Thread: IBM: Outsourcing at Home

IBM: Outsourcing at Home
India has been the primary destination for tech outsourcing. But in what could be a trend-setting move, IBM is turning to Michigan and Iowa
By Steve Hamm

India has become synonymous with tech outsourcing. More than 90% of tech services that are performed in low-cost countries happen there. But when IBM (IBM) announced its two newest global service delivery centers this week, they weren't in Bangalore), Delhi, or Mumbai. Instead, Big Blue picked East Lansing, Mich., and Dubuque, Iowa.

In what may blossom into a countertrend, the company is hiring close to home. The moves come at a drama-fraught time, since the U.S. economic downturn has already claimed more than 60,000 tech jobs in the past three months alone. In East Lansing, IBM expects to create up to 1,500 direct and indirect jobs in five years, and it should employ 1,300 people in Dubuque within two years.

With 200,000 service employees worldwide and nearly 80,000 in India, IBM has over the past six years created a vast global network of service delivery centers. Michael Daniels, senior vice-president of IBM Global Technology Services, says that while the cost-competitiveness of East Lansing and Dubuque were factors in the company's decisions to locate there, salaries and other costs weren't the biggest factors. "Low cost is a factor in any decision, but the critical thing for us was the access to skills and the willingness of the local universities to cooperate with us and add to their curricula," he says.

Leading the Pack
Industry analysts expect more tech services outfits to establish operations in low-cost parts of the U.S. in the coming months and years. The phenomenon first took root last year, when India's Wipro Technologies (WIT) opened small service delivery offices outside Atlanta and in Troy, Mich. "You'll see more of this. It won't be huge. But it will be a nice niche," says analyst John McCarthy of market researcher Forrester Research (FORR). "This is all about building out a global network. It's not one size fits all: India." McCarthy says some states want their service work to be performed within their borders, and some companies want services kept close to home.

For Dubuque, IBM's decision comes as a major stroke of good luck. The new jobs will include setting up, monitoring, and maintaining large computing systems. The midsize city has a blue-collar tradition, but employment has dwindled at a John Deere (DE) construction equipment plant that once was a pillar of the local economy. "This is transformational," says Mike Blouin, president of the Greater Dubuque Development Corp. "It has the impact on Dubuque on the white-collar side that John Deere had in the early 1950s on the blue-collar side."

Dubuque and Iowa offered IBM an enticing package of incentives worth $55 million over 10 years. They include a loan of $11.7 million that will be forgiven if IBM fulfills its hiring pledge. A local development agency will spend $25 million to rehab an historic former department store in downtown Dubuque.

The new East Lansing service delivery center will modernize out-of-date software for states and corporations. It will be located in a former credit union building on the campus of Michigan State University, where IBM will also work with faculty and administrators to modify the curriculum to include skills that will be needed there.

http://tinyurl.com/9utke2

I wonder how many visas IBM will get to fill those 1500 jobs?

Originally Posted by avenger

I wonder how many visas IBM will get to fill those 1500 jobs?

I thought the same thing avenger especially the one on campus.

This is an excellent deal for IBM but I am not sure it is for the American Tax Payers !!

They could also be looking to leverage students here on student visas. This may be setting the stage for them to grandstand to the effect that the local labor pool doesn't have what they need, so we need a higher H-1B cap.

On the other hand, the fear among top management is very real at this point. They are wondering what else has been messed up that they haven't found out yet. Like a large luxury ocean liner, their course takes a long time to turn around.

Plus, the economy has battered American workers so much that the go-go 90s IT mentality (when everyone and their dog was attending boot camps and getting IT jobs) is definitely dead and gone. American salaries have been stagnant for a decade, while India's went up double digit every year until now. The overall equation for outsourcing has definitely changed.

Originally Posted by BetsyRoss

They could also be looking to leverage students here on student visas. This may be setting the stage for them to grandstand to the effect that the local labor pool doesn't have what they need, so we need a higher H-1B cap.

The Department of Homeland Security, under Michael Chertoff, has instituted a policy that lets students from India assume full time job responsibilities at large universities by converting their student visas to a full time H-1B (or a differently named visa with the same repsonsibilities) visa. The visa also allows universities to hire H-1Bs from India from their pool of students without searching for Americans to fill those positions by claiming that there is "a talent shortage" and "Americans can't be found to fill those positions" so workers will have to be imported from India to fill those positions. Since Michigan State Unversity is one of the principal universities that engages in this practice, it is no suprise that the IBM building you described will be located right next door to MSU.