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By Heather Ellwood
Monday July 18, 2005

      Outsourcing and offshoring continue to be a dominate trend for US companies in the IT industry. IBM, one of the largest IT companies in the US, is cutting jobs at home in exchange for workers in India and other countries abroad.

      Although iSeries market analysts say that Big Blue iSeries staff levels will not be impacted by the job shift overseas, IBM’s hiring and firing actions as a whole show that the company is changing along with the evolving marketplace.

      “You would be hard-pressed to find a company that hasn’t offshored to India. IBM, HP, and Dell have all done it in recent years. The truth of the matter is that, although these companies are remaining primarily American, by in large they are beginning to do things from a worldwide approach. IBM is doing things at a country level and a worldwide level now,” says Joyce Becknell, research director, Sageza Group, Milan, Italy.

      Two months ago, IBM announced that the company would be cutting 10,000 to 13,000 jobs (IW 5/16/05). Now, there are indications that IBM will be doing some significant hiring in India (for more information see www.washtech.org/news/industry/display.php?ID_Content=4964 and www.washtech.org/news/documents/india).

      Market analysts have differing views on what these staffing fluctuations mean for IBM as a company, but one thing they do agree on is that IBM is following the outsourcing and offshoring trend that is occurring in the entire IT market.

      “My initial reaction to this is that IBM is doing things similar to what other high-tech companies have been doing for the past two to three years. Companies are finding that the exchange rates are cheaper overseas; despite communication and coordination costs, companies are still looking at 60% to 70% of the cost of a comparable employee in the US,” says Wayne Kernochan, president, Infostructure Associates, Lexington, MA.

      Becknell sees offshoring as a balancing act. “In India, the skill level is there for manufacturing and distribution. Wages are good right now because there are more workers than jobs, but that will balance out quickly. As India gets wealthier (as more US and UK companies shift over), the low cost of wages will evaporate over the next few years. Jobs will be lost in home territories, but the trick in this economy is to shift to where the jobs are. Some jobs will be outsourced, but as wages fluctuate, they will come back,” says Becknell.

      One thing to think about, though, is the drawback offshoring will have on output quality. “As an old developer, and someone who has experience in coordinating overseas, I think that a lot of companies are underestimating the drawbacks of offshoring and outsourcing. Companies should realize that software developers write programs in the English language, and therefore software tends toward the English language syntax. This could be a significant problem if software is developed in other countries that are not native English-speaking. Also, programmers in the US are familiar with what is going on in the software market, but overseas, programmers are not. Being familiar with what is happening in the market is very important for someone developing software,” says Kernochan.

      Becknell is examining how IBM is balancing those functions that will be distributed overseas and those functions that will stay at home. “IBM has a lot of work to do locally before they get the distributed workloads going. IBM is now trying to balance what they are centralizing on home territory and what they are going to distribute offshore. This is all the result of the shift toward globalization.”