IBM - deploying development activity in non-US-countries?

Contents:

Executive Summary

Screening for a suitable place
General assumtions
Exclusion of unappropriapte regions
Five countries in overview
Relevant screening factors
Leading Countries
Key success factors
Recommended area
Strategic limitations of IBM
The next step

Plan for implementation
Entry mode: learning by doing
Make or Buy? - Make!
Extending organizational relationships
Expanding external structures
Aligning functions strategically
Human resources strategy
Hiring workforce
Retaining workforce
Training and development
Career Management
Managing a diverse workforce
Human resource Marketing
Knowledge and Information management

Conclusion

Appendix
Appendix 1 - IBM’s six strategic priorities
Appendix 2 - Education level assessment

References

Executive Summary

IBM is now operating in more than 189 countries, has concentrated about 70% of its research and development activities in the US, (see TMA01) with all its research and development headquarters - except two small subdivisions (Display Systems Division and Embedded Systems Business Unit) which are based in Japan. With the attrition in the US, reaching top levels - like in Austin TX, a major development hub with 30% and more per year - and similar attrition figures in the San Jose / Silicon Valley arena, it is becoming very hard to have a sustainable quality level in the further development of high-class server systems or middle ware software - both activities that need huge quantities of developers and a core research staff, highly educated and also highly flexible in adopting towards future customer requirements.

Though, there is a need to get development sites in areas with stable employment possibilities for the corporation, and - whilst doing so - also guaranteeing a sustainable level of new hires year over year to support both growth and minor attrition effects.

Screening for a suitable place

General assumptions

IBM already has setup a significant proportion of its development activity in Europe, with Boeblingen in Germany, Hursley in the UK and Rome in Italy, and research activity in Zurich and Haifa, the possibility to yield additional gains out of a relocation of development activity in an amount greater than 1000 developers is quite limited and complicated to undertake, especially also due to an already heating labor market on scare IT skills (Germany is already more than 100.000 people short on IT skills, similar situations do exist in the UK and in France), it is more suitable and feasible (Kay, strategic tests!), to look into other parts of the world for additional resource. With that, two options do exist: either importing that additional resource back into the US, or by exporting the research and development facility close to where on a long term IT skills can be drawn out of the population.

It is assumed that once there are IT skills in the population at a significant amount, those IT skills due to the global IT skill shortage will be demanded not only by IBM. Thus, it also will be assumed, that there is a need for a sustainable strategy to attract and retain the best of the best IT skills of that chosen location plus setting up a management system that matches with the cultural attitudes and governmental / geographical situation of that chosen country.

This report focuses on choosing the right sites outside the United States and Europe and will give a recommendation on the right country based on empirical and statistical information gathered from public and nonpublic sources.

As a follow-on, an installment and implementation strategy that shortly covers HRM, marketing, structure and culture will be discussed.

Now, after looking at some generalist views of different areas of the world, some screening will be undertaken that is trifled: Exclusive, comparative and specialized.

Exclusion of inappropriate regions

First, in order to investigate into several countries, it is best practice to exclude countries that prevent IBM from installing a sustainable rent generation throughout its development activities - these are for example unacceptable standards and socio-cultural factors, economic barriers - here especially lack of sufficient IT skills or other activities. Supply barriers are especially those where shortage of factors of production do exist - even though both hardware and software development are quite disconnected from typical manufacturing supply problems, it has an indirect effect onto for example the standards of life of the employees and thus as a consequence an effect onto human resource attrition, because that prevents high-class people from staying long-term at the same place.

Unacceptable standards, safety, socio-cultural factors, etc. will start the first exclusion: political barriers boycotts, sanctions, mandatory local participation, state monopolies, etc.. - Political barriers do exist in countries like North Korea, Yemen, as well as the “jerk-states” like Iraq, Iran, Syria, Pakistan, Afghanistan, Nicaragua. Also, crisis-countries like Israel, Lebanon (no IT skills) etc.. fall into that area.

Economic barriers: non-transferability of funds, barter trading, price control, etc.. - Also, other non developed countries like Bangladesh, Thailand, Vietnam, the Oceanic, etc. fall under that cluster.

Legal barriers: anti-trust legislation, labor laws, patents, environmental control, etc.. - do exist in countries of the former Soviet Union.

