The Mean Economy: IBM workers suffer culture change as jobs go global

Technological advances demand new skill sets, lower labor costs

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The technologies are spreading rapidly, according to the World Bank, which last month reported a sixfold jump in mobile-phone contracts to 6 billion from 2000 to 2012, with most of the new contracts in the developing world. People in the most far-flung places are now using their cellphones to start businesses, petition the government and generally improve their lives.

Empowering workers with talent around the world may be in the democratic nature of the technologies, which famously got their start in the garages and living rooms of American college dropouts such as Microsoft Chairman Bill Gates and Facebook co-founder Mark Zuckerberg, and have raised the fortunes of talented people from diverse cultures in the U.S. and abroad.

IBM has been ahead of the game in exploiting the emerging global services workforce, having shifted much of its operations overseas years ago. But Silicon Valley is hard at work finding ways to help smaller and less-sophisticated businesses tap into the global army of workers through online recruiting arrangements pioneered by such firms as oDesk.

Top of the food chain

The blindingly fast change has come as a stunning surprise and letdown to many American workers who got used to being at the top of the food chain with secure jobs for decades. Mr. Martin said nobody at IBM in the 1970s imagined they would ever see their jobs move to India. The Asian workforce at that time was not as well-educated, and there was no Internet or computer capability for the company to locate operations so far from its clients.

But now that jobs are disappearing at a rapid pace, not everyone has been willing to bow out as gracefully as Mr. Martin. In fact, IBM’s latest round of reductions in force this spring set off a hornet’s nest of criticism among insiders in the tech industry. Staffers claim that the company has a road map to cut its U.S. staff by more than half to 40,000 by 2015 through early retirements and layoffs, while increasing staff overseas.

IBM is gutting smart staff for cheap staff,” said Robert Eisenhardt, owner of a computer systems consulting firm in New York. “IBM is cutting jobs not because of the lack of a skill set, but often age and the cost of an American worker. India can get by on $2 an hour. Try living in this country on $2 an hour,”

IBM has a program to help U.S. workers who want to keep their jobs by relocating them to India, where they receive about half the wages they earned in the U.S., but where the cost of living is considerably lower, staffers said.

“Workers are no longer people. They are costly commodities to be cut in order to increase shareholder value,” said Gary Alexander, another techie. “This is the new American Way, and I weep.”

“What’s scary is now they are moving the higher-level jobs” such as computer design and architecture to India, Brazil, Russia and China, said Stewart McKenna, a tech worker in Detroit. “Inevitably, the business overseas will get bigger. What’s left to do in the U.S.?”

IBM has made no secret of resorting to extensive cost-cutting to maintain profits in the face of falling revenues in recent years. In the past quarter, IBM reported that its earnings rose 6 percent despite a 3 percent decline in revenue. It was the 38th consecutive quarter of net income gains, making IBM a darling on Wall Street. IBM’s stock price has risen from about $75 a share in the depths of the recession to more than $200 earlier this year.

Mark Loughridge, IBM’s chief financial officer, last month said the company is focused on milking growth from fast-growing markets such as China and Russia, where the company’s revenues increased by more than 20 percent in the last quarter, while paring costs and operations in declining or stable markets such as North America and Europe. The company has been investing more in the developing world than in the U.S. lately, he said, because of the faster growth there.

Mr. Loughridge addressed the criticism about layoffs, saying the company will trim more jobs in the second half of the year, but also plans to hire 200 to 300 software sales specialists a month, with many of those positions opening in the U.S.

Jerry Webman, chief economist at OppenheimerFunds Inc., said corporate America since the recession has compensated for lost sales and sluggish growth by ruthlessly cutting costs and selectively adding staff only where growth is expected. This cautious approach is the reason that job growth has been slow, even though the economy is in its fourth year of recovery.

In the past quarter, he said, nearly three-quarters of corporations in the Standard & Poor’s 500 stock index beat Wall Street earnings estimates, while only 40 percent beat revenue estimates — meaning that, like IBM, most managed to eke out growth in profits through cost-cutting as their sales were flat, declining or only slowly rising.

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