Aug 27, 2024 14:00:00

IBM to close R&D unit in China, affecting over 1,000 employees

By

Dyroc

American technology giant IBM has decided to close its research and development division in China and relocate it outside the country, according to multiple media reports. The reason behind this decision is said to be the slump in its Chinese business due to the Chinese government's 'Delete A' campaign, which instructs domestic companies to increase the use of domestic products and reduce their reliance on American companies.

IBM Shuts China R&D Operations in Latest Retreat by US Companies - WSJ
https://www.wsj.com/business/ibm-shuts-china-rd-operations-in-latest-retreat-by-us-companies-b37cd9a0

IBM is latest US tech giant to pull back from China
https://www.axios.com/2024/08/26/ibm-rd-division-china-us-tech-competition

On August 26, 2024, Jack Hergenrother, IBM's vice president of Global Enterprise Systems Development, announced plans within the company to move its China research and development functions outside of China, including to Bangalore, India.

According to employees who attended the virtual meeting, the decision will affect more than 1,000 people, mostly those working in IBM's research and development division, developing and testing enterprise software and other products.

'We will make changes as necessary to best serve our clients,' IBM said in a media statement, without providing details. The company also said the changes would not affect its ability to support clients locally.

IBM has been operating in China for about 40 years and has positioned China as a major growth market. However, as the conflict between the United States and China intensifies, its performance in China has deteriorated rapidly.

By Spiff

In particular, in the field of IT technology, market share has fallen due to the Chinese government's measures to encourage domestic companies to exclude American companies, and IBM reported in its 2023 annual report (PDF file) that revenue in China fell 19.6%. Meanwhile, sales in the Asia-Pacific business increased by 7% after adjusting for currency exchange rates, and by country, sales in Japan increased by 11% and in India increased by 20%.

'The decision to close the research and development division came as a surprise, especially after IBM executives had just discussed plans to leverage IBM's strengths in cloud computing and AI to win new business,' one employee told The Wall Street Journal.

IBM isn't the only American company trying to quickly pull out of China: In May 2024, Microsoft reportedly encouraged hundreds of its Chinese employees to emigrate to the United States or US-allied countries.

Microsoft is trying to move hundreds of employees in China to the US and its allies - GIGAZINE

In addition, not only American companies but also capital are beginning to pull out of China. In a February 2024 article , The New York Times reported that 'China's name had disappeared from the fundraising plan of Silicon Valley venture capital firm DCM Ventures, and only plans for investments in the United States, Japan, and South Korea were included as a 'trans-Pacific' outlook.'

'IBM once saw China as a research and development hub in a global growth market, but rising labor costs and increasing compliance risks have made China a less attractive R&D location,' an IBM employee told The Wall Street Journal.