IBM has more workers in India than the US — that's a good thing

IBM has more workers in India than the US — that's a good thing
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Last Thursday, a report in the New York Times that IBM now has more employees in India than in the U.S. made headlines and created a flutter. But for those of us studying and advising on corporate strategy and innovation, this was neither a big surprise nor a sudden development. 

Nor is this merely about labor arbitrage anymore. It makes sense for a number of reasons. In fact, at the macroeconomic level, Americans should celebrate IBM’s forward thinking, as it once again demonstrates how innovative the U.S. can be to stay ahead in an increasingly competitive world — this time, not in products or processes, but in organizational innovation.  

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This is important even as the U.S. government thinks about how to create more jobs at home, because without globally competitive American companies, increasing sustainable employment will be tough.

  

Why are Fortune 1000 firms like IBM doing this? It’s not just about lowering cost anymore — even though it may have started that way — but about gaining expertise and creating products that better fit market needs. Thus, it's about innovating in the best possible manner for local and global markets.

This makes sense. Take the development of small cars, non-grid alternative energy technologies or portable medical devices. Developing efficient and customer-satisfying small cars doesn’t always make sense in spacious and relatively fuel-cheap America.

Instead, Italy, Japan or India provide more optimal conditions for understanding customer needs, iteratively developing solutions and selling the vehicles in that segment.  

Similarly, non-grid alternative energy technologies are better developed and sold in countries where there is no grid in the first place; such as parts of Asia and Africa. It is why companies like General Electric and Siemens developed their portable EKG and ultrasound devices in India, for instance.  

In other words, the best innovation will take place where the conditions (e.g. resources, talent, public policies) and market need are most suitable for developing and testing particular ideas. The beauty of this approach is that, once created, these new products and associated knowledge can then be exported back to their home countries and elsewhere — in turn creating more jobs “at home."  

IBM took a pioneering role in this evolution more than a decade ago, when former CEO Sam Palmisano in a Foreign Affairs article (2006) outlined how he wished to transform the company into such a “globally integrated enterprise.”

IBM isn’t the only one pursuing a distributed global organization. Cisco and Microsoft are other examples, creating centers of excellence or even spreading out traditionally single headquarters (and top management teams) into multiple locations worldwide. 

Even Amazon is disaggregating key functions domestically; as are Chinese firms like Lenovo and Indian ones like Tata, new global competitors in an array of industries from the low- to the high-end. 

The basic challenge is, on the economic front, firms have become borderless, while politically, countries have not.  This is a major source of tension, and it impedes economic progress for everyone. So what should the U.S. (or any) government do about this, from a policy perspective?  

For one, embrace the IBMs, or at least accept the new distributed global firm. Because fundamentally healthy U.S. corporations that are global leaders can invest in the U.S. too. Policymakers should sweeten the incentive schemes so more firms like Tesla or Apple invest in U.S. facilities, invest in emerging technologies and train workers.

Another incentive that works: Keep the borders open for skilled immigrants so companies can compete for and capture global talent.

What IBM has done is not just about moving jobs or chasing lower costs. Rather, it is about the remaking of the modern corporation. The U.S. has always been at the forefront of innovation and entrepreneurship.

Encouraging new innovation of products, processes, business models and organizations is what allowed the country to rise in the past, and represents a comparative advantage that can be leveraged for the future.  

Focusing on policies to promote those aspects will be the key to success in the next era.  

Saikat Chaudhuri is an adjunct associate professor and executive director of the Mack Institute at the Wharton School of the University of Pennsylvania.