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EDS Contracts, Expands Workforce

Officials at outsourcing giant EDS plan to cut more U.S. jobs in the next three years but expand its overseas ranks in order to cut losses while remaining competitive in the global outsourcing market.

In a conference call with analysts Tuesday, officials at the Plano, Texas, IT and business process outsourcing (BPO) company said they would expand the job cuts over the next three years beyond the 5,200 jobs it has been cutting since late 2002.

EDS has been facing increased competition, here and abroad, for IT services and BPO contracts. In the U.S., its once-dominant position in outsourcing is being challenged by a surging IBM and other providers, while overseas, lower-cost Indian and Asia-Pacific region companies -- whose cheaper outsourcing services are a hot growth area for U.S. firms looking to cut costs -- continue to pressure its margins.

In order to compete against these overseas firms, EDS said it needs more employees positioned in the same global markets as its competitors in overseas markets. As such, EDS officials said they plan to put more IT centers in Canada, Europe and the Asia-Pacific region in 2004 in order to meet that need, which is part of its Best Shore program. Launched in 2002, the program is designed to put experienced EDS managers in foreign centers.

Travis Jacobsen, an EDS spokesman, said the number of overseas positions within the company will increase annually to 15 percent by the end of 2005. Roughly 8,700 out of a total 130,000 EDS employees work in foreign centers right now. By the end of 2004, that number is expected to reach 14,500 and will cap out at roughly 20,000 employees by the end of 2005.

"We've been doing global sourcing on this Best Shore strategy since 1990 and we have been growing jobs in those foreign locations," he told internetnews.com. "Yes, there have been job reductions in the U.S., but that's not tied to our Best Shore activities."

While the Best Shore program may not be directly tied to U.S. jobs, the actions of one certainly affect the other. At the Tuesday conference, officials said workforce reductions and moving operations overseas are expected to slash the company's operating costs by 25 percent.

EDS needs to quickly improve its balance sheet to keep investors happy, given the current events at the company. While officials were happy to point out $100 million in new contracts with two European companies and two U.S. companies earlier this week, it's the billion-dollar contracts slipping through their fingers that have industry experts worried.

The company is significantly behind schedule and taking losses in a $7 billion contract with the U.S. Marine Corps for a new intranet. In May, officials said they had to write off $334 million and don't expect to see any profits from the contract until the latter half of 2004.

Overseas, the company isn't faring any better. EDS lost a 10-year, $5 billion contract with customer Inland Revenue, a U.K. government agency, to maintain its computer equipment.

Back in the U.S., EDS is currently under investigation by the Securities and Exchange Commission (SEC) for a stock-hedging maneuver and the subsequent reduction in its stock value (to the tune of 80 percent) in October.