IBM INVESTS BIG IN INDIA: HUMAN RESOURCES

UNCLAS SECTION 01 OF 03 CHENNAI 002571

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EINT IN
SUBJECT: IBM INVESTS BIG IN INDIA: HUMAN RESOURCES
ARE KEY

REF: CHENNAI 1187


1. (U) Summary: Riding the crest of a $6 billion
investment, IBM India plans to expand its Bangalore
research and development (R&D) operations and in
doing so will unleash a new human capital thrust in
already talent-hungry south India. The company
anticipates its Indian workforce will triple in the
next five years. An expanding market in India for
U.S. manufactured mainframes and network software
services presents an opportunity the company does not
plan to miss. Increasing demand for remote management
of global client networks is another revenue stream
for IBM India. Simultaneous investments in open
source software protocol and capacity building
spearhead the companyQs effort to market e-governance
solutions in the Indian market. To meet its expanded
human resource requirements, IBM plans to initiate
in-house staff training programs, marking a notable
shift from its past strategy of hiring employees away
from competitors. Indian software companies, already
experiencing a human capital crunch, are now
struggling to quickly respond and prevent attrition,
fearful of losing skilled employees to their
competitors. End summary.

--------------
All bets on India
--------------


2. (U) On June 6 Sam Palmisano, IBMQs Chairman,
announced investment plans in India of $6 billion
over a five year period (reftel). The company
remains reluctant to disclose the details of its
investment strategy, but during a recent meeting in
Bangalore with visiting New Delhi DCM Pyatt, Inder
Thukral, Director Strategy and Business Development
at IBM India told post that emphasis will be on
research and development of telecommunication and
netware solutions for IBM operations worldwide. The
desire to leverage even further IndiaQs large highly-
skilled labor force led to this investment move,
Shankar Annasamy, Managing Director IBM India told
us. The company expects to triple its workforce from
the current 47,000 employees at 25 locations in the
next five years.

--------------
India: IBMQs research and development hub
--------------


3. (U) IBM India, with $2 billion in current
investments, is the proverbial Q800-pound gorillaQ of
IT research and development in the country. The
companyQs India-based teams account for over 30% of
IBMQs global R&D on network and communications
solutions. With its latest investment, the company
has rapidly diversified to meet its R&D needs: The
IBM Innovation Center in Bangalore provides an
institutional platform for software service suppliers
and is a critical testing ground for new products in
both the Indian and global market. IBMQs India
Software Lab, with facilities in Bangalore and Pune,
also develops and supports IBM software products for
worldwide operations. In addition, the high-
performance On Demand Lab develops specialized
software to automate and virtualize the complex
information technology infrastructure of clients
located in the south Asian region. To further
hardware development, the Engineering and Technology
Services Center designs advanced chips, cards and
systems to meet customer requirements across Asia.

--------------
India: A big market for US made mainframes
--------------


4. (U) IBMQs U.S. manufactured main frames have
captured the booming Indian main frame market. The
company holds an 80 percent share of IndiaQs
estimated $250 million market for main frames. The
market is currently growing at 55 percent, with much
of the growth coming from mid-sized Indian
businesses. Main frames offered to the Indian market
are pre-positioned at the companyQs Bangalore-based
Innovation Center to enable potential customers to
experience the computing power and capabilities of
the machines. IBMQs service oriented architecture
that facilitates communication between different
business segments located in various locations has

CHENNAI 00002571 002 OF 003


found favor in India and helped IBM secure a $100
million deal with Bharti-Airtel, one of IndiaQs
largest mobile phone service providers.

--------------
Open source products spearhead E-governance
--------------


5. (U) The use of an open source code Linux is
another area of focus for IBM India. The company
formed an IBM Linux Competency Center and Linux
Solution Center in Bangalore to establish product
standards, further Linux R&D as well as to localize
products for an increasingly global customer base
with local content requirements. State governments
in India are big customers as they prefer open source
code that enables development of local language
fonts.

--------------
IBMQs BPOs transform outsourcing
--------------


6. (U) Leveraging IndiaQs large talent pool of
network managers, IBM India services clients around
the world via satellite and fiber optic networks from
its global operations hub in Bangalore. IBM Daksh, a
back office unit which the company acquired in 2004,
accounts for nearly 50% of the companyQs staff in
India and is expected to contribute over half of the
company revenues in the next five years. Similar to
other BPO operations such as local giants Infosys and
Wipro, Daksh provides services for clients involved
in retail, technology, banking, mortgage, energy and
life insurance. The range of services includes
application processing, account maintenance, data
conversion services, logistics management, claims
processing, email support and financial services.
According to IBM executives, this line of business
registered some of the fastest growth rates for IBM
in recent history.

--------------
In-house training to meet in-house needs
--------------


7. (U) IBMQs recent investment spike comes at a time
when a fiercely competitive hiring climate is forcing
top leadership to rethink its human resource
strategy. In the past the company notoriously
QpoachedQ experienced individuals from local firms.
Looking for new HR capacity building vehicles,
company executives are emphasizing university
recruitment to attract and train new waves of fresh
engineering graduates, or Qfreshers.Q Yet this may
be a tall order in a time when A-list tech firms are
vying for talent, and freshers with experience under
their belt are job-hopping for bigger and better
packages. Nonetheless, IBM executives are betting on
a combination of higher salaries and their global
brand equity to ensure a steady talent pool.


8. (U) Strategic partnerships with elite Indian
technology institutions are also enabling IBM India
to further leverage local human capital expertise.
IBMQs Center for Advanced Studies, for example,
maintains a close relationship with prestigious
institutions such as the Indian Institute of
Technology (IIT) Chennai that leads directly into
software R&D. The company has a similar program with
the Indian Institute of Science in Bangalore and
plans to expand its partnerships with other high-
caliber institutions across India.

-------------- --------------
Expansion plans leave Indian software companies
scared
-------------- --------------
___


9. (U) Comment: IBMQs investment announcement sent a
minor wave of anxiety through the Indian software
industry, which is already struggling to control
costs. InfosysQ Human Resource Director told us his
company is trying to preempt potential attrition by
offering a 30% salary hike. Mindtree Consulting, a
medium sized software development company, plans to
tap bright talent as early as the secondary school
level. The company hopes to partner with U.S.-based
universities to offer recruits a degree in

CHENNAI 00002571 003 OF 003


engineering at the end of a five year stint.
Whatever strategy adopted, representatives of both
Infosys and Mindtree told us that IBMQs investment
plans will dramatically alter IndiaQs software
business landscape and long-term human capital
strategy. End comment.


10. (U) This message was coordinated with Embassy New
Delhi.

HOPPER