Indian Outsourcing Firm Admits Fraud

January 7th, 2009 at 12:00 am

satyam computer services

Breaking news from the outsourcing capital of the world, India, the CEO of Satyam Computer Services admits to falsifying assets in order to increase stock values.

Ramalinga Raju, founder and CEO of one of the largest outsourcing firms in India and the worl, admitted that they significantly inflated its earnings and assets for years.  Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed in assets for its second quarter, which ended in September, were nonexistent.

Raju explains in a letter to the Bombay Stock Exchange that “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew,” he wrote. “It was like riding a tiger, not knowing how to get off without being eaten.”

Satyam Computer Services will of course be under investigation and the fate of its 53,000back office employees is unknown. 

On the other hand, this is good news to Satyam’s competitors, who will be expecting a migration of Satyam’s clients to their services.  “This development is going to have a major impact on Satyam’s business with its clients,” said analysts with Religare Hichens Harrison on Wednesday. In the short term “we will see lot of Satyam’s clients migrating to competition like Infosys, TCS and Wipro,” they said.

However, the fraudulent activity of Satyam may also affect the reputation of Indian outsourcing firms in general and force clients to seek other back office services in Asia.  

Mr. Raju has already resigned from his post.