- The Washington Times - Monday, January 20, 2003

CALCUTTA, India, Jan. 20 (UPI) — Arun Jain had expected his meeting last month with executives of an Indonesian bank would be rather routine, but it turned out to be his worst nightmare.

Jain, the chief executive officer of Polaris Software, traveled to Jakarta for a Dec. 13 meeting with executives from the Bank Artha Graha. Jain, however, was arrested along with three co-workers. While two of the Indian executives were soon released, Jain and another man languished in Jakarta's jail, reportedly held hostage for $10 million.

Indian External Affairs Minister Yashwant Sinha spoke with his Indonesian counterpart and other high-ranking Indian officials — including representatives from the prime minister's office contacted Indonesian authorities to get Jain and his colleague freed. Still, the Polaris executive was held for 10 days.

"This is probably the first case of its kind," said Kiran Karnik, president of the country's leading industry lobby, the National Association of Software Companies, "where the government has thrown its full weight behind securing the release of a business professional who was wrongly confined."

But even as this drama sent shivers through the Indian software industry, it made apparent a more serious concern: the risks associated with Indian software industry's exploration of newer markets as it tries to reduce dependence on United States, which has been India's software customer accounting for almost 70 percent of its annual $10 billion revenues.

In the past two years, Indian software companies have been searching fro other markets. Although they have been quite successful in venturing into emerging and promising information technology markets in Africa and East and West Asia, it is apparent that Indian software service providers are confronted with newer risks associated with politics and corruption in these countries.

And Indonesia is just one case in point.

What is the hoopla in Indonesia all about?

A $1.3-million contract was awarded to Polaris to implement three software modules for Bank Artha Graha, which has an asset base of $500 million. However according to Polaris official response, "there had been some disagreement and a certain amount of bad blood had built up over the past six months."

In November the bank terminated the contract and demanded the $662,000 it had paid as an advance, apart from an undisclosed penalty, which is thought to be about $10 million.

However, according to Polaris, both the demand for return of advance and penalty were unfair. Moreover, the demands were too step for the company, which has second-quarter (which ended in September) net profits of $4.5 million.

Jain volunteered to lead a team to Jakarta to convince the client to change its mind. But when the Indians arrived, the bank charged Polaris with fraud, while Jain contended it was merely a commercial liability and should be resolved through arbitration. But Jain and his team members were arrested.

Bank Artha Graha said that "Polaris repeatedly and continuously failed in the schedules as agreed in their contract and kept providing false promises on its capability and capacity to fix problems and defects that occurred in the project, which that began in January 2001."

"Since PT Bank Artha Graha felt that it had exhausted all available options," adds the bank's official statement, "having been deceived by the misleading promises, false persuasions and lies of Polaris, PT Bank Artha Graha was forced to issue a Notice of Termination in November 2002."

The incident jarred India's software industry, which had trusted that its technical expertise and its cost-effectiveness would make working with their companies very attractive. But there is more to business than the product.

"A key lesson that his incident has taught Indian software player is to crosscheck the background of the client," said Ganesh Natarajan, CEO of the software company Zensar Technologies. "Similar incidents can happen to any other player and in any other country. But some countries clearly don't have a proper legal system and hence it is more dangerous to do business with companies in such countries."

So shaken is the industry that Nasscom is preparing a database of companies that have created problems. "We're working with software services associations in other countries to prepare a cautionary list of companies that vendors will have advance warning about," says Karnik. "Nasscom can with the experience of its members caution them on the risks associated with doing business in certain countries."

The software industry had learned additional lessons through experience, too. For one, according to Som Mittal of Digital Globalsoft a HP India subsidiary, legal heads of Indian software companies have been forced to create a best-practices manual that can be a ready resource for companies entering into contracts.

Some even consider this incident as a blessing in disguise.

According to Pavan Duggal, an attorney at India' Supreme Court, "as a brighter side, this incident would make Indian firms less aggressive in chasing newer clients."

"In their desperation to tap other parts of the world," says Duggal, "most Indian software companies do not devote enough time in a due diligence study of newer clients. I believe, thanks to this particular incident, Indian companies will now spend more time in studying their clients."

Clearly, according to Sunil Mehta, vice president at Nasscom, many companies in the Indian software industry haven't attained the maturity to work in all sorts of the global environment.

Mehta added that Nasscom in association with management consultancy firm KPMG, has initiated a survey on the business practices of Indian software and business process outsourcing companies.

But he adds hastily, the success of Nasscom's efforts will depend on how the Indian software industry manages new risks.

"While there's potential to grow business in newer markets, as well as through increased outsourcing by U.S. clients, the risks involved are also higher" he said. "And, if one isn't careful enough, the possible losses can wreak havoc."

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