Could a Satyam Meltdown Happen in the Nearshore?

By Kirk Laughlin, NSAM Editorial Director
The Satyam scandal shook the bedrock of the global services industry, and at least for a few months, put a big black eye on the entire set of large, India-based providers. As Frances Karamouzis, a Gartner analyst pointed out: “This is a crisis of trust. It’s not really Satyam at stake, it’s the India Inc. brand.”
While predictions of ruin for the global services industry have been shown to be largely exaggerated, the prospect of watching the top executives of a trusted partner get hauled off to jail is not an experience a typical US client is looking forward to. Satyam was deeply embedded into corporate America – the application development and maintenance and BPO provider was serving about a third of the Fortune 500 and had deals in over 60 countries.

David Rutchik of Pace Harmon: “There’s nothing unique to these locations that you would do differently to protect yourself”

As the Satyam scandal is still relatively fresh in the minds of the global sourcing eco-system, an appropriate question should be asked:  How do I know I won’t end up getting burned?
The Latin American region is often criticized for a widespread culture of corruption, mostly in the political sphere.  Yet there are few if any scandals that reach the size and impact of the Satyam debacle.
We spoke recently with David Rutchik, a partner at sourcing consultancy Pace Harmon, to get his thoughts on how to identify risks in the Nearshore region, in this post-Satyam sourcing era.  “There’s nothing unique to these locations that you would do differently to protect yourself,” said Rutchik, “The same types of considerations apply.”
He called for clients to continue to make requirements very clear from the start, and go through a rigorous selection process in order to spot any inconsistencies in service capabilities and delivery models.
One key issue to always examine is awareness and enforcement of data protection. “It would be a mistake to look at the Nearshore as adopting a US-style approach to data protection,” said Rutchik, in other words, he encourages companies to work with providers familiar with Sarbanes–Oxley compliance that requires greater levels of financial transparency. Although many countries have data privacy laws on the books, “most countries don’t follow them.”
Rutchik points out that there are wide variations across the region in meeting required operating conditions, and for that reason, clients must develop their own on-the-ground perspective of risk, rule of law and data protections.
Pace Harmon recently came up with a short checklist of rules that can serve as a useful roadmap in selecting future partners.
Rule # 1 – Know your supplier inside and out through due diligence and research.
Rule # 2 – Document everything!
Rule # 3 – Design your supplier agreements with a clear exit strategy from the start.
Rule # 4 – Develop a sound play book for contingency planning and disaster recovery.
Rule # 5 – Governance and supplier management should underpin the plan.