IBM to Export Highly Paid Jobs To India, China
The Wall Street Journal 12/15/2003
(Copyright (c) 2003, Dow Jones & Company, Inc.)
IN ONE OF the largest moves to "offshore" highly paid U.S. software jobs,
International Business Machines Corp. has told its managers to plan on
moving the work of as many as 4,730 programmers to India, China and
elsewhere.
The unannounced plan, outlined in company documents viewed by The Wall
Street Journal, would replace thousands of workers at IBM facilities in
Southbury, Conn., Poughkeepsie, N.Y., Raleigh, N.C., Dallas, Boulder,
Colo., and elsewhere in the U.S. Already, the managers have been told, IBM
has hired 500 engineers in India to take on some of the work that will be
moved.
IBM calls its plan, first presented internally to some midlevel managers
in October, "Global Sourcing." It involves people in its Application
Management Services group, a part of IBM's giant global-services
operations, which comprise more than half IBM's 315,000 employees.
IBM's plan, still under development, will take place over a number of
months in stages. About 947 people are scheduled to be notified during the
first half of the coming year that their work will be handled overseas in
the future. It isn't yet clear how many of the other 3,700 jobs identified
as "potential to move offshore" in the IBM documents will move next year
or some time later.
However, the fate of some of the targeted jobs isn't certain: IBM managers
still haven't figured out whether all of the work the jobs represent can
be performed just as well abroad. The jobs involve updating and improving
software for IBM's own business operations.
Some workers are scheduled to be informed of the plan for their jobs by
the end of January. After that they will be expected to train an overseas
replacement worker in the U.S. for several weeks. The IBM workers marked
for replacement have 60 days to find another job inside the company,
likely to be a difficult task at a time when IBM is holding down hiring.
IBM declined to comment on what it called "internal presentations." It
said that most of its growth in developing countries "will result from
winning new contracts," and that U.S. hiring next year will equal or
exceed 2003 levels.
The plan shows how even as the information-technology industry starts to
recover from a two-year slump, relentless pressure to cut costs is pushing
more operations offshore. The trend looms as one of the most serious long-
term threats to U.S. employment and labor. Countries with lower-paid
workers are no longer siphoning just unskilled or blue-collar jobs from
U.S. workers; they now are scooping up skilled work from U.S. companies on
a large scale.
By the end of the coming year, one out of every 10 jobs within U.S.-based
computer-services companies will move to emerging markets, as will one of
every 20 technology jobs in other corporations, according to tech-industry
researcher Gartner Inc. Another research firm, International Data Corp.,
recently estimated that by 2007, 23% of all information-technology
services jobs will be offshore, up from 5% this year. Recently, computer-
services titan Accenture said that based on current trends it expects to
more than double its current work force in India during the coming 12
months to 10,000 from 4,300.
Unlike low-wage manufacturing, the U.S. computer-services jobs to be moved
overseas by IBM typically pay $75,000 to $100,000 or more a year,
according to one person familiar with the operations. In contrast, hiring
a software engineer with a bachelors or even a masters degree from a top
technical university in India may cost $10,000 to $20,000 annually,
analysts say.
While most companies with software-maintenance and development businesses
have been expanding their operations in India, many have maintained that
the operations largely represent increases in technology employment rather
than replacements for their U.S. workers. For example, Google Inc., the
online search leader, said recently it plans to open an engineering center
in India early next year as part of an expansion.
IBM has been a multinational since the 1920s, with operations in India for
50 years. But until recently most of its software has been designed in the
U.S. and exported to other countries. Doug Elix, senior vice president in
charge of IBM's global-services operation, recently said that more than
half of IBM's workers are overseas and "we've been leveraging skills
globally for as long as we've been in business." IBM says this year it has
added more workers in the U.S. than it has overseas, but Mr. Elix says
doing some work overseas "in many cases is required to be competitive."
Despite the technology slump IBM has been consistently profitable and has
been gaining market share. What's more, the Armonk, N.Y., company is still
widely regarded as one of the best places to work in the U.S.
Still, IBM is sensitive to political and employee criticism of its
overseas moves. Last summer, union activists obtained a tape of a
conference call led by Tom Lynch, IBM's director for global-employee
relations, to discuss the delicate issue of offshoring. In that call Mr.
Lynch warned other human-resources managers that offshoring "is going to
raise a lot of tensions," and is likely to foster union activity at
historically non-union IBM. In particular, he predicted "to train someone
to do a job that you know will no longer be yours" raises issues
of "dignity and fairness" that unions might exploit.
Lee Conrad, organizer of Alliance at IBM, an affiliate of the
Communications Workers of America union that is trying to organize IBM
workers, says "we know it's going on, but getting workers to talk about it
is hard," in part because IBM workers worry about being fired. He said
IBM "keeps it very close. They don't give any numbers."
Neither the U.S. nor individual states have prohibited the use of
outsourced foreign workers for any government contracts. However, union
activists say they are making efforts to persuade state lawmakers to take
action.
But Ned May, an analyst with IDC who studies outsourcing, says political
moves aren't likely to have much effect. He predicts that services
companies will keep many jobs in the U.S. but he says it's clear that most
of the job growth in the industry will come offshore. He says there is a
race among services firms to move jobs abroad "to capture the extra margin
sooner. There's a competitive spiral."
A former IBM executive in India, Pawan Kumar, now chairman of closely held
vMoksha Technologies PLC, an outsourcing firm there, says IBM has 9,000
people in India and plans to increase that to 20,000 by the end of 2005.
Mr. Kumar says the cost advantages of hiring Indian programmers aren't as
large as the salary differentials imply, because building in India
requires more investment in infrastructure and more spending on
supervision to smooth communications between U.S. customers and workers in
India. He says the true costs amount to about $100,000 in the U.S. and
$50,000 in India for people to do the same work.
---Peter Fritsch contributed to this article.
By William M. Bulkeley
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