India's 4th Largest IT Outsourcer In Major Trouble

The Financial Times of London is reporting that the Chairman of Indiaâ''s Satyam Computer Services resigned today after he confessed to doctoring the country's fourth largest IT outsourcing companyâ''s books for the past â''several years." The Chairman, Ramalinga Raju, admitted that fictitious assets and non-existent cash concealed a $1 billion operating deficit.

News of the confession sent the company's stock down some 80%, and has dragged the Indian stock market down by some 7%.

Satyam, which was started in just 1987, has 53,000 employees, operates in 66 countries, and supports 185 Fortune 500 companies.

Up until this point, Satyam had a generally good reputation. Recently though, it had been locked in a very contentious, public feud with the World Bank. Last month the Bank barred Satyam from receiving direct contracts from it for 8-years for what it claimed to be "inappropriate" business practices, which according to some reports, included placing spyware on World Bank computer systems.

Satyam denied that it had done anything wrong, and demanded a public apology from the World Bank, which the Bank has refused to provide.

In 2003, Satyam won a five-year outsourcing contract to design, write and maintain all of the World Bank''s information systems. The World Bank, which declined to renew the contract this year, supposedly spent $100 million dollars in 2007 on outsourcing services provided by Satyam.

No doubt, given the confession and the World Bank situation, many companies using Satyam are now seriously examining their outsourcing contracts. Whether the scandal will taint other India-based outsourcing companies will remain to be seen.

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