IBM move not a bellwether: analysts

IBM’s plans to move up to 4,730 programming jobs from the U.S. to India, China and other countries are now out of the bag, but some analysts don’t think Big Blue’s move will be used as a bellwether by other firms making offshoring decisions.

IBM’s offshoring plans concern programmers in the firm’s Global Services division, according to a report published in a mid-December online edition of the Wall Street Journal. The affected employees work at sites around the U.S., including Southbury, Conn.; Poughkeepsie, N.Y.; Raleigh, N.C.; Boulder, Colo., and Dallas, according to the report.

IBM plans to inform 947 U.S. employees that their work will be moving overseas, according to the report, which cited internal company documents. A further 3,700 U.S. jobs have been identified as having the “potential to move offshore,” the report said.

The 947 workers will be informed of the changes in the first half of this year, some by as early as the end of January, and will be asked to train their replacement, a worker from overseas. They will have 60 days to find another job within IBM, the report said.

Despite Big Blue’s traditionally cautious image, “for the most part all of its major rivals are moving in a fairly large way, setting up a greater presence in India,” said Jim Westcott, services analyst at IDC Canada Ltd. in Toronto. “IBM is not really lagging behind, it’s not leading the charge either, but it’s moving along in step” with other vendors and service providers like EDS, Accenture and HP.

He added that most of these large IT services companies recognize that India is still at the forefront of providing offshore service, and with all of the competition offshoring to India, there’s more of a move to attract skilled resources overseas – either new graduates or employees already working in other countries. “It’s competition for the cream of the crop.”

There are some smaller Canadian vendors with some presence in the U.S. that are building low-cost development and maintenance centres offshore, said Westcott. One of them is Calgary-based RIS Resource Information Systems Inc., a nearshore services provider that has set up IT application development offices in Bucharest, Romania.

But from an end-user perspective, Canada hasn’t seen a lot of activity in terms of moving IT services projects offshore. “Most can companies, when they’re looking to do outsourcing of an IT services project, are primarily looking still locally at a Canadian-based company.”

If the customer feels comfortable with the idea, the service provider might suggest the option of moving some of the customer’s projects offshore, citing lower costs and a higher standard of work. “But that’s at very early stage in Canada,” Westcott said.

Alan Pelz-Sharpe, vice-president of software and services for North America at analyst firm Ovum in Boston, also said he’s not so sure other companies will follow IBM.

“IT companies have been outsourcing for long time,” he said, adding that he thinks it’s the numbers which took people aback. “Oracle outsources a heck of lot of stuff, as well as Computer Associates, and even down to very small vendors, they outsource a lot of coding work. In the IT sector this is pretty pervasive…they’ve been doing it since the crash in IT.”

Even in other sectors such as retail, offshore outsourcing of call centre operations and basic software development may become more of a focus than it used to be, Pelz-Sharpe said.

He added that the true bellwether might well be the decision General Motors made in the mid-80s to outsource its entire IT facility to EDS – a huge deal that got the outsourcing ball rolling, he said.

Andy Efstathiou, program manager with analyst firm The Yankee Group in Boston, said IBM has been offshoring for more 10 years, and not just to India. “Moving more jobs overseas is not new but it’s sort of an additional trend.” He agreed that many IT organizations such as Microsoft, EDS and Accenture are doing the same thing, and they’re all moving at a similar pace.

“Frankly, the recession of that industry over the past three years has made it critical for them to do this. They’re facing a terrific amount of economic pressure,” Efstathiou said.

Historically IBM has used a blended offshore model, signing contracts with overseas or offshore firms, and after a number of years forming a joint venture with the firms. Eventually IBM buys out the offshore companies so it can have its own presence at that particular location.

All this recent buzz about offshoring is an indication that the IT services industry is moving to more of a global delivery model, said John McCarthy, group director of research at analyst firm Forrester Research in Cambridge, Mass. McCarthy said much of IBM’s overseas work will probably still revolve around building up its own capabilities around the world in lower-cost geographies. “The IT industry has reached a level of maturity to the point that it can no longer be moving prices to infinity and beyond.”

Calling IBM the “largest IT company, period,” McCarthy said that the level at which IBM is going to approach offshore outsourcing is naturally going to attract attention. But from a global perspective, the numbers aren’t even all that big. “Ten per cent (of IBM’s world-wide workforce) would be 35,000 people, so that would mean two per cent for these numbers. That’s probably their turnover in a given year.”

In McCarthy’s eyes, the big offshoring milestone would have been the five-year, US$100 million IT outsourcing contract GE Medical Systems (GEMS) signed almost two-and-a-half years ago with Tata Consultancy Services (TSC) in India. “That’s what I think got all big systems vendors’ attention – mainly because of the size of deal,” he said.

“All of a sudden the Indian guys were playing in the big leagues. It was the type of contract IBM, Accenture and EDS would have duked it out for.” McCarthy said GE and TSC are now looking to extend the contract.

The biggest progress for offshore outsourcing in the last 18 months has been customers coming out of the experimentation phase and deciding to commit to the concept, McCarthy said, adding that this decision has been driven primarily by the IT budget pressures they are under.

-with files from IDG News Service

Related Download
3 reasons why Hyperconverged is the cost-efficient, simplified infrastructure for the modern data center Sponsor: Lenovo
3 reasons why Hyperconverged is the cost-efficient, simplified infrastructure for the modern data center
Find out how Hyperconverged systems can help you meet the challenges of the modern IT department. Click here to find out more.
Register Now