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    Highlights—January 18, 2004
  • Wall Street Journal: IBM Documents Give Rare Look At Sensitive Plans on 'Offshoring'. When Shifting Jobs Abroad, It's $12.50 vs. $56 in Pay, And 'Sanitize' the Memos. Excerpt: The IBM documents show that the company is acutely aware of the sensitivities involved. One memo, which advises managers how to communicate the news to affected employees, says among other things: "Do not be transparent regarding the purpose/intent" and cautions that the "Terms 'On-shore' and 'Off-shore' should never be used." The memo also suggests that anything written to employees should first be "sanitized" by human-resources and communications staffers. IBM's human-resources department has prepared a draft "suggested script" for managers to use in telling employees that their jobs are being moved. The managers will tell the employees that "this is not a resource action" -- IBM language for layoff -- and that they will help the employees try to find a job elsewhere in IBM, although they can't promise to pay for any needed relocation.

    The documents describe work done by IBM's Application Management Services division, part of Big Blue's giant global-services operation, which comprises more than half of the company's 315,000 employees. The affected workers don't deal directly with customers; they write code and perform other programming tasks for applications software used inside IBM. The plan would move jobs from U.S. locations including Southbury, Conn.; Poughkeepsie, N.Y.; Raleigh, N.C.; Dallas; and Boulder, Colo. IBM plans to transfer the programming work to its own operations in Bangalore, India; Shanghai and the northeastern city of Dalian in China; and Sumare, Brazil. It isn't clear how many jobs will be added in each location. Some of the foreign programmers will come to the U.S. for several weeks of on-the-job training by the people whose jobs they will take over. That's an aspect of offshoring that many high-tech workers regard as particularly humiliating. If link is broken, view Adobe Acrobat version [PDF--48 KB].

  • St. Paul Pioneer-Press: Pension change sent her on a mission [PDF--22 KB]. When IBM changed her pension, Janet Krueger quit her job and began her fight for workers' rights. Excerpt: It ended swiftly and decisively for Janet Krueger. In a flash, she walked away from a $120,000-a-year job at IBM Corp. in Rochester, Minn., the company where she had worked for more than two decades and her father had spent a career. Quite unexpectedly, the former computer specialist who avoided politics has become a self-styled crusader for workers' rights and retirees' concerns. Both are at risk — she and others claim — as companies on a hunt for cost savings take aim at a social contract that once so tightly bound workers and their employers. The change that sparked the battle at IBM landed in May 1999, when the company mailed a glossy brochure to employees describing its new cash-balance pension plan. Out was the traditional pension, which rewards lengthy service and typically pegs retirement payouts to average pay in the final years of a career. ... The brochure sent Krueger and others scurrying for their spreadsheets to tote up the damage. Krueger figures she lost roughly $500,000, including future accruals. Other IBMers tell similar stories.

  • USA Today: More companies trim retiree health benefits. Excerpt: A few firms have cut benefits entirely for current retirees, but most employers have not made such drastic changes. But they are raising the amounts that current retirees pay, sparking anger. "We feel that IBM has a social contract with the retirees ... for which they are now reneging," says Sandy Anderson, a former IBM employee in Vermont who says his premiums for retiree coverage have risen from about $90 a month in 2000 to more than $500 for his family. He and others have formed a retiree group aimed at restoring lower payments. Like many other companies, IBM caps how much it pays toward retiree benefits annually, up to $7,500, spokeswoman Kendra Collins says. Retirees pay the remainder. As health costs have risen, so have retirees' costs, Collins says. She says Vermont is a particularly expensive state, resulting in an annual premium for Anderson's family plan of about $13,000 a year. She says he and others have the option of changing plans to ones with higher annual deductibles but lower monthly costs.

