The scandal at Indian IT outsourcing firm Satyam should act as a wake-up call to companies that have similar deals with other providers.
James Harvey, a partner at US law firm Hunton, said many businesses failed to properly monitor outsourcing partners or ensure that providers delivered on service level and knowledge transfer agreements.
Companies should also consider adding further clauses into contracts, such as account team continuity and employee turnover limits, and must ensure they retain ownership of intellectual property (IP) surrounding any work undertaken.
“Typically the customer owns the IP at the time it is created,” said Harvey, who was speaking during a webcast hosted by consultancy Alsbridge. “If you varied from that then now is the time to fix it.”
He also suggested that companies retain their own documentation rather than relying on outsourced providers to ensure data is kept up to date and accurate.
Earlier this month, Satyam founder and chairman Ramalinga Raju (see photo) admitted falsifying accounts over a number of years and exaggerating its cash reserves by $1 billion.
US-based State Farm Insurance has become the first major client to defect as a result of the scandal, and others are thought to be considering similar action. Satyam’s other clients include Nestlé, General Electric and Ford.
The scandal has dented the reputation of India’s fast-growing outsourcing industry.
“The damage to client confidence from the Satyam situation is not trivial, but hopefully will be limited to that one firm,” said Duncan Aitchison, partner and president at outsourcing advisory firm TPI.
“While threats like those in India exist anywhere in the world, the Indian outsourcing industry recognises that it must step up to demonstrate its preferred status as the destination to serve as a partner to the world’s leading companies.”
Meanwhile, figures released by TPI have revealed that the second half of 2008 saw a sharp decline in the value of outsourcing contracts awarded.
The total value of contracts signed in the last six months of 2008 was €31.3 billion – a 20 per cent fall compared with the first half of the year.
The decline was most notable in the EMEA region, where the value of contracts awarded fell by almost 50 per cent in the second half of 2008.
