IBM Outsources Development Operations To India

In a stunning example of how India has progressed from a country to which businesses farmed out routine programming and back-office work into a center for leading-edge innovation, IBM disclosed Wednesday that it is moving all of the design and development of its vaunted business consulting offerings to the fast-growing country.

"Until this, we depended on any number of solution development centers across the globe. We're moving all of that development to India," says Jeby Cherian, head of IBM's new Global Solutions Delivery Center in Bangalore. IBM says it will spend $200 million this year to launch the center. The center will handle the bulk of solutions development work for IBM worldwide, with two existing development centers in India playing a supporting role.

Staffers at the center will look for ways in which IBM's vast array of hardware, software, and services products can be combined into prepackaged offerings that consultants can sell to specific industries. One example: Teams are designing a system that uses telemetry devices, embedded processors, and mathematical algorithms to help automakers better predict and manage costs from warranty claims. To the extent possible, the teams will create systems that can work in so-called service-oriented architectures. SOAs feature reusable software components and applications that can be combined and recombined in numerous ways. This sort of work is currently done at IBM locations in the U.S. and around the world.

IBM says existing delivery centers outside India would not be closed. Instead, they will be "remapped" into demo centers. "They will become more customer facing," says Cherian. Still, IBM's decision to offshore virtually all of the design and development of its consulting offerings is sure to draw heat from critics who say American corporations should keep jobs—especially ones at this level—in America.

IBM is on a hiring spree in India. The company currently employs about 39,000 workers in the country, up from 23,000 a year ago. That rate of growth should continue "for quite some time," says Amitabh Ray, who runs IBMs' global delivery operations in India. If it does, IBM would have more than 60,000 workers, or about 20% of its worldwide workforce, in India by next year. The company employs about 150,000 workers in the U.S. but has been quietly eliminating a number of domestic positions in recent months.Ray says IBM—and by extension its customers—will realize a number of advantages from the movement of its business solutions development to India. Costs will be lower, and greater centralization will speed design and innovation. "In the previous model these solutions were splintered across a number of development centers," he says. "We can get cross-visibility; something that's applicable in retail might be applicable in automotive."

IBM also hopes the initiative will give it a badly needed sales boost. The company's software revenues were flat in the most recent quarter, while services sales fell 5% year-over-year.