IBM Expands India And China Operations In Quest For Growth

The build-out of IBM's global operations picked up speed last week as the company announced plans to open software development centers in Pune, India, and Beijing. The company also launched an investment fund geared toward financing companies in China.

The software centers each will be staffed by 500 developers focused on creating service-oriented architectures for customers around the world, including those in the United States. SOAs feature standards-based software components that let customers easily connect and reuse various business applications and services. IBM says it expects the market for SOA-based services to reach $160 billion by 2008. The company wouldn't say how much it's investing in the Pune and Beijing facilities.

The Pune center will focus on building SOA systems for the insurance and health care industries. The Beijing office will create systems for banks and state and local governments, including software that will power the child welfare systems for four U.S. states, says Jeby Cherian, head of IBM's global solutions delivery for India. He declined to identify the states.

IBM also said last week it will open its fourth offshore development facility in the Southeastern Indian city of Chennai. The site will employee 3,000 programmers and is scheduled to open in early 2007. At the same time, IBM says it's bringing its "Reinventing Education" program to Chennai. Under the program, IBM technologists work with local secondary and post-secondary educators to improve math and science education. IBM already has launched the program in 11 countries, including China and the United States.

The announcement marks the latest steps in IBM's plan to centralize software development activities in low-cost regions stocked with talent. Earlier this year, the company opened a major facility in the Indian tech hub of Bangalore, from which IBM employees are designing software architectures for customers worldwide. The two new facilities will act as satellites of the Bangalore center.

IBM's operations in China are small compared with those in India. It currently has a services staff of 7,000 in China and more than 40,000 employees on the subcontinent. But IBM sees big growth in China. "We'll continue to make strategic investments in both countries," Cherian says. "The scale of the operations in each will be determined by customer demand."

VAST OPPORTUNITY

Also last week, IBM said it's partnering with U.S. investment bank Lehman Brothers to launch a $180 million fund that will invest in Chinese businesses. The China Investment Fund will start with a capitalization of $180 million and target publically and privately held companies in technology, financial services, biotech, and communications.

In addition to providing working capital, the partnership aims to sell IBM technology and Lehman financial services to companies in which it invests. China's latest five-year blueprint of central planning initiatives calls for Chinese businesses to become less dependent on the government for growth and innovation. The two companies could re-create the partnership in other geographies, such as South Asia and South America, if the Chinese effort proves successful, a Lehman Brothers spokesman says.

IBM is counting on China to revive its top-line growth, which has been relatively stagnant for the past several quarters. With a gross national product that's projected to grow 7.5% annually over the next five years, China is expected to become the world's third largest economy by 2010, surpassing Germany.

IBM's history in China dates back to 1934, when it first entered the country. In the last 18 months, IBM has partnered with more than 250 private equity-backed startups there. IBM wants in.