IBM offshoring: Motives and consequences

IBM offshoring: Motives and consequences

Summary: Last week, the Australian Services Union said that IBM Australia was looking at sending 800 jobs offshore to low cost centres, a proposition which analysts said was likely driven by a lack of local skills, with customers to face the consequences.

TOPICS: IBM, IT Employment

Last week, the Australian Services Union said that IBM Australia was looking at sending 800 jobs offshore to low cost centres, a proposition which analysts said was likely driven by a lack of local skills, with customers to face the consequences.

The union said last Friday that workers had been told that the services for each of IBM's customers, except for the Federal Government, could be potentially sent offshore to low cost centres in India and China. IBM has not confirmed or denied those assertions.

We expect the best value and service delivery from IBM and it is their decision on how to source and apply their global skills to their corporate accounts.

Qantas spokesperson

Most customers when contacted about the possibility were unwilling to comment, including BP, Telstra and the Commonwealth Bank.

Qantas said that it was IBM's decision how it provided the services, as long as the airline received the best value possible.

"There are no stipulations in our arrangements with IBM that require work to be done on or offshore. However, we expect the best value and service delivery from IBM and it is their decision on how to source and apply their global skills to their corporate accounts."

Coca-Cola Amatil said it didn't rely heavily on IBM services and, as such, said the impact would be "negligible".

Westpac had not responded to requests for comment at the time of publication.

Hydrasight research director John Brand believed the local market was having to offshore more senior roles because it was unable to provide a platform for career development of those roles.

"There are some higher-level jobs created for a lot of these contracts and whether the local market is capable of supplying those skills or not is probably the question that really needs to be asked," he said.

"Have we got the right skills development programs here to be able to fill those higher-level roles, the higher value roles?"

Brand didn't believe so.

"I think you need to look at it in balance of the low-cost, low-value offshoring of roles and the market's ability to meet demand for higher-value, higher-complexity roles," he said. He believed positions including senior project managers, business analysts, strategy and architecture roles were much easier for global companies like IBM to offshore.

"Those kinds of roles are still being filled and in many cases — not necessarily in this case for IBM &mdah; but in many cases we do see more roles created in those areas but as I said, the worry is that the local market may not be developing those roles."

He used an analogy of the fashion industry in the 80's. He said the industry was under the impression that if it only offshored low cost labour and maintained the higher-value roles locally, then the industry would thrive. What in fact happened, he said, was all of the expertise ended up going offshore.

"And I think that's what we risk have happening in the IT industry in Australia today, a similar situation where just by the act of offshoring low-cost labour you create somewhat of a self-fulfilling prophecy in that the high-value roles also go offshore," he said.

IBRS analyst Alan Hansell was surprised by the union's claims. "Extending the supplier value chain further involves extra risk to IBM and its customers," he said. "If I was a customer, I would insist on being consulted about the proposed move."

He believed it was "risky" because "the offshore provider in the long term has to cope with the high probability of wages growth, keep staff turnover low and meet IBM's service level requirements". He said customers should insist on service level and data security guarantees.

Hansell was divided on whether IBM was responding to customer cost pressures. "The answer is 'Yes' if responding today to a [request for tender] and 'No' if the long-term managed services contract has been signed," he said. "If IBM, however, has bid low to get a client's business and now realises the pricing regime is unsustainable and proposes to go offshore to get comparable lower cost services, it is embarking on a risky business strategy."

Brand thought it was unlikely customers would have asked directly for IBM to take work offshore to lower prices, but they would have looked for the company to be more "competitive", which would have lead to "internal cost-cutting pressures" within IBM.

Topics: IBM, IT Employment

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  • Offshoring

    and people wonder why there is neagtive sentiment towards Indian students in this country.
    Not that I blame the Indian's, they are just trying to get an education and make a living like everyone else, but sending jobs offshore is no different to having an influx of low wage earners taking jobs of locals.
    You've only got to look back to 70's England to see what will happen.
  • lame excuse

    Ohhh of course it's not that you can get 5-10 workers in India/China for the price of 1 person here, apparently the real reason is the Australian IT market does not have anyone with the skills to do the job!

  • Small Minds Small Worlds and Sapir-Whorf Hypothesis

    Does Alice Springs Australia specialize in fantastic production of Wine Vineyards? No, Hunter Valley is much better a geo location for such. We are a planet of people / Divided by nations- held in prison to economic systems - Business Has No Flag.

    Business SHOULD BE ENCOURAGED to find the best talent AT THE LOWEST COST. Australia by promoting the concept of an US VERSUS THEM INDIANS (INSERT OFFSHORE HERE) culture cripples Australian companies from competing equally in a global market.

    The rest of the world uses the term OutSource, meaning the distribution of labour - Whilst Australian media and the ilk use OffShore, meaning an almost racial tone of NOT HERE IN AUSTRALIA etc. Connotations mean everything, the words you say are the words you own, Shame On ZDnet for continuing this MEME - Step up to the Cluetrain its a small flatworld compete Glocally or get off the train.
  • Agree

    Hi Ken, thought I would let you know that I agree with your sentiment and appreciate you forthright opinion.
  • lets outsource kevins job!

    can someone outsource kevins job? lets see how much global rehtoric and semantic quibbling he has to say then.. looks like the gfc was not enough of a warning of the dangers of the globalism quicksand.....
  • Agree

    I totally agree with Kevin. We live in a globalized world, and we need to step up else the jobs will be outsourced. Just get off your ass and learn to up skill yourself if you don't want the jobs to be outsourced.
  • na

    so says all the ones who believe they are irreplaceable, because it happens to others not them.

    but what will you be saying when you get the tap on the shoulder and its your turn? or when you have kids and they can't get a job?

    i bet it won't be, oh ok, my years of service and hard work weren't enough for me to deserve my job and the taxes i paid not enough to secure my kids futures, i accept our fate, willingly.

    because we live in a globalized world.
  • Small minds ....

