American tech giant IBM is shutting down most of its research and development efforts in China, joining the growing list of US companies pulling back from the world’s second-largest economy amidst escalating tensions between Washington and Beijing. Employees have reported that over 1,000 staff members are being laid off across several offices in mainland cities, specifically those working in two research-focused units – the China Development Lab and the China Systems Lab.
IBM’s decision to reduce its R&D workforce comes as part of a broader retrenchment by American companies in China. In May, Microsoft offered to relocate hundreds of Chinese employees working on cloud and artificial intelligence projects as the US continued to restrict China’s access to sensitive technologies. Microsoft had previously closed its LinkedIn social networking site in the country.
During a virtual meeting on Monday, IBM executive Jack Hergenrother cited tougher competition as the reason for the cuts. He stated that the company’s China infrastructure business was shrinking and that the group was shifting R&D work closer to customers outside the country, according to Chinese media outlet Jiemian, which first reported the news.
IBM’s local business faces stiff competition from Chinese rivals who benefit from top-down Beijing directives to local governments and state-owned groups to purchase more tech products from domestic providers. A former employee noted, “In recent years, IBM has been continuously reducing their presence – part of the decoupling.”
Sales at the China arm fell nearly 20 per cent in 2023 compared to the previous year, while the Asia-Pacific region as a whole contributed 11.7 per cent of IBM’s $62bn in revenues. The tech group has also been trimming staff in other regions to boost its bottom line.
Some affected IBM employees in China were given the option to relocate to other countries, while others were offered severance based on the length of their employment if they agreed to their exit packages within three weeks, according to two staff members.
The closure of the China Research Lab in Beijing in 2021 marked another significant R&D unit shutdown by the US group. A former employee commented on the difficulties faced by IBM’s business in China, stating, “Just like it sold the ThinkPad [laptop] business to Lenovo, it now has to shut down CDL and CSL. The businesses were not making good profits.”
Chinese corporate records show that IBM has more than 7,500 staff in the country, with a large office in the north-eastern city of Dalian. Maintaining a large research team in China could complicate winning contracts from the US government, a major customer for “Big Blue”. IBM did not immediately respond to requests for comment.
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