IBM Cuts Jobs as It Seeks Stimulus Money


A plan to send more work abroad as the company angles for pieces of the high-speed rail and health-care handouts is stirring controversy

Reports of deep job cuts at International Business Machines (IBM) come at a potentially delicate time for the company—just as it is hoping to secure money from the federal stimulus package. The company will lay off as many as 5,000 U.S. workers in its Global Business Services unit, transferring some of the work they performed to India, according to media reports.

IBM spokesman Mike Fay declined to confirm or to comment on any job-cut plans, which were reported on Mar. 25 by The Wall Street Journal (NWS) and Bloomberg News. The cuts will affect mainly information technology and consulting work in such areas as customer relations management and supply chain management, says Lee Conrad, national coordinator of Alliance@IBM, a group that is seeking union representation at IBM and is allied with the Communications Workers of America Local 1701.

Any job transfers IBM may make to India would occur at a sensitive time, as the recession deepens and as the U.S. unemployment rate climbs. Moreover, the company would be cutting high-skill positions domestically as it and others jockey for new business from the $787 billion stimulus package Congress enacted in February—primarily to help create U.S. jobs.

Workers Ignited

The news—even without IBM saying anything—provoked criticism from worker groups. "It's all about greed," Conrad said Wednesday. "They're moving work offshore to pay lower wages and lower taxes. IBM shouldn't have their hands on stimulus money if they're offshoring work." Alliance@IBM has been trying to organize IBM employees since 1999. It has 350 dues-paying members at IBM and 5,500 supporters, workers who have registered on the group's Web site but do not pay the $10 monthly dues.

Big Blue's efforts to trim costs by sending work overseas are not new. For several years the company has been working to improve its efficiency through a combination of computer automation, business-process optimization, and job transfers from expensive locations to offshore. Chief Executive Sam Palmisano has said those plans are part of an effort to make IBM a "globally integrated enterprise." Since 2003, the Armonk (N.Y.) company has hired approximately 90,000 people in India and more than 5,000 in Brazil to do IT and business-process outsourcing (BPO) services work.

In the meantime, the company has trimmed its U.S. workforce. According to its annual report, IBM had 398,000 workers worldwide at the end of 2008, up from 386,558 at the end of 2007. At the same time, U.S. employment has declined, to 115,000 at the end of 2008, compared with 121,000 a year earlier.

Blaming the Economy

Currently, 29% of IBM's workforce is in the U.S., down from 35% in 2006. The fact that IBM has built up large workforces in such low-cost countries as India allows it to shift work abroad more easily, says Ron Hira, assistant professor of public policy at the Rochester Institute of Technology. He says the current economic climate allows IBM to position itself as one of many firms squeezed by the recession and forced into layoffs. IBM "can now blame the layoffs on the economy, masking the reality that it is offshoring high-wage, high-tech jobs to low-cost countries," says Hira.

Martin Kenney, a professor of political economy at the University of California, Davis, says IBM is likely facing new financial pressures as large banks and financial firms—some of its largest clients—continue to struggle. "IBM is looking at its cost structure and making rational business decisions on what to do," Kenney says. "In a recession you start to get rid of high-cost people where you can."

But while offshoring has been on the rise for decades, the economics of the recession are creating a new political climate that makes such moves more controversial. That's because, as IBM and others continue global restructuring, they're working to secure pieces of the $787 billion stimulus measure enacted in February.

IBM is seeking a share of the $8 billion the U.S. plans to spend on high-speed rail and part of the $20 billion in the stimulus plan to digitize the U.S. health-care system. Palmisano was one of 13 executives who met with President Barack Obama in January in an appearance aimed at pressuring the House of Representatives to pass the economic stimulus bill. He joined the CEOs of Xerox (XRX), Motorola (MOT), and Google (GOOG).

Kenney says the political climate may make IBM's global restructuring touch raw nerves. Some economists have estimated that taxpayers are paying an average of $225,000 for each job created in the economic stimulus package. Says Kenney: "Taxpayers are saying, 'I don't want to give them money if they're moving jobs offshore.'"

Herbst is a reporter for BusinessWeek.com. With Steve Hamm in New York

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