IBM Offshoring Plan Revealed

In a move that will raise the volume of the debate over the trend of IT outsourcing, Big Blue is looking to shift 4,700 programming jobs to India, China and elsewhere, according to the Wall Street Journal.
Posted December 15, 2003

Colin C. Haley

IBM is reportedly looking to shift up to 4,700 programming jobs overseas, a move that will raise the volume of the debate over the trend of IT outsourcing.

Big Blue has instructed managers to prepare to move the jobs to China, India and other countries where technical talent is high and labor costs low, according to the Wall Street Journal, which cited internal IBM documents.

Almost 1,000 people will be notified during the first half of 2004. The unannounced plan, doesn't specify when the other 3,700 jobs could be transferred, the paper said. Some positions are being reviewed to see if they can be done elsewhere.

Most of the jobs would come from the Application Management Services Group, part of the company's global services operations and hit facilities in Southbury, Conn., Poughkeepsie, N.Y., Raleigh, N.C., Dallas, Boulder, Colo., and elsewhere, the paper said.

IBM declined comment on "internal presentations or projections," but issued a general statement on outsourcing.

"The vast majority of the growth in applications services that will occur in markets like India, China and Latin America will result from winning new contracts, especially in high-growth areas like Business Transformation Outsourcing," the company said.

The Armonk, N.Y., company added that it expects hiring in the United States to equal or increase over 2003. And on a percentage basis, its forecast is for hiring across the Americas will outpace the rest of the world, IBM said.

In any discussion about outsourcing, IBM points to its international roots. It's been in India since 1951 and China since 1979. But to date, most of its software has been created in the United States by well-paid programmers.

IBM is not alone in moving, or creating, jobs abroad. Earlier this month, IT consultant Accenture said it will double its Indian workforce to 10,000. The added staff will help Accenture build its applications development, systems integration and business processing outsourcing (BPO) divisions.

While Accenture has 83,000 employees in 48 different countries around the world, India is its offshore development hub with major centers in Bangalore and Mumbai. In October, Accenture's quarterly earnings tripled, due in part, to the rapid growth of these operations.

Hewlett Packard also recently increased its stake in the Indian market, buying the remaining public shares in Digital GlobalSoft, the company's software development and services subsidiary, based in Bangalore.

IDC recently said the market for U.S. technology services will double their usage of low-cost countries in 2004. An IDC study says offshore spending by U.S. companies on technology services increased by 10 percent of total spending in 2003 to $16.3 billion.

IDC sees a quadrupling to $46 billion by 2007, or 23 percent, of total tech spending. India, China and Russia stand to gain the most from the IT spending trend.

Putting the trend into raw numbers, Forrester Research projects that nearly 1 million U.S. IT jobs will move abroad in the next 15 years -- a forecast that greatly troubles union organizers and politicians with IT firms in their districts.

In a note to investors, SG Cowen analysts said that if the report is correct, "IBM continues to reduce its cost structure at least as rapidly as its competitors."

Spokespeople for Alliance@IBM, an affiliate of the Communications Workers of America to unionize IBM employees, were not immediately available for comment. The group's Web site, however, leaves no doubt about its position, branding executives as "rats" who are "plotting to send jobs abroad."

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