IBM joins other US tech giants in reducing China operations, resulting in layoffs of over 1000 employees

Aug. 27, 2024, 11:49 a.m.

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IBM has become the most recent American company to reduce its presence in China, reflecting the increasing tensions between Washington and Beijing.

This move is part of a broader trend where US tech giants are reconsidering their presence in the Chinese market due to increased local competition and the Chinese government’s push for self-sufficiency in the technology sector.

US-China tensions

The decision by IBM to downsize its operations in China is significant because it highlights the changing landscape of US-China business relations, especially in the tech industry. China’s ongoing efforts to reduce its reliance on Western technology have intensified competition within the local market.

Advertisement Consequently, American tech companies like IBM and Microsoft are starting to look elsewhere for their operations, indicating a shift away from China as their primary center for research and development.

IBM’s plan involves shutting down its research and development (R&D) department in China, a move that will affect approximately 1,000 jobs, according to multiple reports. This decision comes as the Chinese government continues to encourage domestic companies to surpass and eventually replace US tech dominance within the country.

China’s push for self-sufficiency

Earlier this year, the Wall Street Journal reported that these efforts are part of China’s broader strategy to achieve self-sufficiency in the technology sector, which has been a key focus of its economic policies.

In recent years, IBM has faced growing competition from Chinese companies. Jack Hergenrother, IBM's executive, has acknowledged this challenge during a virtual employee meeting. The company is relocating its R&D operations to other international locations, signaling a strategic shift in its global operations.

This move is likely a response to the declining revenue IBM has experienced in China, which saw a significant drop of 19.6% in 2022, according to the company’s 2023 annual report.

Despite these adjustments, IBM has assured its clients that the downsizing will not compromise its ability to support customers across the Greater China region. An IBM spokesperson emphasized that the company adapts its operations as needed to best serve its clients, suggesting that while the R&D presence in China may be reduced, IBM remains dedicated to its customer base in the region.

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IBM's decision is part of a broader trend among American tech companies scaling back their operations in China due to escalating geopolitical tensions and intensifying competition from local businesses.

In May, Microsoft also began to curtail its operations in China, encouraging hundreds of employees to consider relocating elsewhere as the company aimed to reduce its cloud computing and AI research activities in the country. This action by Microsoft reflects a growing apprehension among US companies about the risks associated with maintaining a significant presence in China.

Furthermore, US venture capital firms have begun withdrawing their investments from Chinese startups, signifying a broader reduction in American investment within the Chinese market.

Advertisement This pattern suggests a reassessment of the risks and rewards of doing business in China, especially in the tech sector, where the Chinese government's drive for self-reliance presents a significant obstacle for foreign companies.