IBM ruffles workers by expanding India staff

As one of the IT industry's largest and most storied employers, IBM faces constant scrutiny of its workforce shifts and reductions. With The New York Times reporting Friday on IBM's plans to significantly expand its staff in India while cutting jobs elsewhere, the company once again found itself balanced at the delicate intersection of global business realities and U.S. politics.

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The furor started when an anti-offshoring lobbying group, the Washington Alliance of Technology Workers (better known as WashTech), passed on to The New York Times a leaked internal document from IBM showing projected employee headcount growth in India this year of more than 14,000. The document, a real estate report, shows IBM's staff count in India ballooning from 6,000 in 2002 to 38,000 in 2005.

An IBM spokesman declined to comment on the authenticity of the document, which is currently posted on WashTech's Web site, or on whether the 14,000 figure accurately reflects IBM's hiring plans in India. But the company has made little secret of its intent to increase staff in India, which it frequently cites as a major growth opportunity. In his remarks to analysts on IBM's last quarterly earnings conference call, Chief Financial Officer Mark Loughridge said, "China, Russia, India and Brazil together grew 18 percent in the first quarter to over $1 billion. We will continue to shift investment to these geographies to better address these important markets."

It's the "shifting investment" part of those remarks that causes political strife. While IBM expands staffing in India, it's cutting back elsewhere: In May, IBM announced restructuring plans that involve cutting 10,000 to 13,000 positions worldwide, mostly in Europe. The company's overall headcount rose by nearly 10,000 last year, to 329,000 employees worldwide by the end of 2004, but its headcount in the U.S. has remained flat for several years, at around 130,000.

Meanwhile, informed IBM sources in the U.S. and India say the company is aggressively expanding its IBM Global Services staff in India: Local offices there are branching out into new lines like infrastructure services. An executive from Bangalore-based Wipro Ltd., India's third-largest outsourcer, said IBM is its biggest rival in recruiting staff, particularly experienced engineers.

"There's a growing demand for services in India, throughout Asia, and throughout the developing world," IBM spokesman Edward Barbini said.

The corollary to that is that IBM is fighting harder for business in established markets. The company startled Wall Street by falling significantly short of expectations last quarter. Japan, Italy, France and Germany all reported declining sales from the prior year's first quarter. In 2004, IBM eked out single-digit growth in the U.S., Japan, and its top European countries, while sales fell in the U.K., Germany and Italy (after adjusting for currency fluctuations). In India, revenue rose 45 percent.

Worker unions like WashTech and its close IBM watchdog partner, Alliance@IBM, are quick to link increased staffing in developing nations with job reductions in the U.S. (Within hours of WashTech's publication of its IBM document, Alliance@IBM had an action item on its Web site allowing visitors to click-and-send an email to IBM Chief Executive Office Sam Palmisano expressing outrage at IBM's hiring strategy. Subject line: " Sam - we should export you!") With salaries in those nations significantly lower than those commanded by workers in Western countries, there's little doubt costs play a role in IBM's embrace of India. But the company insists the situation isn’t so black-and-white: As other companies increase their business in India, IBM in turn needs to develop a larger and more skilled local staff to serve regional clients, executives say.

Less than half of IBM's 2004 revenue came from the U.S.: The Americas brought in 42 percent of IBM's $96.3 billion, while EMEA (Europe, the Middle East and Africa) contributed 33 percent and Asia-Pacific generated 22 percent. As long as countries like India are generating double-digit growth, those are the regions in which globally focused IBM will invest.

(John Ribeiro in Bangalore contributed to this report.)