It is interesting to see that though IBM invented the IT services industry struggling to maintain their margins and that they have embarked on a massive offshoring strategy to improve their margins.
IBM Global services ($48 billion revenues) seems to have hit a rough patch with its low margins. Its operating margin is just 7.8% (2006 numbers) compared to margins of 30% enjoyed by TCS, Infosys and Wipro. Moreover the Indian headquartered offshore vendors have been taking more complex contracts, multiple service offers and have also gone into consulting, something which was clearly IBM’s strength.
IBM has clearly gone into a cost cutting mode. Over the last few years, it has eliminated over 20,000 jobs in the US and increased their hiring in India, which currently stands at 50,000. Moreover IBM plans to double their India headcount in the next 5 years, which implies further lay offs in their US work force.
Would this be a successful model? While workforce distribution to low cost countries would give them some advantage, IBM clearly needs to reinvent the service organization.
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