Taking another step into the outsourcing fray, IBM has agreed to purchase an India-based business processing company that handles back-office support and call centers for several U.S. firms, including Amazon.com.
IBM said the 6,000 employees of Daksh eServices will become part of its business-consulting unit. The move greatly expands Big Blue’s India-based workforce, which stood at 9,000 before the acquisition. Daksh is the third largest outsourcing firm in India.
Although IBM did not disclose terms of the acquisition, published reports in India pegged the value of the deal at around US$170 million.
Daksh, founded four years ago and funded in two venture rounds with backers including U.S.-based Citigroup and General Atlantic Partners, was said to have been mulling an initial public offering to help it meet growing demand for its services.
Clearing the Way
IBM’s move into the outsourced call-center business underscores the trend toward U.S. businesses leaning on India’s well-educated, English-speaking but lower-paid workforce to handle many back-office tasks. Some industry observers said the deal may even help accelerate the pace of outsourcing by lending IBM’s blue-chip name and reputation to the practice.
“Companies that may have been reluctant to sign a deal with an Indian company, especially given the tenor of the debate around the issue, can now sign with IBM to outsource everything and then let IBM decide where the jobs go,” industry analyst (*correction) Ned May told the E-Commerce Times.
Other U.S.-based consulting and outsourcing companies, including Accenture and Convergys, have established Indian headquarters to handle outsourcing work as well.
“The end result could be more outsourcing from companies to consultants like IBM and then more of that work being done overseas by the third party,” May said.
IBM and its rivals, such as HP, have been steadily picking up outsourced IT work in recent years as companies choose to hand off responsibility for their entire computing departments. “This will become an add-on service on the menu that IBM is already offering,” May added.
IBM has been sensitive to the fact that outsourcing is a sore subject with U.S. workers and, increasingly, politicians. The company recently announced it would establish a fund to retrain workers whose jobs moved overseas in areas where there is growing demand.
The debate over outsourcing has shown no signs of easing and is likely to be a major issue in this year’s presidential campaigns.
Last month, the Information Technology Association of America issued a report that argued outsourcing is actually good for the U.S. economy because it helps keep prices low and boosts corporate profits, making more hiring possible.
“Whether there’s a chance it could be a positive for the economy is one question, but there’s no doubt that workers are already feeling the pain from outsourcing,” job expert John A. Challenger of outplacement firm Challenger, Gray & Christmas told the E-Commerce Times.
“There’s no reason to expect the trend to do anything except continue to pick up steam as long as it’s worthwhile for companies to do and there are no additional regulatory hurdles put up.”
*Editor’s Correction Note: In the original version of this article, we incorrectly referred to Ned May as an IDC program manager. In fact, May is no longer with IDC and therefore cannot represent that firm’s position on the outsourcing issue.