Monday, June 15, 2009

IBM to Slash 5000 American Jobs: Does it Make Business Sense?

It is not a rumor anymore. IBM is indeed going to cut 5,000 jobs in USA. It is not a shocking news because at the time of economic recession, it makes a lot of sense to cut back on costs and one of the best ways to cut on costs is to outsource jobs to developing countries like India and China. It is not clear yet whether all of these 5,000 jobs would go to India or not. However, I will not be surprised to see that a signification portion goes to India. There is no doubt that this move by IBM would create a lot of debate in USA in the next few days.

You can blame the recession but I would like to state that the company had this kind of policy even before economic recession. In fact, in 2006 and 2007, there was a lot of discussion about IBM’s increasing presence outside of USA. Here are just a few to read:

Will IBM shift to Asia?

IBM mass lay-off rumoured

Report says 150,000 jobs at risk in move to Asia.

So, if you read these reports then you will realize that IBM has been planning to move more jobs to India even before the economic recession. May be, it is the right thing to do for the company because at the end of the day, all the companies want to decrease their cost and increase their profit. Not only that, the company now earns significant amount of revenue from non-US markets. In fact, it gets a lot of revenue from Asia. In fact, Asia is still largely an untapped market for the company. IBM gets around $1 billion revenue from Indian market and China is also a significant market. So, to me, it makes a lot of business sense to see that the company is going to cut 5,000 jobs in USA and will perhaps send it to Asia.

There is no doubt that this news will trigger a lot of criticism in America because the US economy has been suffering a lot in the last few months. There is no respite from job loss news items every month. IBM’s announcement of cutting 5,000 jobs will just add to the existing misery. Just look at the titles of the two articles:

IBM Cuts Jobs as It Seeks Stimulus Money (Business Week)

IBM and the Rebirth of Outsourcing (Time)

From the titles, it is clear that the company will receive a lot of negative publicity in the US media because of this decision. A lot of jobs have already been lost in tech sector in USA and no one knows when these jobs will again come back.

It can be assumed that Indian media will welcome this decision. Indian companies and job seekers will perhaps take this news like a divine intervention. The big companies related to the outsourcing sector are suffering from the economic recession. So, any news is good news for them at this moment. Indian job seekers will also be happy and pray that more US companies follow IBM.

(This entry was originally published in March 2009 and it is in the context of that time. For technical problem it got deleted and I am again putting it now.)

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