Supply barriers: shortage of factors of production, skill or infrastructure, etc.. Are Here, to exclude countries from the list are all countries with a low level on IT education. Here, all countries of Africa except South Africa and Egypt fall into that cluster, Skill shortages in a significant amount in the IT space also do exist in Chile, Paraguay, Peru, Middle America (except Mexico), Argentina, Australia (IT skills available but same situation as in Europe).

As a next criterion, a minimum population needs to be there that guarantees a certain critical mass of middle-class labor to guarantee a growth/renewal of IT knowledge.

Thus it remains on the short list a set of countries like Saudi Arabia and The Emirates, Brazil, India and China, which then will be compared further.

Five countries in overview

Now, we do look at two screens Screen 2a, general STEEP analysis with a view on global trends and additionally a view of divers different countries which fall into that area. This screen does only give an overview but still does not rate the factors that are important.

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Table: STEEP analysis onto different places around the world, including a global “ generalist ” trend view

For screening, the OUBS Screening tool has been used and taken into account the most relevant areas. These are economic factors, political factors, government factors, geographical factors, labor factors tax factors, capital factors and business methods factors.

Relevant screening factors

Only the following factors have been of relevance for the given task:

“1 Size of GNP and rate of growth” because of the growth rate is necessary to sustain an education system that allows for IT workforce regeneration, the “2 Nature of development plans “ needs to be favourable towards new economy, “7 Remittance and repatriation rules “ are important, because especially foreigners need to install the first environmental conditions and need to act as ambassadors. “10 Per capita income” plays a role, because a low per a capita income leads very often to social tension and to a under-evaluation of education and the “11 Income distribution” needs to be favourable to enable a certain middle-class to participate from the GNP growth (1) in order to give incentive for further development.

“16 Attitude towards private foreign investment” from a political side is important, as a development operation is a foreign investment and also will cause an intellectual capital outflow as a result of that investemnt “21 Attitude tow. Techology” is an important factor, as IT technolgy per se is new technology. Thus, in order to sustain a long-term regeneration of IT workforce, the general attitude needs to be positive¹.

“23 Competence of bureaucracy“ is an important factor, but rather hygenic - absolutely crucial is a positively endorsing “26 Intellectual property law”, because one of the outflows of such development work is patent and thus intellectual property. If that intellectual property cannot be protected (as it is in some developing countries), plagiarism might be the result and thus an uncertainity on how to deal with loss of intellectual property.

“36 Availability, quality and reliability of all levels of staff” - This is absolutely crucial. 60% of the development expenditure is human resource/labor costs, this means that the availability of that staff plus its quality and reliability is a key reason to install a development operation. The non-availability of point 36 in a sufficient critical mass here would be an absolute show-stopper. “37 Labor climate” is crucial. Neither a labor climate that does not allow for change (thus, a frozen climate as it exists in the Rhine-capialism) nor a Hire-&-Fire climate that generates lots of unwanted attrition is of good. Thus, the labor climate needs to be as such that a) people love go to work and b) that unions for example if at all play a positive role in the co-determination of the work environment. “38 Expatriate labor cost and availability” is somewhat crucial. Here, several points are important to remark: a) the attractiveness of such a site to expatriates of all divers kind (different races, sex, origins, age, sexual orientation), b) the tax and c) security level towards expatriates - if these factors are too negative, it will become hard to find the right international managers who want to install themselves and their families in such a country. “39 Mandatory costs (min. wages, fringe benefits, etc..)”

“41 Tax Rates “ play a certain role for a development operation but can be surrounded - as development sites work on cost recovery, typically no profit taxes need to be deducted to the government. Tax rates rather play a role for highly paid employees. And as normally IT professionals are amongst the highest paid employees, this is of key importance. “42 `Morality' (fairness)” is kind of important same as “43 Long-term trends”

48 Availability of efficient banking system” is of importance simply to pay the wages and to be in synch with the rest of the world, and “51 General ethics factors “ same as “52 State of development of the marketing system” are necessary because these are two hygenic factors to enable development to be productive. “54 Local competition” is of health - but it neither needs to be too fierce nor it needs to be non-existent, because then there is a certain unlikelihood that the workforce is that compeitive either (Porter’s Diamond) and simultaneously, innovation comes from working in a compeitive environment that cross-fertilizes itself.

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Screen 2b: Detail screen

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¹ It has been shown that the negativism towards IT technology during 80ies and beginning 90ies in Germany caused a decline in young IT graduates and herewith the IT skill shortage, where now the entire country is suffering from.