(Bloomberg News) -- Five years after bringing high-tech jobs to the Midwestern states of Iowa and Missouri, International Business Machines Corp. has fired half its workers there -- sowing ire and disappointment for locals and officials alike.
In April, Iowa Senator Chuck Grassley wrote IBM to condemn the firing of about 700 employees in Dubuque, Iowa. The same month, Missouri suspended tax credits after IBM’s headcount in the city of Columbia fell below the required minimum of 500.
When IBM came to Dubuque in 2009 and then to Columbia, it needed workers to help companies run their technology. Three years later a new CEO decided to automate some of the business, and the firings began. It’s a blow to Dubuque and Columbia, cities that spent a combined $84 million on tax breaks and other incentives to lure Big Blue in the hopes of attracting other technology firms and incubating a startup scene.
It’s a story that has played out often across America: Big company comes to town, provides boost to the local economy and then leaves.In the 20th Century this narrative took decades to unfold, as companies making things like steel and furniture gradually found themselves unable to compete. Now, the process can happen in a matter of years, especially if the employer is a tech company battling disruptive upstarts or rebooting strategy on the fly.
IBM declined to comment on the employment levels in Dubuque and Columbia, future plans for the locations or on the treatment of its workers there. “IBM is constantly investing in skills to meet the demands of our clients, especially in areas such as Cloud, Analytics, Mobile, Social and Security,” Adam Pratt, a spokesman for IBM, wrote in an e-mailed statement.
Rick Dickinson, a Dubuque official who helps lure new employers, said he’d expected IBM to put the city on the map and help Iowa transcend Midwestern stereotypes he describes as: “red barn, silo, Holstein cow, hog and a bale of hay.” No company before IBM has moved into town or ramped up so quickly - - only to scale back, he said.
Vulnerable to Changes
In 2012, Ginni Rometty became IBM’s chief executive officer. She inherited a company that had largely missed the transition to cloud computing, which allows IBM’s corporate customers to fix problems online rather than deal with human beings -- like the workers in Dubuque.
Last year, with the services business struggling and demand tumbling for IBM’s hardware, Rometty axed 16,600 positions from the 431,200-strong workforce, and offloaded 35,000 more positions through divestitures. Many of the remaining workers in Dubuque said they think IBM plans to pull out altogether. IBM declined to comment on how long the company plans to stay.
IBM isn’t alone. In rural Kansas and Nevada, Amazon.com Inc. is shuttering two warehouses as it focuses on same-day delivery and shifts operations closer to big cities. Near Phoenix, Arizona, Apple Inc. is converting a factory into a data center, ditching plans to manufacture iPhone screens there because the company couldn’t guarantee their quality; the new operation probably will employ fewer people.
“Going after big names makes you vulnerable to the vagaries of the company’s fortune,” said Howard Cure, director of municipal research at Evercore Wealth Management LLC in New York. “Even if you’re getting multiple companies tied to the same industry, you’re vulnerable on the changes in that industry.”
Six years ago, landing IBM seemed like a no-brainer for Dubuque. America was in the throes of the financial crisis and the city had never really recovered from the collapse of local farms. The world’s largest technology services company was proposing to hire 1,300 locally for a new global delivery center.
IBM’s Dubuque operation opened on Aug. 25, 2009, with a ribbon-cutting ceremony attended by local and state officials. The city and state had lavished more than $50 million in incentives on IBM, including a rehabilitation of the historic Roshek Building just off Main Street. Dubuque sent the company hundreds of resumes from potential recruits.
IBM agreed to pay its Dubuque workers an average annual salary of about $46,000 -- about double the local average income per capita, according to the U.S. Census Bureau. In a press release, the company called its Midwestern outpost a “milestone in the ongoing renaissance” of Dubuque and looked forward to an “enduring relationship.”
Chris Ross was one of the first people hired. She and other incoming employees anticipated learning high-tech skills on which to build a long-term career. In a January 2009 release about new jobs in Dubuque, IBM touted its commitment to work with local higher-education institutes “for recruitment and training of potential employees.”
Instead, Ross found herself toiling on what she described as a new-age assembly line -- each employee solving a narrowly focused part of a corporate customer’s technical problem and then passing the baton to the next person. As a result, said some of IBM’s Dubuque workers, they became experts only in a narrow set of skills that weren’t easily transferable.
“We came to IBM thinking we would work hard, show how qualified we were, and get raises and promotions,” said Ross, who quit before the firings began.
Dave King was fired -- IBM calls it “resource action” -- from the Dubuque services center about a year ago. The 62-year-old father of three is now driving a school bus 20 hours a week. He failed to find another technical job.
Grassley, a Republican, wrote to Rometty on April 16 to express concern about “reports of mass layoffs” even as IBM requested H-1B work visas to allow 5,800 foreign employees to be authorized to work for the company in the U.S., he explained in an interview. “What are you doing to make sure you make a good faith effort to hire Americans?” he said. IBM declined to comment further on Grassley’s comments.
IBM came to Columbia in 2011, promising to create as many as 800 jobs. The state had no choice but to suspend IBM’s tax credits once the headcount fell to fewer than 500, Columbia Mayor Bob McDavid said in an interview.
“Would I love to have 800 employees?” he said. “Of course.”
Back in Dubuque, IBM is considering leasing two floors in its building downtown, according to the Dubuque Telegraph Herald. Despite predictions that the company’s presence would prompt other large tech companies and startups to set up shop in the city’s revitalized downtown, it hasn’t happened.
Nor has Dubuque lured other companies with the same cachet as Big Blue. Existing employers such as Hormel Foods Corp. and Deere & Co. have added to their workforces but typically pay lower wages than IBM. Only a handful of small firms have moved into the technology park constructed about the time IBM arrived.
Dickinson, the local official, said IBM’s employee commitment to Dubuque probably was unrealistic given the fast-moving nature of the tech services industry.
“Four years is light years in technology,” he said.
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