  • Reuters: IBM retiree mounts campaign aimed to lower costs. Excerpt: Sandy Anderson is a retired 61-year-old IBM "lifer" who jokes about revering the company enough to tattoo its initials on his haunches -- but that loyalty soured after his health-care costs jumped this year. Anderson is drumming up support on the Internet and, with his congressman, planning to take his case to the Vermont courts and to International Business Machines Corp., which he says has breached its promise of free health care. "I staunchly believe, as an IBM manager, that I got up and told people that they could rely on this, and so this is a violation of the social contract," Anderson said. ... But the anger among IBM retirees about their 2004 health-care premiums is widespread, according to Lee Conrad of Alliance@IBM-Communications Workers of America, a union that has tried to organize IBM workers.

    "Retirees are very upset around the country. For many of them this is drastically cutting into their pension check," Conrad said. John Kotson, a 69-year-old IBM retiree from Fort Collins, Colorado, who worked for 30 years at the company until 1989, said his health-care premiums rose by 20 percent this year. Kotson is part of a lobbying group called the National Retiree Legislative Network that includes retirees from other companies such as Lucent and Raytheon that are fighting to restore pension and health-care benefits.

  • Salon.com: No safety net for programmers. When manufacturing jobs go overseas, laid-off workers are eligible for a host of benefits. But if you're one of the tens of thousands of software producers whose jobs have been outsourced, you're out of luck. Excerpt: Jim Fusco worked at AT&T for 13 years as a mainframe programmer, before his job was outsourced to IBM in 1999. "One Friday, we walked out as AT&T employees, and the following Monday we walked back in as IBM employees, doing the same work, at the same desks, with different-colored paychecks," he says. Three years later, in May 2002, Fusco's job was outsourced again, and this time he wasn't so lucky. IBM's Global Services Division moved his job to Canada, and he was laid off. If link is broken, view Adobe Acrobat version [PDF--79 KB].

  • Wall Street Journal: Bribery Case Tied to IBM Unit Triggers U.S. Inquiry in Korea. Excerpt: A burgeoning bribery and bid-rigging scandal involving International Business Machines Corp.'s South Korean unit has sparked inquiries by the U.S. Justice Department and the Securities and Exchange Commission, according to people familiar with the matter. ... IBM generally is regarded as an ethical multinational, but the case is reminiscent of a 1994 Argentina case, in which IBM fired its top executive there after the country began probing bribes paid to computer buyers with a state-run bank. In 2001, IBM paid a $300,000 fine to the SEC for violations of bookkeeping and record-keeping requirements in that case. It didn't admit or deny the SEC findings.

  • Wall Street Journal: IBM Is Likely to Face SEC Charges. Excerpt: The Securities and Exchange Commission has told International Business Machines Corp. and one of its employees that they are likely to face charges for allegedly abetting a scheme by Dollar General Corp. to misstate its financial results. IBM also said the SEC investigation of other revenue-recognition issues that grew out of the Dollar General scrutiny is continuing, raising the possibility of additional SEC charges. IBM first disclosed the SEC inquiry in June.

  • Motley Fool: Oops, I(BM) Did it Again. IBM's South Korean subsidiary was accused over the weekend of bribing government officials within the country's National Tax Office and Information Ministry. In all, 48 government and company officials have already been indicted by South Korean prosecutors. Foolish international attorney Rich Smith takes a look today at what consequences IBM may face back home in the U.S. Excerpt: It is partly due to this rule that, when you open up IBM's latest 10-K, you see such easy-to-understand entries as "Assets: Current Assets: Notes and accounts receivable -- trade, net of allowances" on the Balance Sheet and "Cash Flow from Operating Activities from Continuing Operations: Noncash portion of special actions" on the Cash Flow Statement. (If for some reason you do not find these entries easy to understand, consider taking a couple credits at our Fool School -- might I suggest the Read Financial Statements Like a Pro How-To Guide.) Yet as many times as I have read IBM's Balance Sheet, I have yet to find the entry for "Assets: IBM Korea: Slush Fund." I am having similar trouble locating the Cash Flow Statement entry for "Outlay of Bribes to South Korean National Tax Service." This is just a hunch, but I suspect the SEC is going to have trouble finding those entries as well. And if the SEC has trouble, it is a safe bet that IBM is going to be in for some trouble too.

