IBM layoffs incite backlash

Business decision spurs negative sentiment toward Big Blue

News of IBM's recent North American layoffs caused many to speak out regarding Big Blue's strategy to employ lower-cost labor overseas during the U.S. economic crisis.

IBM's news that it will shed some 5,000 North American jobs and potentially send more positions overseas has stirred up some bad sentiment toward Big Blue as the economy continues to languish.

IT professionals and others sounded off online regarding IBM's plans (first reported in the Wall Street Journal) to reduce headcount in its Global Business Services division and possibly relocate jobs to lower-cost offshore geographies -- despite the practice being part of Big Blue's long-term strategy.

IBM has publicly stated it would grow its global presence and tap local resources and talent around the world, offshoring jobs overseas for years now. Yet this week's news that IBM would eliminate jobs during the U.S. recession sparked a notably negative reaction to what some industry watchers refer to as a solid business strategy.

"True, IBM's been outsourcing for years. Times change and if you don't pay attention to it, it can bite you. This is one of those times when greed, whether it be bonus or cutting jobs, is a very touchy, high-profile area," one reader commented online. "[IBM] would be better off just reducing headcount, but when you add in 'replacing with lower cost employees,' then you get what you deserve in public backlash."

With outsourcing seeing a potential boom during the downturn, industry watchers argue IBM is making solid business moves.

"Some of these outsourcing firms are looking quite strong through the downturn and are using this economic pressure to show clients how they are working to be more productive in the future," says Paul Roehrig, principal analyst at Forrester Research.

For instance, IBM (which operates its own $59 billion Global Technology/Business Services outsourcing division) saw strong gains in 2008. IBM reported revenue of $103.6 billion in 2008, up 5% from 2007's $98.8 billion. Income for the year ended Dec. 31 came in at $12.3 billion compared with $10.4 billion, a jump of 18%.

"IBM is actually doing just what it is supposed to do, taking care of the profit line for the company. It is amazing how we don't hear these complaints when the economy is good, only when it goes bad," one reader said online. "The principles [of capitalism and free markets] are the same any time, all the time, not just now."

And with lower cost alternatives to offer clients, IBM could potentially pass along the savings to its customers and remain a successful U.S.-based business during the recession, analysts say.

"IBM might be able to better compete with Indian offshore providers from a pricing perspective" by moving resources overseas and reducing its costs, Roehrig says.

Still others disagree, saying IBM will only pass along the savings to its own bottom line.

"They will not pass the savings back to the consumer. The bean counters are only interested in the bottom line," one comment reads. "I've been down this road with other vendors, and it is not a pretty sight. I will recommend to my company what I have done at other companies -- get off IBM hardware. I will vote with my wallet and recommend to the company to do the same."

Some point out that other outsourcing firms conducted similar workforce reductions, such as EDS when it was acquired by HP.  

"EDS did the same thing, laying off tens of thousands of people and sending jobs to Brazil and India. Instant karma hit them though when HP bought the company and sent managers packing," one comment reads.

Another writes: "What is the big deal? HP/EDS has already laid off 25,000 U.S. employees and replaced them with offshore workers."

The number of jobs being shed in North America is small compared to IBM's worldwide workforce and probably not likely to be duplicated one-to-one in offshore locations, analysts say.

"It's a relatively small portion of their overall services population," says Ben Pring, research vice president at Gartner.

Still others argue that with potential acquisitions on the table, IBM doesn't need to cut its workforce yet.

"If IBM has cash to buy Sun, they surely could hold off laying people off," one reader states. "If IBM customers could see this practice, I'm sure they would go elsewhere for their business needs."

Others say despite the business logic to such a workforce decision, the frequency with which U.S. jobs are being outsourced is unsettling.

"I was one of the IBM employees let go. I found out the work I was doing will now be done by someone in Brazil. It's only going to get worse. There won't be many tech jobs left in the U.S. in the very near future," the comment reads.

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