Pink slips at Big Blue

US tax code encourages the export of US jobs

One thing that's not reported on very much is that US multi-nationals (like IBM) pay a fairly high corporate tax rate on profit from revenues generated within the US, but pay no US income tax on profits from revenues generated outside the US. In other words, if the income can be shown to have been generated in India, only Indian tax obligations apply, and that income is not subject to US income taxes.

This provides Corporate America with a very strong economic incentive to ship US jobs overseeas.

Other countries mitigate this effect with a lower domestic corporate tax levy, but offset it by taxing income generated outside the country where the business is headquartered. The composite corporate tax rates are comparable with the US, but there's less advantage in sending jobs offshore.

Blame the nitwits on Capitol Hill. They're the one's who created the policy, and they are the one's who can change it.

A lot of misinformation from ACs

Ok,

Lets clear up some things....

IBM claims that the US is no longer their main source of revenue. Ok, so one has to wonder how IBM recognizes revenue from an outsourced off shore account? Meaning if Company X outsources to IBM which offshores the work to India, how does IBM USA and IBM India record the revenue recognition?

To the point about US Tax code. That is blatantly incorrect. IBM is a US corporation and revenues earned overseas tracks back to IBM. The IRS has done a couple of things... one a tax amnesty for companies that under reported their overseas revenues and a crack down on US corporations which move their corporations offshore in an effort to dodge US taxes. Now IBM didn't do the latter, but under amnesty I believe the reported 8 Billion (USD) in unrecognized/under recognized revenue that year... (I'm going from memory so I could be wrong...)

The reason IBM is cutting US jobs is that they are moving the work offshore to lower wage countries. Over the past couple of years, IBM SWG moved their back room functions for North America to Brazil. While John Q Public doesn't notice any difference, just ask a sales rep about the additional headaches in trying to get a contract done at the last minute. With respect to GTS, these jobs are lost because the work has moved to offshore locations. IBM is doing this because while overall gross revenues are shrinking, the off shore margins are better. This is why IBM could record a record year and still RIF US workers.

While IBM is setting up Outsourcing centers in IA and MI, rumor has it that they will again be staffed with lower cost workers. (H1B, L1, etc ...)

You can bet that IBM is taking a gamble on their long term future by doing this. Outsourcing contracts contain QoS terms and even with weasle wording their contracts, you can bet that smart clients who find themselves offshored will sue or threaten to sue to renegotiate their T's and C's. When your only value add is price, you can bet you get caught up in a slow death spiral.

Net new business will be at a lower price as well, since customers know that the work is being off shored to lower cost centers so they will squeeze IBM on margins.

This cut has nothing to do with the possible acquisition of Sun.

After this stunt, I'd love to see IBM along with Microsoft lobby Capitol Hill for an increase in H1B visas. Sorry but there are plenty of displaced IT workers who've been riff'd because of too many companies gaming the system.

Thumbs down because its bad corporate IT governance.

And I'm posting under my well known alias. I'm not afraid to call IBM out for their blatant acts of stupidity.

@AC 14:21

Read the article. The services aren't being cut, IBM is simply moving delivery from the US to other countries. It's common for IBM to use "global resources" to perform work in the US. In fact, corporate direction is to use "GR" labor where ever possible to reduce deal costs. Used to be that Canada provided most of that labor (especially help desk) but now they're losing out to countries like India, Brazil and Argentina. So in effect, work performed inside the US is being handled by people overseas. Nothing new here, simply a continuation of a trend that started 20 years ago when manufacturing started moving to countries with cheap labor.

Oh and the cuts aren't limited to App Services, it's across the GTS (Global Technology Services) board.

AC myself because I may be on the block soon as well. Glad I don't bleed blue and my CV is current.

what IBM is...

Ian Michael Gumby said:

>> you can bet that smart clients who find themselves offshored will sue or threaten to sue to renegotiate their T's and C's

well they can try, but how many of them have better lawyers than IBM?

IBM is first and foremost a company of lawyers and accountants... IT is simply the lever these people use to do make money. You can bet that none of these positions *ever* get off-shored.

IBM outsourcing Idea

I heard the IBM US workers are offered jobs in India...

Now I have a Idea, Since 2/3 of IBMs revenue comes from overseas, why not relocate IBM management and headquarters to a lower wage country, This way the savings on CEO, VP salaries can be significant, and improve overall margins... Also the added benefit is that the leadership can be closer to the "front" and be able to better do their jobs...

Leadership by example is the only way to lead!

The numbers are much higher than what has been reported....

This is the 3rd "resource action" already this year, and this one is by far the biggest. It is much bigger than the information that has been leaked. And, the layoffs are not isolated to GBS and GTS. They are across the board and by some accounts, a 25% reduction of the US workforce on top of the previous "resource actions" this year. It would not surprise me if after the dust settles, it is a 40% or more reduction in US workforce in the first quarter of this year... and this after Sam Palmisano stood up at the podium with President Obama and talked about how the $30 billion stimulus would create 1 million jobs. Of course, he didn't specify WHERE those jobs would be.... or that they would be at the expense of US workers. May he rot in hell.

And if you are an IBMer and start seeing a lot of movement in and around your department and especially if you suddenly get a new 2nd line manager that seems to appear out of nowhere.... go ahead and start updating your resume. Forget the fact that you may be a 2 or 2+ employee and that just 3 weeks ago you got a nice Variable Pay bonus because as Sam said, the company had an outstanding year in 2008 and exceeded expectations. None of that matters a damn anymore. But, you can always check out all the job openings on the Global Opportunity Marketplace. You may be very surprised to see thousands of job openings in your job category with the number one job requirement to be fluent in Englsh. Oh, but those are all in India or China.