  • Wall Street Journal: U.S. Drug Subsidy Benefits Employers. Excerpt: Some companies with many retired workers are expected to post big earnings gains for 2003 or 2004, thanks to accounting guidelines for subsidies under the federal prescription-drug program. When Congress approved prescription-drug benefits for Medicare recipients last year, it granted benefits for the 65% of large employers with retiree health-care plans, providing funds for companies that maintained their prescription-drug coverage for retirees. The program is supposed to encourage employers to retain prescription-drug coverage. But companies are entitled to the subsidy regardless of how much of the cost they pick up themselves. As a result, it does nothing to halt the current rush by some employers to shift more costs to retirees. In fact, benefits consultants are designing employer-sponsored prescription plans to save companies more money by unloading costs on their former workers without losing out on the new subsidy. If link is broken, view Adobe Acrobat version [PDF--47 KB].

  • Reuters: Health Benefits for Future U.S. Retirees Cut - Study. Excerpt: One in 10 large U.S. employers in the past year eliminated subsidized health benefits for future retirees as companies battled rising health-care costs, a survey released on Wednesday said. Another 20 percent said they were likely to end health coverage for future retirees within the next three years, according to the report from the nonprofit Kaiser Family Foundation and consulting firm Hewitt Associates. For people currently retired, 71 percent of firms hiked retirees' contributions to health insurance premiums, and 57 percent increased prescription drug co-payments. Cutting retiree health benefits has been a trend for a decade and may continue, the report said.

  • ComputerWorld: IBM trims 400 more jobs. Excerpt: IBM has cut about 300 U.S.-based software jobs and 100 positions in its services division, a company spokesman said today.

  • Dow Jones Newswire: Australia's Telstra Urged To Keep IT Jobs At Home. Excerpt: Australian telecommunications company Telstra Corp. (TLS.AU) said Wednesday it won't reverse a decision that may lead to 450 information technology jobs moving offshore, even though the nation's government, its biggest shareholder, has urged it to keep the jobs at home. Under a new contract signed Tuesday with IT provider IBM Australia, as many as 450 Australian-based jobs may shift to India over the next 18 months in a move that will cut the cost of managing and developing the Melbourne-based carrier's software applications.

  • CIO.com: How to Safeguard Your Data in a Dangerous World. The mounting pressure to save money through offshore outsourcing poses a special dilemma for CIOs in the military-industrial complex. Excerpt: Raytheon Aircraft ran into just that issue last summer, when it inked an outsourcing deal with IBM. The company gave IBM control over support and further development of its SAP system. IBM, for cost reasons, declared its intent to use subcontractors in India on the application, which contains such sensitive information as how to build the skin of a commercial jet. And that's when Raytheon Aircraft CIO Doug Debrecht knew he had a problem on his hands. Executives at his parent company soon confirmed his intuition. They insisted that IBM not use foreign contractors until Debrecht came up with a surefire way to keep them out of Raytheon's network. ... When IBM and Raytheon initially discussed their outsourcing deal, IBM executives tried to assure Raytheon CIO Debrecht that subcontracting to foreign workers would not pose a problem. "They said, 'Oh we've done this before, and we know how to work through these issues,'" he recalls. That wasn't good enough for Debrecht, and he knew it certainly would not satisfy executives at Raytheon headquarters. "Raytheon is very sensitive to such issues, just like any defense company is. You read in the paper that this contractor violated this or that export law and was fined millions of dollars," Debrecht says. "I don't want to be the one to have to go to the CEO and say, Yeah, that was because of me."

  • Associated Press: 45,000 People Quit AARP Over Medicare.

