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IBM’s Offshoring Plans

January 20th, 2004 · No Comments

WSJ has managed to get some internal IBM documents which “show that it expects to save $168 million annually starting in 2006 by shifting several thousand high-paying programming jobs overseas.”

Among other things, the documents indicate that for internal IBM accounting purposes, a programmer in China with three to five years experience would cost about $12.50 an hour, including salary and benefits. A person familiar with IBM’s internal billing rates says that’s less than one-fourth of the $56-an-hour cost of a comparable U.S. employee, which also includes salary and benefits.

According to the documents, which also provide managers with detailed advice on how to talk about the moves and their effect, IBM plans to shift the jobs from various U.S. locations to China, India and Brazil, where wages for skilled programmers are substantially lower.

A chart of internal billing rates developed by IBM’s Chinese group in Shanghai shows how dramatic the labor savings can be. The chart doesn’t show actual wages, but instead reflects IBM’s internal system by which one unit bills another for the work it does.

Besides the low-level programmers billing at $12.50 an hour, the chart shows that a Chinese senior analyst or application-development manager with more than five years experience would be billed at $18 an hour. The person familiar with IBM’s operations said that person would be equivalent to a U.S. “Band 7” employee billed at about $66 an hour. And a Chinese project manager with seven years experience would be billed at $24 an hour, equivalent to a U.S. “Band 8” billed at about $81 hourly.

Tags: General

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