Cutting here, but hiring over there
By Steve Lohr; June 23, 2005
Even as it proceeds with layoffs of up to 13,000 workers in
Europe and the United States, IBM plans to increase its payroll in
India this year by more than 14,000 workers, according to an internal
Those numbers are telling evidence of the continuing
globalization of work and the migration of some skilled jobs to
low-wage countries like India. And IBM, the world's largest information
technology company, is something of a corporate laboratory that
highlights the trend. Its actions inform the worries and policy debate
that surround the rise of a global labor force in science, engineering
and other fields that require advanced education.
To critics, IBM is a leading example of the corporate strategy
of shopping the globe for the cheapest labor in a single-minded pursuit
of profits, to the detriment of wages, benefits and job security here
and in other developed countries. The company announced last month that
it would cut 10,000 to 13,000 jobs, about a quarter of them in the
United States and the bulk of the rest in Western Europe.
"IBM is really pushing this offshore outsourcing to relentlessly
cut costs and to export skilled jobs abroad," said Marcus Courtney,
president of the Washington Alliance of Technology Workers, or
WashTech, a group that seeks to unionize such workers. "The winners are
the richest corporations in the world, and American workers lose."
WashTech, based in Washington state, gave the IBM document on
Indian employment to The New York Times. It is labeled "IBM
Confidential" and dated April 2005. An IBM employee concerned about the
shifting of jobs abroad provided the document to WashTech.
IBM declined to comment on the document or the numbers in it,
other than to say that there are many documents, charts and projections
generated within the company.
But in an interview, Robert W. Moffat, an IBM senior vice
president, explained that the buildup in India was attributable to
surging demand for technology services in the thriving Indian economy
and the opportunity to tap the many skilled Indian software engineers
to work on projects around the world.
Lower trade barriers and cheaper telecommunications and
computing ability help allow a distant labor force to work on
technology projects, he said.
Moffat said IBM was making the shift from a classic
multinational corporation with separate businesses in many different
countries to a truly worldwide company whose work can be divided and
parceled out to the most efficient locations.
Cost is part of the calculation, Moffat noted, but typically not
the most important consideration. "People who say this is simply labor
arbitrage don't get it," he said. "It's mostly about skills."
And Moffat said that IBM was hiring people around the world,
including many in the United States, in new businesses that the company
has marked for growth, even as it trims elsewhere. The company's
overall employment in the United States has held steady for the last
few years, at about 130,000.
To foster growth, IBM is increasingly trying to help its client
companies use information technology rather than just selling them the
hardware and software. So IBM researchers and programmers are more and
more being put to work for customers, redesigning and automating tasks
like procurement, accounting and customer service.
Yet those advanced services projects will be broken into pieces,
with different experts in different countries handling a slice. This
emerging globalization of operations, Moffat noted, does lead to a
global labor market in certain fields. "You are no longer competing
just with the guy down the street, but also with people around the
world," he said.
Such competition, however, can become particularly harsh for
workers in the West when they are competing against well-educated
workers in low-wage countries like India. An experienced software
programmer in the United States earning $75,000 a year can often be
replaced by an Indian programmer who earns $15,000 or so.
Most economic studies, including one last week by the McKinsey
Global Institute, a research group, have concluded that the offshore
outsourcing of work will not have a huge effect on American jobs as a
But looking at job numbers alone, said Joseph E. Stiglitz, a
Nobel Prize-winning economist and a professor at Columbia University,
understates the potential problem. "What worries me is that it could
have an enormous effect on wages, and that could have a wrenching
impact on society," said Professor Stiglitz, a former chief economist
of the World Bank.
The fact that globalization anxiety about jobs and wages does
not extend to executive ranks has stirred resentment among workers.
"Maybe the shareholders should look offshore for competitive executives
who would collect less pay and fewer benefits," said Lee Conrad,
national coordinator of the Alliance@IBM, a union-affiliated group that
has 6,500 dues-paying members at IBM "In all this talk of global
competitiveness, the burden all falls on the workers."
Education and retraining, most experts agree, is a major part of
the answer for helping skilled workers adjust and find new jobs to
replace those lost to global competition. For its part, IBM says it
spends more than $700 million on training its employees for new jobs
within the company, and for those laid off it offers severance packages
that include career counseling and reimbursement for retraining.
Even some champions of globalization say the corporate winners
should do more to ease the transition of the losers. "The wealth
creation clearly has some fallout, and there is a responsibility for
it," said Diana Farrell, director of the McKinsey Global Institute.
By one calculation, the cost of softening the blow might not be
all that high. For every dollar invested offshore, American companies
save 58 cents, McKinsey estimates. And 4 or 5 percent of those savings
could pay for a theoretical wage insurance program that would cover 70
percent of the income lost between an old job and a new one, as well as
subsidized health care coverage, McKinsey said.
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