This article relates to chapter 15 regarding global business strategy in that it describes IBM’s move to expand its global strategy. According to the Wall Street Journal, IBM is planning to lay off about 5000 employees and transfer those job opportunities overseas to India. This move will not be viewed favorably in public opinion, but it is a smart move that will cut costs and improve service delivery for the company’s Global Services division; it will allow IBM to become more efficient and to more effectively deliver its services. The cost of labor in India is lower than in North America and the costs associated with building and maintaining facilities is also cheaper. An engineer in the US can be paid $120,000 whereas one in India can be paid $25,000. Besides salary and compensation costs, customers will also ultimately benefit from this decision. The savings in cost can be translated into savings in price, thus making IBM more price-competitive with offshore providers in India. Offshore service providers are growing at a dramatic rate and that is forcing all service providers to be more efficient in their delivery mechanisms. IBM’s move overseas is a good move because it will lower costs, improve efficiencies, and help in lowering prices for customers all the while offering a broader set of services. These days, customers are trying to engage with outsourcers with shorter contract durations, smaller deal sizes, and targeted services. Service providers are trying to leverage the savings and productivity global delivery can offer largely because it translates into better options for clients, who can choose to have their delivery done where they want. This is why IBM, as a service provider, chooses to offer these options and savings to its customers. IBM has made it a point to maintain its geographic presence, however. It plans on expanding its US presence as well. In its 2008 annual report, IBM explained its global intentions as trying to adjust towards emerging geographies to tap into their higher growth, technological infrastructure, and talent pool. This move is justified by the new markets opened by integrated global economies that offer new opportunities and new sources of skill. The internet has allowed for communication and collaboration around the world and has introduced a new model on continuous global connection. The number of employees in the US has dropped somewhat whereas the number of employees in global divisions has increased. IBM operates in over 170 countries and it is trying to refocus its business on the higher value segments. It is trying to rebalance its workforce globally in order to improve its global reach and competitiveness and to emphasize its changing geographic mix. These job losses in the US will not be taken positively, but in terms of IBM’s strategy, globalization is a smart move to help improve its business structure.
Reference:
Dubie, Denise. (2009). After Layoffs, Will IBM Send More Jobs Overseas? Retrieved from PC World on May 27, 2009.
Website: http://www.pcworld.com/article/162049/after_layoffs_will_ibm_send_more_jobs_overseas.html
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This article is yet another story on the U.S. job displacements that are happening. I agree with the position that it will not be well-received in the U.S. about the job losses, but it is ultimately in the best interest of IBM and a competitive U.S. business environment. Painful as it is, outsourcing is a reality in the global economy. In a capitalistic world, the majority of dollar flow will go to the least cost providers. U.S. companies must continue to outsource, while becoming more innovative at home and creating more high-valued products and services at home. IBM is a very good example of such a business model.
ReplyDeleteI think for the current economic period it is a good idea for IBM to offshore jobs. If they don't there is a good chance they could go under. I'm sure no one would want that to happen, and in this case you have to pick the less of two evils.
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