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Electronic Data Systems is to accelerate shifting of its workforce to India and other low-cost centres, echoing a broader intensification of the offshoring wave at a time when the pressure to raise productivity in the labour-intensive IT industry has increased.
Michael Jordan, chief executive officer, said yesterday that EDS planned to increase its workforce in low-cost centres by 50 per cent over the next “couple of years” to 45,000. The Texas IT services company’s overall workforce is expected to fall over the same period, he added, implying cuts of more than 15,000 in the number of workers it employs in the developed world.
With armies of employees that represent around two-thirds of their overall costs and with Indian rivals growing fast, the US companies that dominate the industry have intensified their focus on offshore hiring recently. IBM’s services arm, the industry’s biggest player with 190,000 workers, already has 43,000 employees in India and recently held its annual investor meeting in Bangalore to draw attention to the rebalancing of what it calls its “global delivery network”.
In an interview with the Financial Times, Mr Jordan said that EDS would accelerate the pace of job cuts in the second half of this year. The company cut 1,000 jobs in the first six months but plans to remove up to 4,000 more before the end of the year, he said.
The cuts will come from new technology tools and processes designed to improve the productivity of services assignments, as well as the removal of unnecessary levels of management in its overseas operations. Referring to the intense focus on detailed operations, the EDS chief executive added: “This is the old fine- toothed comb.”
Like other companies in the industry, EDS would need to improve its productivity continually by 3-4 percentage points a year, he said.
EDS has already acted to lift its workforce in India through the acquisition in April of Mphasis, a local services company with 12,000 workers. Other initiatives this year include the opening of a centre in China with 1,000 employees, Mr Jordan added.
Higher severance payments in the current quarter, as the pace of job losses picks up, led EDS to issue an earnings forecast that was below Wall Street forecasts for the period. EDS’s finances have stabilised under Mr Jordan, who was brought in three years ago after the company stumbled with some large and unprofitable contracts, but the company is still in the early stages of rebuilding its profitability.
EDS’s gross profit margin in the latest quarter improved 2 percentage points from a year before to 12 per cent, but is lower than the 28 per cent reported recently by IBM and the 33 per cent achieved by Accenture.