considered as a one-off situation..and outsourcing to India is not likely to drop rapidly. The reason is not only cheap costs but also quality. No doubt, a few callers may have reported "poor English" by call-center Execs, but these are again stray cases.

I think Americans should rather try to improve their own intellect & knowledge rather than blaming India for their job-losses. It is a known fact that the General Knowledge and mathematical ability of usual American children is in a very poor state - they can't add 2 + 2 without calculators and don't know where Egypt lies in the world. And also the proportion of overseas students in US Ivy-league colleges is skyrocketing atthe expense of American students.  

Some of the comments I've read make it obvious that Americans don't like the off-shoring of jobs.  A few folks make it sound as if this story marks the beginning of the end of the "leak" in the US economy that lands call centers in places like India, Guatemala  and Manila.  Guess what?  This story is nothing more than a meaningless blip on the radar.  Medium and large companies will continue to off-shore jobs just as long as the cost-per-call is lower.  This brings additional profit to the bottom line and is, after all, what corporate America is all about.  It's the continued pursuit of the almighty dollar.

That said, if Americans want to really fix the situation, the American worker and the American consumer must both step up to the plate.  Case and point?  How many folks are reading this message through the use of a screen that came out of a factory in Hong Kong?  If that's you, congratulations – you're part of the problem.  These goods are made overseas and shipped here because foreign labor makes the product far cheaper then their US counterpart.  You purchase foreign goods over American goods because they are similar in quality (sometimes better, sometimes worse) and they cost less.  Face it, you're comfortable in your lifestyle and content to gripe – just as long as that plasma TV is affordable.

Likewise, the American worker has to realize that you don't make twenty dollars per hour answering phones in the call center and the assembly lines aren't eighty-thousand dollar per year jobs.  Let's be serious the expectations we  lay on our employers.  Companies can't make profit if they're overpaying the employee.  Yes, I know someone will go off on a tirade about executive salaries, but that's another discussion for another time.  Bottom line is that business' exist to make money.  Without a profit, the business folds (unless it's got a name like GM or Chrysler).

Point:  The only way this whole capitalism mess works is if we all step up to the plate.  If we've had it with the leak in our economy, let's stop pumping money and opportunity overseas and gear ourselves as consumers to “support the home team” and as workers to compete in the international marketplace.  

Another big scam in a holycow Indian software company Infosys will be revealed in next month. This people are using their inflated software export turnover for money laundering and tax evasion.The INFY ADR in current scenorio is worth less than 12 dollars..Sell INFY and get saved yoursef..

It will not reduce outsourcing to India one iota.  For American companies, the only thing that matter is profit, which translate to big bonuses for the fat cats at the top of the coporate ladder.

When we call our credit card company, and an Indian answers, you know that all your personal information are in India.  Do you think they care about protecting your private information?  But they work cheap, so offshore your information goes.

Likewise for other services that get outsourced over seas.  I know first hand of companies that allows Indian employees, physically reside in India, that logs on to the corporate network in the US over the internet, to perform software testing.  Unlike a remote US employee, I doubt they pay US taxes though.

Infosys is  a chinese communist proxy Indian company which is doing espionage in our whole financial system.They have bugged our banks, stock markets and regulatory agencies.The doom of America wi be not be a Osama but Chinese proxy Indian software company INFY.

How hilarious.. Profit is the goal of EVERY business... that's the name of the game. Nobody goes into business to lose money.

Also.. I don't figure to see the import / export system to stop. That ship has sailed (pun intended). With the incoming president promising to tax the big companies and distribute their wealth to the poor non working man... outsourcing and cutting corners is the only choice other than shutting down. THEN, there's NO money flow from the "big evil companies".

Give tax breaks to the big evil corporations that KEEP the work in house. Give them some incentive to keep the work and production and all that within our borders. Tax the big evil money makers that keep sending the work outside.

Everybody that whines about Walmart.. shop elsewhere. Sam Walton started a successful business... call 1.800.WAA.AAAA if you're a Walmart hater

This is just a place to get some tirade out against foreigners without looking at the bigger picture. However, if you step back and think what would you do if you were the CEO of a company looking to cut costs, you too would outsource. You wouldn't think of your fellow Americans losing jobs either, so I suggest we stop the hypocrisy.

Its a cause-effect scenario here. US wanted globalization to market its own services and products but when others started providing the same services and products at cheaper rates tables were turned.

Instead of complaining, the solution starts at the grass roots. Education (higher) in US is scorned at, kids in school who excel or want to are ridiculed for being "nerds"/"geeks". In India, China practically everyone atleast has a bachelor's degree (education is cheaper but that's another discussion). Of course if you can get a B grade phone rep but who can also understand technical matters and then you get an A grade phone rep who is only good at customer service and the former charges you less who would you pick?

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