  • AccountingWeb: PwC to Settle Travel Expenses Lawsuit For $54.5 Million. Excerpt: PricewaterhouseCoopers LLP has agreed to pay $54.5 million to settle its part of a class-action lawsuit that contends the accounting firm overcharged its clients for travel-related expenses. The lawsuit also names Ernst & Young LLP, KPMG LLP and two other defendants for fraudulently overbilling clients by millions of dollars collectively, the Wall Street Journal reported. PwC’s preliminary agreement is the first settlement in the case, which was filed in state court in Texarkana, AR. A separate investigation by the U.S. Department of Justice is ongoing. The lawsuit details the practice of professional-service firms negotiating significant rebates with travel companies and credit card companies, overcharging their clients, and pocketing the difference without revealing the practice.
Coverage on H1-B and L1 Visa and Outsourcing Issues
  • CNET News: Visa program may aid foreign companies. Excerpt: U.S. companies aren't the only ones taking advantage of statutes designed to allow U.S. employers to hire foreign workers. Indian information technology companies with operations in the United States actually are some of the biggest applicants for H-1B visas and are heavy users of L-1 visas, according to a study by Rochester Institute of Technology public policy professor Ron Hira and statistics culled from Securities and Exchange Commission filings. ... Hira's paper, which is slated to be published this year in the journal Technological Forecasting and Social Change, cites government figures to show that India-based companies Wipro, Tata Consultancy Services and Infosys Technologies were among the top 15 H-1B petitioners between October 1999 and February 2000. Hira also focuses on the use of guest worker visas by three India-based tech firms: Wipro, Infosys and Satyam Computer Services.

  • Economic Times (India): Another US state plans bill to check outsourcing. Excerpt: Two Wisconsin state lawmakers have introduced a bill in the state senate that seeks to restrict state contracts to companies that perform the services within the United States, instead of shipping them overseas.

  • TechsUnite.org: Washington May Join Other States to Curb Offshore Outsourcing. Excerpt: Two Washington state legislators have introduced legislation designed to curb a recent trend of sending the state’s technology work to be performed by foreign workers overseas. Rep. Sandra Romero and Rep. Zack Hudgins, Democrats from the 22nd and 11th districts are leading an effort to pass into law a measure that would prohibit state agencies from outsourcing state contract work to foreign workers offshore.

  • BusinessWeek: The Changing Face of Offshore Programming. Yes, it's still the cheaper option -- but the price differential is shrinking fast, and the hidden costs can be fierce. Excerpt: The second area of hidden costs relates to business risks and requirements. As many outfits doing business overseas for the first time are discovering, there are few reliable standards for intellectual property protection and contract enforcement. A contract is only as strong as your ability to effectively enforce it. If you can't afford the enormous costs of fighting an international legal battle, you should think twice about sending anything proprietary overseas. In a future column, I'll tell you about two companies I know fighting legal battles over intellectual property (IP) stolen by overseas vendors.

  • Bloomberg News: U.S. Lawmakers Unable to Stop Shift of Jobs to India. Excerpt: “The idea that corporate America is stepping up and hiring again is ludicrous,” Stephen Roach, Morgan Stanley & Co.'s chief economist, said in a Dec. 9 televised interview with Bloomberg News. U.S. services hiring has been virtually unchanged during the past 22 months, in contrast to a 5 percent gain in the six previous business cycles, Roach said. That means the U.S. is “in the hole” by 2 million service jobs, compared with a “normal” business cycle upturn, he estimates. ... To answer the challenge, Microsoft Chief Executive Steve Ballmer last month said in New York that the U.S. must churn out more math and science graduates. That would raise the supply of computer engineers -- and push down their salaries to about $50,000 a year, he says. That's about what the average U.S. high school teacher earns.

