Inside IBM’s Offshoring Decision

This is interesting stuff.

In a rare look at the numbers and verbal nuances a big U.S. company chews over when moving jobs abroad, internal documents from International Business Machines Corp. (IBM) show that it expects to save $168 million annually starting in 2006 by shifting several thousand high-paying programming jobs overseas, Monday's Wall Street Journal reported.

Among other things, the documents indicate that for internal IBM accounting purposes, a programmer in China with three to five years experience would cost about $12.50 an hour, including salary and benefits. A person familiar with IBM's internal billing rates says that's less than one-fourth of the $56-an-hour cost of a comparable U.S. employee, which also includes salary and benefits.

According to the documents, which also provide managers with detailed advice on how to talk about the moves and their effect, IBM plans to shift the jobs from various U.S. locations to China, India and Brazil, where wages for skilled programmers are substantially lower.

At IBM headquarters in Armonk, N.Y., a spokesman said that the company expects to shift 3,000 U.S. jobs overseas this year. He declined to comment on plans for next year. He said IBM expects to add 15,000 jobs world-wide this year, with a net total of 5,000 of them in the U.S. That would increase IBM's world-wide employment to 330,000, the highest level since 1991.

I hope they have given serious thought to non-cost aspects of this issue. Despite what many of my commenters say, I don't have a problem with offshoring in and of itself. But, I think too often companies look only at the financial savings from it and don't consider changes in productivity, decreased customer satisfcation, and potential language and cultural barriers that can cause negative consequences from the move.

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  • Curt

    As an IBM employee in the US providing service and working with offshore employees I can state unequivocally that the drawbacks mentioned in the article do occur and are of the gravest consequence to the quality and timeliness of the product delivered. Those employees come at 1/4 the price, but also at 1/4 the quality, and it takes them 2-3 times as long to accomplish a task. It looks good on paper but it’s a big loser on the ground even without taking into account the 2-3 times as long I have to spend working with them, and I am a ways beyond that $56/hour median mentioned when benefits are included.