Recent revelations of fraud at Indian IT outsourcing company, Satyam Computer Services Ltd, are sure to slow the outsourcing of skills from that country as companies become more aware of the risks involved.

The labour cost savings and readily available expertise offered by the Indian IT market have driven both IT vendors and corporate users into the arms of Indian outsourcers. But, allegations of irregularities are sure to leave many companies reluctant to hire Indian talent in future.

Heated debate rages

“A heated debate is already raging with scathing commentaries being exchanged in countless online forums,” said Bruce Mills, Joint CEO of 3W Consulting Contracting & Recruitment Pty Ltd.

Some claim that fraud is rife in all outsourcing IT operations in India (including those that write SaaS application code, manage data centres remotely, or run cloud-based systems). Others vehemently deny such allegations, calling the accusers racist.

“Neither position is absolutely correct,” said Mills. “Fraud plagues the business world in every country; however, if Satyam were an isolated case of fraud in India, critics would have less credibility and accusations of racism would seem more reasonable.”

Recent history paints a bleak picture

Unfortunately, there has been an abundance of fraud cases on the sub-continent in recent history. In 2002, KPMG published a special report detailing fraud in India. More than half of the companies surveyed had been victims of fraud emanating from India.

Indian call centre agents have also reportedly been caught illegally charging goods to Americans’ credit cards. And Google pointed to India as the centre for large-scale AdSense click fraud.

Rajesh K. Pillania of the Management Development Institute, acknowledged the problem in a recent academic paper, saying that India is widely recognised as one of the most corrupted countries among the major global economies.

Caveat emptor – let the buyer beware!

The Economist magazine warned its readers that, although a few companies, such as Infosys Technologies Ltd. in Bangalore are impeccably well run, not all Indian technology firms are run according to Infosys’s high standards.

“Naturally, the same can be said for any country,” said Mills. “Not every company in the Australia is run impeccably, but, if your organisation relies on a local IT services business for SaaS or cloud operations, and it stumbles, at least you have other resources to see you through.”

“If the same situation were to arise with a foreign services provider, it would be much more difficult to manage as you would have different culture, laws and resources to contend with.”

“As the global economy shrinks, these difficult situations abroad are likely to become far more commonplace. At times like these it becomes imperative for IT executives to do better due diligence and conduct new audits for all overseas partners.”