  • TechWeb News: Outsourcing Contributes To IT Salaries' Downward Spiral. Excerpt: The growing number of companies moving information technology work to low-wage foreign countries has driven down salaries for many IT jobs in the U.S., and the trend is expected to continue, a salary research group said Wednesday. Overall, the premium paid for IT workers with specific skills was 23 percent lower in 2003 than in 2001, and the pay for certification in particular skills dropped 11 percent, Foote Partners LLC said. ... There are areas in IT where jobs are expected to remain onshore--at least for a while, Foote said. Those jobs tend to require a deep understanding of a company's business processes. Those jobs involve system architecture and prototyping, data and process modeling, and other pre-implementation work. Work related to security and network administration and management also appears safe.

  • TechWeb News: Outsourcing Lands In Political Ring With Both Feet. Excerpt: The debate about offshore outsourcing is getting hot in the run-up to the November elections. Democratic presidential candidate John Kerry says American companies that move jobs overseas should lose certain tax breaks. At the same time, a group of tech-industry CEOs that includes Dell's Michael Dell, Hewlett-Packard's Carly Fiorina, Intel's Craig Barrett, and IBM's Sam Palmisano released a position paper arguing that the computer industry needs unfettered access to global labor.

  • WashTech News: Tech Workers Meet with Sen. Kennedy's Staff on H-1B Issues. Excerpt: Boston – A group of high-tech workers and local business owners concerned about the displacement of U.S. workers by non-immigrant visa holders met last month with members of Senator Edward Kennedy’s staff to discuss the misuses of the H-1B visa program. Senator Kennedy is the minority leader on the House Committee for Immigration. Each person told his or her story of how the H-1B program has affected them: how they were laid off while the hiring of H-1B guest workers continued, how they have a high level of technical skill but are unable to find work, and how they have been discriminated against in job interviews.

  • ComputerWorld: IT Workers Scoff at Vendor CEOs' Lobbying Efforts. Calls to help stem U.S. job losses seen as insincere. Excerpt: A group of influential high-tech CEOs last week released a report that calls on Congress and the Bush administration to avoid protectionist trade measures that could hurt the industry's global competitiveness and lead to a further loss of U.S. jobs. But IT professionals in the U.S. have a different message for Congress and the industry's leading CEOs: Stop sending our jobs overseas. "What goes around comes around," said Richard Gump, an independent programmer who works on a contract basis in the insurance and health care industries. "Now that they feel the pain, they want the government to help them. Where were they when they were laying employees off and sending their jobs overseas?"

  • Minneapolis Star-Tribune: Outsourcing hits legal services. Excerpt: First it was the apparel workers -- the working class -- who saw their $10-an-hour jobs go overseas. More recently, the United States has started to export to India the $35,000-a-year customer-service center jobs from the likes of American Express Financial Advisors and $50,000 technical-support positions from IBM and ADC Telecommunications to India and elsewhere where educated, English-speaking workers are hired for a tenth of the cost to communicate with U.S. customers by phone and over the Internet. Now, six-figure lawyers and legal support staffs are starting to sweat. At West, the Eagan-based legal-publishing unit of Canada's Thomson Corp., there's a buzz over a small test office in Bombay, India, where Indian lawyers may one day interpret and synthesize U.S. court decisions for subscribers of Westlaw, the online legal network relied upon by thousands of practicing U.S. attorneys.

  • CNN/Money: Offshoring backlash rising. At both state and national levels, politicians are rushing to introduce anti-offshoring laws. Excerpt: In December, the State of Indiana cancelled a $15 million contract to upgrade its computer system. Why? Because workers from India would have been working on the government job. The Hoosiers garnered national headlines. But Indiana isn't the only state that's backtracking from contracts that involve hiring foreign workers, a process called "off-shoring."

