VZCZCXRO6031
RR RUEHBI RUEHCI
DE RUEHCG #2571/01 3260727
ZNR UUUUU ZZH
R 220727Z NOV 06
FM AMCONSUL CHENNAI
TO RUEHC/SECSTATE WASHDC 0443
INFO RUEHNE/AMEMBASSY NEW DELHI 2087
RUEHBI/AMCONSUL MUMBAI 4907
RUEHCI/AMCONSUL CALCUTTA 0647

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. 
 
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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. 
 
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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. 
 
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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