Wipro claims 'business as usual' after Satyam fraud scandal

India's outsourcing industry faces a shake up in the wake of the £1 billion Satyam fraud scandal, but remains "one of the safest places to outsource" predicts Wipro.
  • Leo King (Computerworld UK)
  • 19 February, 2009 09:12

India's outsourcing industry faces a shake up in the wake of the £1 billion (A$2.2 billion) Satyam fraud scandal, but remains "one of the safest places to outsource" predicts Wipro.

As the implications of the Satyam fraud crisis sink in, clients of Indian IT services firms are concerned about regulation of the industry and their service levels, Wipro's head of consulting Kirk Strawser told Computerworld.

Despite rocked confidence in the Indian IT industry, the outsourcing firm has moved to reassure customers that it is conducting business as usual.

It has been over a month since Satyam's former chief executive Ramalinga Raju's shocking confession that the company's revenue and profits had been falsely constructed for years. Industry commentators have said the scandal could damage the Indian outsourcing industry and cost customers.

Wipro and other Indian outsourcers have been impacted by the crisis, as well as a general market slowdown as customers tighten IT budgets or defer decisions in an economic crisis.

Strawser said Wipro would emerge unscathed by the Satyam case.

"Satyam is not going to have an enormous effect on us," Strawser said.

And Wipro's earnings report on 20 January painted a positive picture, as the outsourcer reported quarterly profits up 25 percent at £963 million, defying the current economic crisis and forecasting a steady services revenue in the quarter to come.

Yet, as the economic malaise continues, there's likely to be more pressure on IT services providers and outsourcers to meet tighter service level agreements (SLAs), Wipro conceded.

"It will probably have the effect [on all outsourcers] of tightening service level agreements, and companies will conduct more due diligence when outsourcing," Strawser said.

When asked about whether Wipro's own clients had requested tighter SLAs, Strawser would not elaborate further.

Instead, he said that India had been a "role model" for corporate governance standards. "Our customers have been with us during these times and do understand that these incidents are exceptions and not the rule," he said.

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"We have been reassuring and educating our customers on our philosophy which is not to just follow defined standards but to continuously improve, along with putting in sufficient checks and balances."

Pascal Matzke, vice president at analyst house Forrester Research, said Indian offshorers were facing an increasingly difficult battle to retain customers. "The Indian value proposition is being lost," he said. "First they offered the low cost, then the quality - both valid arguments - but now the European and American firms are more level in terms of resource."

The Satyam scandal would have a serious impact on all Indian outsourcers, he said. "Customers want a higher degree of transparency, they are demanding explanations on how their suppliers are making money. Some vendors are even giving customers leaflets explaining their financial position."

In order to show transparency, Indian outsourcers are also "more readily taking on risk in projects, accepting more risk/reward mechanisms," Matzke added.

Yet Wipro remains confident in the robustness of the Indian outsourcing industry, even after large US firms such as IBM and Accenture have been touted as offering a real alternative on cost and capability. "There are 350,000 engineering graduates every year in India, and we're getting the best ones," said Strawser. "In the US, there are 40,000."

But Wipro itself has not avoided controversy. Close on the heels of the Satyam fiasco, it emerged that Wipro had been barred from direct contracts from the World Bank, after family and friends of the bank's CIO and other senior executives purchased Wipro shares under a programme set up by the company.

Wipro has rigorously denied charges levelled by the World Bank that it provided improper benefits to the bank staff. During its earnings report, the company said that the number of shares offered by the company were too few to amount to an inducement, and were "a goodwill gesture". Its business from the World Bank to date is "insignificant". Strawser declined to comment further.

Wipro said it has no plans to take over scandal-hit Satyam Computers, and, unlike some of its rivals, it was "not proactively going after" Satyam clients, Strawser claimed.

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Outsourcers have benefited to some extent from the recession, Strawser said, by enabling clients to cut costs. "Our customers are expecting a lower cost from outsourcing. We're focusing business on the current economy and helping firms take the cost out of IT and processes." Its three main divisions - IT services, business process outsourcing, and consulting - all helped firms to beat the crunch, he said.

But Wipro is determined not to be pigeon-holed as a pure cost-cutter and continually recruits from India's top five business schools in order to maintain the talent to offer clients high-level strategic advice.

"Some of our large customers are trying to launch strategic initiatives now, so that they'll be well-positioned when the [economic] upturn comes," he said. "The companies that are planning strategy while they're cutting costs will be the best positioned ones."

Wipro serves clients across industries. In the UK, its large customers include supermarkets Tesco and Morrisons, as well as Wales and West Utilities.