IBM stands for 'I've Been Moved'
Amid thousands of U.S. layoffs, a plan to relocate some workers abroad has some questioning the company's motives.
301 Moved Permanently
NEW YORK (CNNMoney.com) -- Shifting U.S. jobs overseas is nothing new for technology giant International Business Machines Corp. -- or the tech sector in general -- but a brave new employee relocation strategy at Big Blue is raising some eyebrows.
The plan, announced earlier this year, gives U.S. employees the opportunity to move their jobs to emerging market countries, and in turn, the company will foot some of the relocation costs.
It's no secret that IBM is outsourcing U.S. jobs. Last year, IBM's U.S. employment fell 5%, while emerging market employment rose 15%, particularly in high growth markets like India, China, Brazil and Russia. But typically, the company has filled those jobs with local recruits.
"There's a joke at IBM," said Carl Claunch, an analyst who follows the company for technology consultant Gartner. "What does 'IBM' stand for? 'I've Been Moved.'"
Prior to this year, IBM (IBM, Fortune 500) has relocated some employees overseas, but those moves sometimes involved Americans training foreign workers, followed by a pink slip for the U.S. employee, according to Trip Chowdhry, senior analyst at Global Equities Research.
So why the new strategy, and why now? Analysts have varied opinions on why IBM chose to employ this new strategy, including further staffing up in foreign posts; retaining and exporting the skilled resources it has developed; and cost-saving alternatives to layoffs here.
The company has been fairly mum on the issue. Asked about overall corporate strategy, an IBM spokesperson said only that more than a dozen employees have taken advantage of the new program and that most of them were native to the country they moved to.
Claunch suggests that since the company is hiring in emerging countries anyway, it's preferable for IBM to retain the people they already know.
"IBM is pretty sophisticated about its onshore and offshore employment," said Claunch. "They want to have resources in the same location as their customers with an understanding of the local business environment."
IBM said in its most recent financial report that it "continues to rebalance its workforce globally to improve its global reach and competitiveness and to reflect the changing geographic mix of its business."
But hiring and training new talent abroad on such a massive scale can be inefficient.
"This program offers lots of retained value for IBM," Claunch said. "Instead of training new people, IBM can move people who already have the skills."
Others say this new program isn't purely about balancing its global workforce. Some argue that IBM is simply trying to save money amid a growing number of costly layoffs.
The company has already laid off 4,600 U.S. employees this year, and a second round of job cuts began last week -- a round that is expected to add 5,000 to the domestic job-cut total, according to a story that was first reported in the Wall Street Journal.
The 9,600 layoffs represent 8% of the domestic workforce.
At the end of 2008, IBM employed 71% of its workforce overseas, and 65% of its revenue was from foreign countries.
"The mantra of 'we want a global workforce' is all smoke and mirrors," said Global Equities Research's Chowdhry. "The company is playing a gimmick with its employees -- they simply want to shift people to where there is a cost advantage."
A reason to move IBM employees overseas rather than fire U.S. personnel and hire new people abroad, is that those layoffs and hires come with hefty costs. According to Chowdhry, IBM offers even more generous severance than the industry standard of two months, offering up to a half year salary and outplacement services to certain recently laid-off employees.
Some analysts have noted that outsourcing costs of training and integrating new employees could affect IBM's bottom line.
"The ongoing migration of some services labor offshore could place pressure on consulting and systems integration ... and therefore gross profit dollars," said Citigroup analyst Richard Gardner in a recent note to investors.
In the recession, cutting costs makes sense. But Claunch maintains that IBM doesn't need to cut costs, rather, the method behind the plan is simpler: putting bodies where the money is.
Though the recession has affected every company, IBM has performed quite well, maintaining nearly $13 billion of cash on hand. In the fourth quarter, the Armonk, N.Y.-based company reported net income of $4.4 billion, or $3.28 per share, trouncing analysts' expectations and last year's income of $2.80 per share.
"IBM isn't really forced to do cost cutting," he said. "They've really made an investment in high-growth markets, and that's where they're putting their people in place."
Accordingly, if IBM is successful in bidding for contracts for federal stimulus projects -- as the company said it would attempt to do -- then Big Blue may in turn increase its U.S. workforce.