IBM's Offshoring Adventure

Oct. 1, 2004
Big Blue dips in its toe -- gets burned but creates more jobs in the process.

When future historians recount the swirl of controversy surrounding "offshoring," 2004 undoubtedly will be noted as a watershed year, and IBM Corp. likely will be remembered as a major player. Whether that's hero or villain, however, depends upon one's point of view.

IBM's management is unapologetic for its strategy of moving thousands of U.S.-based jobs offshore to lower-cost countries such as India and Brazil. This has rankled many people inside and outside the company who complain that corporate America has relegated employees to the status of commodities.

Meanwhile, the venerable IBM has offered the same explanation as many other large, U.S.-based companies: They operate globally -- not parochially -- and must make strategic decisions on such issues as sourcing and labor costs on a global basis in order to compete.

So far in 2004, IBM's offshoring journey has come full circle. Internal details of its job-moving, money-savings strategy for IT workers were leaked to the media in January, causing an uproar. But by the end of the summer, the company's earnings and growth projections had increased to the point that it announced it would create more jobs this year than expected, and fewer existing U.S. jobs would be moving offshore.

Here's a timeline and strategic point-by-point compiled from Wall Street Journal reports:

January: IBM internal documents emerge and reveal that the company plans to move 3,000 U.S.-based jobs overseas in 2004 and an undisclosed amount in 2005 to save $168 million annually starting in 2006. The documents quote cheaper labor costs, comparing, for example, a Chinese programmer costing $12.50 an hour versus a U.S. counterpart costing $56 per hour.

The revelations spark an uproar within and outside of the company. IBM, which also announces plans to add 15,000 jobs in 2004 -- 5,000 in the U.S. -- says that the offshored jobs represent a tiny portion of its overall employment of nearly 330,000 people.

April: IBM announces it will buy Daksh eServices Ltd., one of India's largest call centers. Early on, call centers had emerged as the poster child of offshoring, as many other technology-based companies moved their customer-service functions to India. With a price of $100 million to $150 million, IBM's is one of the largest foreign investments in India in recent years. Daksh's 6,000 employees join 9,000 IBM employees already in India working in software development and back-office jobs.

July: More internal documents are leaked to the press that reveal IBM is changing its strategy on moving jobs offshore: 1,000 fewer jobs will go, and the company will work harder to retrain and retain outsourced U.S. workers. IBM Vice President of Learning Ted Hoff tells the Wall Street Journal that the changes are part of the company's long-term efforts to retrain workers for the evolving computer industry, but the flap over "offshoring was absolutely part of it," too.

August: Following a report of 17% earnings growth, which beats expectations, IBM announces it will add 18,800 new jobs in 2004, up from 15,000 announced earlier. Additionally, 2,000 U.S.-based jobs will move offshore, down from 3,000. If coming to fruition, the plan will bring IBM's employment to its highest level since the recession of the early '90s, when the company began a desperate fight to reinvent itself from an office-products manufacturer to a technology products-and-services provider.

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