IBM Withdraws from India

Standing firm on the 100% policy

Technical excellence and a shrewd appreciation of its customers' needs helped the International Business Machines Corp. capture most of the world computer market. But critics charge that IBM's policy of controlling all aspects of operations, from manufacturing to maintenance, has unfairly helped to sustain its dominance. That policy got IBM into trouble with the U.S. Justice Department, which in 1969 charged the company with monopolistic practices in a suit that is now in the trial stage. Last week officials in another country--India--discovered just how dear IBM holds its 100% philosophy. Rather than allow a minority Indian holding in its local manufacturing, sales and maintenance operations, the company decided to close up shop.

IBM Chairman Frank T. Cary said that the withdrawal decision was "a great disappointment," but insisted that the firm had no alternative. India's ruling Janata Party, in vigorously enforcing the nation's 1973 Foreign Exchange Regulation Act, is pressing hard for at least partial Indian ownership of foreign companies operating in the country. A total of 57 foreign firms have decided to close down their Indian plants rather than meet demands for some degree of Indian ownership. One company under pressure: Coca-Cola, which has all but stopped making Coke in India. The company had been ready to reach an agreement on mixed ownership, but rejected India's demand for the formula for Coke's syrup, a secret that is supposedly locked in a Georgia bank vault and known to only ten people in the world.

IBM had its own reasons to be upset. The company was invited to set up an accounting-machine plant in Bombay in 1951 by Jawaharlal Nehru; he believed India could assert its independence only by building up its own industries, but felt that this could best be accomplished if fledgling Indian firms operated in tandem with foreign companies. Under the leadership of Nehru's daughter Indira Gandhi, the government pushed the notion of industrial nationalism much further. Indian officials assert that India's struggling state-owned Computer Maintenance Corp. could service the IBM equipment in the country without difficulty; after all, that should not be beyond a country that has produced an atomic bomb, nuclear power plants and, even more to the point, 100 of its own computers. The Indians also contend that IBM's departure could open the way for competition among rival computer firms, domestic and foreign, anxious to see their products in the Indian market.

The Indian withdrawal involves no great financial loss for IBM. The company's Indian business amounts to only a tiny fraction of worldwide annual revenues of $16 billion. In a quarter-century, IBM's Indian operation has earned just $6 million in profits. The Bombay plant now makes only spare parts, having stopped the reconditioning of used computers six years ago. The company will sell at giveaway prices 125 obsolete model 1401 computers it has currently on lease in India, along with its facilities there. Analysts wonder if IBM's policy of 100% control will be able to withstand the assault--at home and abroad.

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