I n 2006 , IBM uprooted its global procurement headquarters, transferring them from Somers in New York State, twenty miles north of its headquarters at Armonk, to Shenzhen in south China’s Pearl River Delta, just across the border from Hong Kong. It was a notable moment: the first time one of IBM’s core arms had left the United States. And it marked a significant move along the road toward making IBM a “globally integrated enterprise” running “truly global systems of production,” as its CEO, Sam Palmisano, had written in Foreign Affairs the same year . 1
IBM had first arrived in south China just over a decade earlier, opening an office there in 1993. In 1994, the company set up its first joint venture in Shenzhen, making personal computers. During the next decade, this operation was followed by others—producing ThinkPad laptops, servers, retail store systems, storage devices, and printers. By the early 2000s, the city was home to 2,000 employees, with another 6,000 working for IBM elsewhere in China . 2
As IBM’s Chinese presence grew, thousands of other companies became its suppliers, and suppliers to other computer manufacturers as well. They joined a variety of sourcing networks stretching across Shenzhen and the other cities of the Pearl River Delta. Many of these companies supplied parts and materials for low-end light industrial goods: toys, sports shoes, plastic products, and so on. Others provided
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components for higher-end information technology, computing and telecommunications equipment. To support the region’s electronics assembly industry came other component makers from elsewhere in Asia, and with them came the emerging giants of global electronics outsourcing, firms such as Taiwan’s Foxconn-Hon Hai, Singapore’s Flextronics, and Solectron from the United States.
Other businesses, especially from Hong Kong, rolled out the logistics and supporting technology needed to coordinate the transport of parts and materials and the dispatch of finished goods. As they did, local officials oversaw the expansion of economic zones and industrial parks, the building of highways and container ports, the opening of new universities and training colleges, and the arrival of migrant labor from other parts of the country.
By the time IBM exited the personal computers business—selling its PC arm, including its ThinkPad laptop business, to Lenovo in 2005— the Pearl River Delta region had remade itself into the heart of the world’s most important technology supply chain. Clustered there were nearly all the companies that produced the world’s electronic and IT goods. Wherever the individual components of any product were made—in Taiwan, Japan, Malaysia, Singapore, or, as was increasingly the case, in China itself—they would be brought together and assembled in a factory somewhere in the Delta.
IBM’s executives thoroughly understood the structure and capabilities of the networks that comprised this supply chain. They also knew that the region had become home to one of the largest pools of procurement talent worldwide. Moving its own procurement arm there not only strengthened its own supply base, but also positioned the company to help clients strengthen their own supply chains, one of the core focuses of IBM’s business.
At the same time, 1,200 miles north in Beijing, IBM was developing another group of China-based talent. In 1995, the company founded its China Research Laboratory, one of just eight such centers worldwide set up to tap into local reservoirs of high-tech expertise. It is based in the
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city’s Zhongguancun Software Park, next to Beijing’s main university district; most of its more than 150 researchers hold doctorates or masters degrees from Beijing, Tsinghua, or other leading Chinese universities. Today, IBM’s lab specializes in speech and language technologies, cross-border e-business solutions, and pervasive computing: the embedding of microprocessors in every-day objects. Every year, some 1,800 researchers apply to join it; only a few are selected. Until recently, IBM hired three researchers in the United States and one each in Switzerland, Japan, Israel, and India each year. Then in 2008, the company opened a new research facility in Shanghai, its first in a decade. Starting with just over a dozen researchers, it is due to have a hundred in place, working principally on Internet-related topics such as cloud computing and Web-delivered services. Today, IBM runs all of its global growth business out of Shanghai. This includes its business in Asia, Latin America, Russia, Eastern Europe, the Middle East, and Africa.
IBM still produces hardware in China. And it also has a thriving Chinese business in services; in 2009, despite the global economic slowdown, IBM’s consulting arm forecast a doubling in size of its China operations within a year because of growing demand from Chinese companies. To meet this demand, IBM plans to open four new China offices, taking its total presence from six to ten. 3 But although China’s low prices are still attractive to IBM, that’s not why the company has placed its labs in Beijing and Shanghai or its procurement HQ in Shenzhen. They are there because, for IBM, those are the best places for them to be, both to support its clients and to offer services to other of the company’s divisions and operations around the world. China is the site for several different nodes of Sam Palmisano’s globally integrated enterprise.