As blue chip companies in developed markets scramble to outsource high-cost jobs to low-cost countries, one of the world's biggest technology companies -- IBM -- seems content to keep more than 1,800 highly trained, well-paid IT engineers at its R&D lab in Böblingen, Germany.

You wonder why.

The German lab, IBM's first in Europe, was launched in 1957 by Thomas Watson, who believed the company had to develop and manufacturer products in markets where it had large customers bases. In recent years, however, IBM has shut down or sold many of its computer manufacturing operations around the world, Germany notwithstanding.

Yet the Böblingen lab, one of the group's biggest, has remained largely intact. This is significant given that it's located in a country with high taxes, strict labor laws and long vacations -- not what you would call useful qualities when competing with markets such as China and India.

Despite the growing importance of China and India, where IBM is beefing up its R&D activities, Herbert Kircher, director of development and chairman of IBM Deutschland Entwicklung GmbH, sees a continued strong role for his lab and the others in France, Switzerland and the United Kingdom as well as those in the United States.

"Yes, an Indian engineer may cost one-third of what an engineer costs in Europe or the U.S., and we need to take advantage of this as we are doing," he says. "But we will not exit high-cost regions such as Europe and the U.S. We need the balance."

The German lab has strengths of its own, Kircher is quick to point out. "We are able to retain highly skilled, highly motivated engineers," he says. "Unlike IBM engineers in India and China who work for the company for an average two years, our engineers in Germany stay around 10 years, with some as many as 20 years, bringing with them a lot of project and customer experience as well as market know-how."

Whereas IBM R&D executives in China or India often assign development projects to engineers with two years' experience or less, Kircher relies on what he calls "the right mix" of engineers. On the one side are engineers and researchers who are fairly new to the company and bring fresh ideas; on the other are staffers with a wealth of experience. "This mix contributes to our success in developing new products," he says.

The IDG News Service is a Network World affiliate.