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IBM: Secret offshore outsourcing plans?
"Nobody mention the offshoring... I mentioned it once but I think I got away with it..."

By Jo Best

Published: Tuesday 20 January 2004

IBM – tech's outsourcer du jour – could well be dabbling with offshoring itself, despite saying that the admission of honesty may not be the best policy when it comes to sending jobs abroad.

It looks like Big Blue could end up saving a hefty sum – nearly $170m – by using programmers in India, Brazil and China in the coming few years.

Despite protests from some firms, including Google, that quality rather than cost is the prime motivator when opting for offshore outsourcing, it looks like IBM's accountants have their eyes on the cash. According to internal documents seen by The Wall Street Journal, labour costs alone could be slashed by a quarter in the event the company decides to employ Chinese, rather than American, workers.

The wages alone could prove a worthwhile saving for IBM, whose documents show that for a US programmer with three to five years of experience the hourly rate would be $56, but a Chinese equivalent would cost just $12 an hour.

IBM's cost-analysis might be a little myopic, however. Eamonn Kennedy, senior analyst at Ovum, said that while the wage comparison is "attention-grabbing", there are other key elements to take into account.

"There are additional management costs to take into account... it's not the final equation," he said, adding that companies considering offshoring should consider possible costs that might be incurred - from time differences, training and liaising with outsourcers - to ensure a project meets its objectives.

Research from analyst house Meta Group also warns against an overemphasis on labour costs, showing that while a straightforward wage comparison could show a difference of around 40 per cent, "hidden costs and differences in operating models" mean that the actual cost savings are more likely to be in the region of 15-20 per cent.

As the outsourcing backlash looks to be getting a toehold in the business world, IBM has issued guidance to its managers in how to deal with the thorny political issues surrounding it, says the WSJ.

One of the strategies the documents suggest is, to put it politely, being economical with the truth. The document recommends that those charged with breaking the news to employees should "not be transparent regarding the purpose/intent" of offshoring and that announcements to employees should be cleaned up by HR before they get into the hands of workers.

Ovum's Kennedy advocates a more open approach. "If you're considering any kind of outsourcing – offshoring or not – if you appear indecisive, it can lead to all sorts of issues and objections from the stakeholders involved. If it's offshoring, things can be more emotional. There's the extra fear that you might not be changing employer but your jobs will be replaced by someone you can't compete with," he told silicon.com.

"Keeping your staff in the dark is not an option," he said.

IBM's memo also recommends that the terms onshore and offshore should "never be used", in all likelihood to dodge the political repercussions, as US Congress debates whether to put up trade barriers to deter companies from sending jobs abroad.

The plans to offshore IBM's workers have yet to be confirmed. IBM did not respond to requests for comment.