  • CNET News: Offshoring--a hot 2004 campaign issue? Excerpt: So far, the Democratic presidential debates and the candidates themselves have focused on manufacturing jobs. They haven't spent much time talking about what happens as white collar jobs such as engineering and software design flow offshore. IBM will move as many as 4,730 U.S. programming jobs to India, China and elsewhere, The Wall Street Journal reported last month, which would be just a small part of what Forrester Research has described as an exodus of 3.3 million U.S. service industry jobs over the next 15 years. "At this point, the presidential candidates seem only to be grasping that jobs in the manufacturing sector are going overseas," said Marcus Courtney, a union organizer with the Washington Alliance of Technology Workers, part of the Communications Workers of America. "They don't seem to grasp that the economy has changed and that service jobs at every level, including highly paid engineering jobs, are going overseas just like the manufacturing jobs did." In 6 to 7 weeks, after the bruising first round of elections thins the ranks of candidates, the Washington Alliance of Technology Workers plans to join with other labor and left-wing activists to bring IT outsourcing into the election. "After both the Iowa caucuses and the New Hampshire primary, the field of presidential candidates is going to be shortened," Courtney said. "It's going to be much easier for us to target messages to those candidates when the field likely will be cut in half."

  • Links to many other articles about offshore outsourcing are available at Your Job is Going to India.
Now on the Alliance@IBM Site:
  • TomPaine.CommonSense: Dirty Hi-Tech Secrets. Excerpt: Did IBM knowingly expose their high-tech workers to dangerous chemicals used in manufacturing computers that caused cancer, conceal this fact and then lie to them about it? That is the core issue in a landmark trial, nearly 20 years in the making, which began this past October in California Superior Court in Santa Clara County, the heart of Silicon Valley, and is expected to end this spring. The lawsuit punctures the carefully cultivated image of high-tech manufacturing as a ‘clean’ industry. The reality is that making computer components is actually a chemical-dependent process that uses some of the most toxic substances, powerful acids, solvents, heavy metals and toxic gases—ever created.

  • San Jose Mercury News: Doctor links cancer cases to IBM plant. Excerpt: California's top occupational health doctor told a jury Tuesday that exposure to workplace chemicals caused two former IBM workers to develop cancer. The testimony by Robert Harrison was the first time an expert witness has directly linked chemicals used at IBM's San Jose manufacturing plant to Alida Hernandez's breast cancer and James Moore's non-Hodgkin's lymphoma. Harrison is chief of the California Department of Health's occupational health surveillance and evaluation program. Hernandez and Moore are alleging in Santa Clara County Superior Court that IBM knowingly exposed them to chemicals that made them ill and hid that information from them.

  • Binghamton Press & Sun-Bulletin: Ex-workers: IBM said to keep quiet. Excerpt: Former IBM workers, some weeping, charged publicly Thursday that the company routinely flouted safety measures at the expense of workers, who they said were coerced and bullied into keeping quiet. "Placing workers on chemical lines was used as punishment for those who made waves," said James Little, a 15-year employee who now works for IBM's successor, Endicott Interconnect Technologies. "I was reprimanded by management for stopping a machine leaking chemicals. During safety audits, we were told not to offer any information we were not asked for." His comments, and others like it Thursday night, are a significant departure from a general reluctance from IBM workers in the Southern Tier to publicly criticize the company. ... Darlene Walker, who worked for the company from 1978 to 1993, said IBM "put me through heck." She said she developed health problems, including cancer, she believes are related to chemical exposure on the job. When she brought the matter to her managers, she charged Thursday, "I was threatened. I was told to keep my mouth shut ... We need to help past IBMers and protect current IBMers."

  • To contact attorney William Deprospo, regarding chemical exposure: Phone: +1.888.463.6426 or email: nylaw5@aol.com

  • Alliance@IBM expects continued job cuts at IBM, over the coming months. Please send any information to endicottalliance@stny.rr.com

  • ThinkTwice December 2003/January 2004 Newsletter [PDF--243 KB]. Articles in this issue include:
    • IBM Retirees Shocked by Health Care Increases
    • An open letter to The IBM CEO
    • New Band Changes to Affect IGS Employees
    • The Utimate Takeaway—Your Health
    • Former IBM Employees File Suit on Age Discrimination in Job Cuts
    • Legislative Actions Relating to Off Shoring
    • Rollback Health Care Increase
    • Australia IGS employees bring IBM to negotiation table.
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