    Shouting doesn't make your point. There is a discussion going on here and there is more than an economic angle to it. We are all members of communities starting with our families. One way of looking at the current state of the world is that these communities are being destroyed by so-called "economic rationalism" which is a guise for excessive profits and excessive remuneration for no apparent good reason. Consumerism rules. Chinese manufactured products may be cheap but consider the plight of Chinese workers and Indian workers in stifling over-controlled environments. Never mind the quality feel the width.
  • STOP IBM Australia Offshoring - Wake Up Australia !

    Australian's seem comfortable with the Government giving its large contracts and grants to IBM that is sending jobs offshore. Equally Australians or the government doesn't seem to mind having our major banks & airlines being operated and supported from other countries, doesn't anybody care that a communist country as China will have access and control over your private details? Our national carrier being operated from India?
    Perhaps IBM should also send it's Australian Customs IT work to China and India where it is cheaper! When is the line going to be drawn?
    Our neighbours in NZ even trump us on these issues. Try sending their banks or critical infrastructure to China, you can’t!

    The government should stop any future contract renewals or new contracts to IBM since the Aussie government will be supporting China and India jobs ? Wake up people before it's too late.
  • Customs offshoring to India

    1 rumour I've heard within IBM is that some of the Customs support work will be offshored to India - but that raises big questions on how any security clearance requirments wil be met - I could not get staff cleared until they had their citizenship certificate in their hands !
  • Offshoring != Outsourcing

    Outsourcing and offshoring are 2 different concepts. They are NOT the same thing.

    Outsourcing refers to taking a function that you had been doing within your own company, and giving it to a 3rd party to perform. That can be within the same country or another one.

    Offshoring refers to taking work that was done in your own country and performing it somewhere else. It can be done as part of an outsourcing deal, or it can simply be a restructuring of a companies existing organisation.

    So... I offer you a free ticket on the cluetrain. Please use it in the future and don't assume similar words mean the same thing.
  • Possibly feeding trolls but . .

    1) Australian Government contacts must remain in Australia for security reasons. That's exactly where the line IS drawn, and not even IBM violate that.

    2) I know at least one NZ bank that offshores it's IT.
  • This is Why Kevin Moved to Manila from Sydney...

    I am sure someone could outsource my job- Who moved my cheese? This is why I am a lifelong student and cluetrain evangelist- Are we children or are we men. Business has no flag, and we as men and women need to wake up and smell the coffee in Columbia...Flat world + Small world math means we need to be agile, and evolving rather than stoic and protectionist. Innovate and create rather than circling the wagons and hiding behind walls.

    Who is John Galt?
  • 4 mores.

    All business exists by four mores:
    to sell more products
    to more people
    more often
    for more money.

    And the Value of business is directly measured by the amount of human happiness it creates. We have to be conscious that our actions do have to be weighed- I am all for MASSIVE profits. Prosperity dictates abundance and you can innovate and create with that profit. You reinvest- rework and re apply. I love the way of life - but life eats itself -Joseph Campbell.

    and all creation evolves.

    Survival of the fittest means you adapt and overcome.

    or you can stay on the couch and complain your years of tax paying didnt save you.
  • @This is why

    Kevin, I think you've been snorting a bit too much of that 'white stuff' hidden in amongst those Columbian coffee beans.

    Who is Gilberto Rodríguez Orejuela
  • Customs offshoring to India

    security clearances.. they will be ignored anyway they will probably ship the security logs to boulder and the notes admins will probably run where ever it is cheapest.
  • Change Banks

    For all Westpac customers in Australia, cancel your accounts because your banking details will be accessible in India very soon !
    I will be, I want a bank who employs Australians in Australia !
    Call me old fashion but I don't give a hoot. I will take my million dollar loan somewhere else along with my superannuation.
    And IBM is to blame !!
  • Offshoring

    Kevin, I will answer your comments in 2 parts. I am not going to argue that Chinese and/or Indian are not as good as Australian IT staff, they probably are. The reason IBM is off shoring to these countries is an economic one, it is not useful discussing the merits on who is better skilled. When one examines the culture of Indian and Chinese societies, one sees that both will work as many hours as possible and not question some of the ludicrous directives IBM management make. In short IBM likes to pay as little as possible, have people that forgo social live, and will show no initiative at all. The protocols, procedures, and policy are set by IBM and should not be questioned under any circumstances!
    Secondly, most IBM staff are upset because of the total lack of communication between management and staff. They will not talk to the ASU, they constantly lie, make arrangements to address staff and not turn up, refuse to answer questions, use fear tactics as a weapon in an attempt to belittle staff.
    Finally I would like to conclude this answer by advising you that you should not comment on things that you obviously have no comprehension of, I do!

    P.S. If you have to use a term like ‘meme’, try to use it in the correct context. This is merely a journalist’s article that is all.
  • Change Banks

    I agree, your details will not be safe, Australia privacy laws will not apply. You account details may be available to the highest bidder with no legal recourse
  • If they become a non Australian bank...

    I hope the government withdraws its guarantee from it.