For Satyam, the news just keeps getting worse as the weeks pass….

In the wake of the revelation about the “missing billion” or “corporate fraud” (depending on who you believe), Satyam is now in the firing line of the US SEC since the company is bound to American legal jurisdiction….

The NAB is now facing a painful decision regarding their offshoring plans and QANTAS is “monitoring” the situation. “US-based State Farm Insurance” has terminated their contract and surely other corporate clients are reviewing their offshoring arrangements.

Let us step back a bit and look at this…..

UK, USA and Australian corporate law requires company directors to follow fairly strict guidelines in terms of corporate governance to ensure the protection for both shareholders and customers. Outsourcing within the same country (read “legal jurisdiction”) provides a safety net for companies since the vendors that pick up the outsourcing contracts are bound by the same laws.

For countries with large technology sectors, offshoring is only attractive on a cost basis. Due to the implicit disconnect created by national boundaries and cultures, there is little if any supportable evidence of any other advantages. The sole obvious exception being companies looking to provide global 24×7 support from multiple timezones.

Now factor in the problems of legal jurisdiction and international law, especially the difficulties in making and launching a case that requires extradition from one jurisdiction to another. If the country is China, forget it (see reference below), otherwise it will depend on the existence of treaties between the various countries.

So, if a company chooses to offshore+outsource any section of their business, they had better be sure that the contract between them and the outsourcing vendor is binding in both legal jurisdictions and provides sufficient protection and controls. If they fail to do so, the directors could potentially be liable if it all goes pear-shaped.

Does make a person wonder if the “cost savings” look quite so appealing to the “brains trust” in NAB, QANTAS, Telstra, etc, etc in the light of the Satyam issues…. the global economic meltdown is only going to further stress company profits and that would include outsourcing vendors…. they are after all “businesses” / “companies”….

…so what happens if your outsourcing vendor goes belly-up ?

“Most of the staff displaced by ITO wave 1 have been given redundancy packages and long left the NAB” the source said. It would take at least 12 months and considerable expense to bring ITO wave 1 applications back in-house.”

“NAB faces losses over Satyam fraud” — Australian IT
http://www.australianit.news.com.au/story/0,24897,24942112-15306,00.html

“Satyam had used forged documents from four banks including Citigroup Inc. and HSBC Holdings Plc to inflate assets by $1 billion, the Wall Street Journal reported today, citing an unidentified person familiar with India’s probe.”

“Satyam Said to Draw SEC Scrutiny in Accounting Case” — Bloomberg
<http://www.bloomberg.com/apps/news?pid=20601087&sid=apfYFckIRykY&refer=home>

“…US-based State Farm Insurance terminated its technology outsourcing contract with India’s fourth-largest software group by revenue.”

“Major US client deserts Satyam” — Financial Times (FT.com)
<http://www.ft.com/cms/s/0/b7601f44-e691-11dd-8e4f-0000779fd2ac.html?nclick_check=1>

“Article 8 The request for extradition made by a foreign state to the People’s Republic of China shall be rejected if:
??(1) the person sought is a national of the People’s Republic of China under the laws of the People’s Republic of China;”

“Extradition Law of the People’s Republic of China (Order of the President No.42)”
<http://english.gov.cn/laws/2005-09/22/content_68710.htm>

I’m not a lawyer, but the above statement doesn’t leave a lot of “wriggle room” for appeal…

-Beardy