updated 6/6/2006 3:55:04 PM ET 2006-06-06T19:55:04

IBM Corp. plans to triple its investment in India to $6 billion over the next three years to take advantage of the country’s lower-cost labor and diverse engineering skills for technology services customers around the world.

Chairman and Chief Executive Sam Palmisano said Tuesday the investment will expand the software, services and customer-support work IBM does in India, while also funding new service delivery centers in Bangalore and a telecommunications research facility in New Delhi.

Palmisano said IBM would increase its work force in India but he did not specify numbers.

In the past three years, the company has invested more than $2 billion in India and increased staff from 9,000 to 43,000, helped by the estimated $150 million acquisition of Indian back-office outsourcing provider Daksh eServices.

Now Big Blue employs more people in India than any other foreign company. And India is IBM’s second-largest base of operations, trailing only the U.S., which has 125,000 of IBM’s 330,000 people.

Armonk, N.Y.-based IBM first opened for business in India in 1951 — though the operations were halted in the 1970s amid the then-ruling party’s campaign against multinational corporations, and didn’t resume until 1992.

The real momentum came after 2003 when IBM began making India a key base to support services for clients around the globe. The strategy was largely necessary to fend off competition from low-cost service providers based in India that were increasingly grabbing worldwide technology consulting business.

IBM now has five software development centers in India along with an office to provide consulting services worldwide, helping Big Blue cut overall costs with less expensive labor and opening new connections to the fast-growing India market.

The new investments announced Tuesday “will ensure we make the most of the opportunities to grow this marketplace while it enables IBM to fulfill its vision to become a globally integrated company,” Palmisano told 10,000 IBM employees and investment analysts at the company’s facility in Bangalore. Indian President A.P.J. Abdul Kalam was present.

The trip to India included a briefing with analysts on IBM’s global plans for next year, an annual talk ordinarily held in New York. The presentation was shifted to India to showcase the company’s work in the country.

“If you are not here in India making the right investment ... then you won’t be able to combine the skills and the expertise here with skills and expertise around the world in ways that can help our clients be successful,” Palmisano said. “I am here today to say that IBM is not going to miss this opportunity.”

The announcement follows similar plans by other technology companies.

Microsoft Corp. said last December that it would double its work force in India with an investment of $1.7 billion in four years. Around the same time, Intel Corp. announced a $1 billion India investment plan, weeks after a group of expatriate Indians said they would spend $3 billion to build a chip-making facility with technology from Intel rival Advanced Micro Devices Inc. Cisco Systems Inc. plans to invest $1.1 billion in India over the next three years.

While IBM’s operations in India are primarily aimed at bolstering services for clients around the world, the company notes that its revenue within India has grown about 50 percent annually in each of the past two years.

Even so, IBM’s $510 million in revenue from the India market last year, excluding the now-divested PC business, was a small part of the company’s $88 billion total.

Bob Djurdjevic, an analyst with Annex Research, said he found IBM’s presentations intriguing because they showed the company is not skittish about the topic of offshoring work to India and other developing countries, a subject that became contentious in the 2004 election.

“What IBM is doing is breaking new ground in that sense, by heralding its operations in India boldly and loudly as a success, not something they should be reticent about,” Djurdjevic said.

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