A tech firm lays off about 100 staff. The announcement catches most investors and observers off guard.
If this was 2022 or 2023, you might have guessed we were referring to Grab, Google or frankly, any one of the major tech firms. Last year’s cuts were so staggering, Meta chief executive Mark Zuckerberg termed 2023 “the year of efficiency”.
But this is 2024. The company in question is Lazada, which has axed an estimated 25 to 50 per cent of its South-east Asian headcount.
Just when we thought the wave of retrenchments from this booming sector was over, Lazada’s cuts have sparked speculation more may be in the pipeline, with potential implications for the job market at a time when Singapore’s 2024 growth forecast has been cut by economists to 2.3 per cent.
Across the world, Google, Amazon, Duolingo and Twitch too have all announced cuts to their workforce in January alone.
Investor-driven layoffs?
Many believe that the Lazada layoffs were a cut-throat decision taken by its parent company, Alibaba, in accelerating a restructuring in preparation for a potential initial public offering (IPO). This is not the first time Alibaba has cut staff in anticipation of a potential IPO. In May 2023, Alibaba’s cloud unit laid off an unprecedented 1,000 employees ahead of an impending listing, after a year-on-year decline in revenues to US$2.6 billion (S$3.5 billion) and amid an aggressive price cut in core product services.
Yet the practice of reducing manpower before an IPO is prevalent in the global tech sector. One estimate puts the figure of tech layoffs since the start of 2024 at 9,500.
Akseleran, an Indonesian peer-to-peer lending firm, laid off around 60 employees in late July 2023 after postponing its IPO on the Indonesia Stock Exchange, initially scheduled for August 2023, to June 2024.
When interviewed, its CEO and co-founder Ivan Nikolas Tambunan explained that restructuring would optimise the company’s operations, foster long-term growth, and maintain financial health, while stressing that the company was on track to achieve profitability by the fourth quarter of 2023.
The CEO’s remarks suggest a company’s ongoing profitability plays a crucial role in securing funds in the financial market. Through cost-cutting measures, the company seeks to present an appealing investment opportunity during the IPO, with the goal of raising a large amount of capital.
Similarly, the Carsome Group, an operator of a South-east Asian used-car online marketplace, went through two rounds of staff reductions targeting Malaysia, Indonesia and Thailand units over 2022 and 2023. Carsome is preparing to be ready for an IPO and to list quickly when a window opens, CEO Eric Cheng told Bloomberg in July 2023.
This approach to trim a workforce before a firm lists is rooted in the belief that a leaner organisational structure can enhance cost efficiency, presenting a more attractive financial profile to potential investors.
This is both reality and rhetoric. A reduction in workforce can positively impact a company’s bottom line for a short time, creating both the perception of improved profitability and financial stability, as well as a real increase in efficiency and profitability.
In November 2022, Meta shaved 11,000 jobs, 13 per cent from its peak of 87,000 employees. In less than a year, its stock price surged 20 per cent while it managed to trim 8 per cent of operating expenses and saw a 45 per cent net income boost.
After Coca-Cola announced in December 2020 it was laying off 2,200 workers as part of a larger restructuring, the firm reported strong results in two quarters, with operating margin improving from 27.7 per cent in the preceding year to 29.8 per cent.
Deeper challenges
Layoffs may be a necessary course correction. The e-commerce sector saw a boom during the Covid-19 pandemic as consumers “went digital” and shifted to online shopping.
Tech giants like Lazada capitalised on the trend and scaled up their workforce to meet the heightened demand for online goods and services. As the companies were flush with cheap capital, the war for tech talent during the Great Resignation wave saw salaries reach record levels.
But rising interest rates and venture funding drying up led to the 2023 tech cutbacks. When the pandemic waned, people started going outside and demand for online services tapered off, a large number of digital and e-commerce companies found themselves in the red.
A longer-term trend remains the largest threat to Lazada: the consistent loss of market share, and the gradual but certain slide into a second-choice online shopping platform compared with Shopee.
A retrenchment exercise may therefore enhance the company’s financial outlook, but cannot resolve the deeper, fundamental challenges it faces. The absence of a genuine competitive advantage might raise critical questions about Lazada’s uniqueness and sustainability: Is there proprietary technology or a distinctive process that sets it apart, or does it rely on offering a comparable service at a slightly lower cost, possibly achievable through temporary retrenchment strategies?
There may also be underlying inefficiencies. Operational bottlenecks, talent shortages and cultural impediments can undermine the execution of a good idea, jeopardising the company’s ability to fulfil its promises and thrive in a competitive environment.
When restructuring is cyclical
Whatever job security people were hoping to find in the glamorous tech sector has clearly evaporated. It is worse when a unionised firm like Lazada went ahead with the layoffs without consulting the Food, Drinks and Allied Workers Union, casting doubt on the value of tripartism in stemming job uncertainty and killing the firm’s reputation among prospective employees.
Lazada employees seeing colleagues getting the axe might find the cuts unsettling, especially if concerns persist that workforce reduction and company restructuring are the new normal for firms looking to bolster their financial standing.
The worry is if tech retrenchments are driven less by restructuring and other structural factors, but become cyclical and potentially tied to earnings announcements. The implication is that retrenchments may become a routine exercise each year, instead of a last resort when a business is no longer sustainable.
The increasing prevalence of project-based work is a notable trend, but it is important to recognise that this shift is more likely to coexist with traditional roles than completely supplant them. The evolving landscape of work suggests a future that embraces a hybrid model, emphasising adaptability and continuous learning. In navigating this dynamic environment, robust social safety nets will play a crucial role in supporting workers, ensuring their resilience amid ongoing changes.
Meanwhile, globalisation and advancements in technology will strain the tech jobs market. Back-end engineering roles, involving routine coding and software development tasks, have historically been among those outsourced to low-cost job markets. Additionally, customer support, quality assurance, data entry, technical support, and certain aspects of infrastructure management face the threat of automation.
This insecurity may be a feature rather than a bug of tech roles, compensated to some extent by high salaries. According to the US non-profit Society for Human Resource Management, tech positions pay handsomely.
Similarly in Singapore, technology professionals earn a median monthly wage of $7,376, excluding employer Central Provident Fund contributions and bonuses. This marks a significant increase from $5,512 in 2017, according to the 2023 Digital Economy Report released by Singapore’s Infocomm Media Development Authority. Notably, this tech sector median wage surpasses the overall resident median monthly wage, which stands at $4,500, up from $3,749 in 2017.
“Despite the tech layoffs in 2022/2023 which affected Singapore as well as other tech hubs globally, tech professionals will likely remain in demand as the economy digitalises,” the report states.
Career mobility the new normal
Regardless, we would not be surprised if the persistent layoffs lead tech workers to question the possibility of a long-term career and consistently look for other job opportunities. In an era where career mobility is fast becoming the new career stability, turnover will likely remain high. In Singapore, about one in six residents switched jobs in 2022, a six-year high.
Tech firms tend to value youthfulness and innovation. Younger employees, often unattached and child-free, are seen as highly productive assets given their adaptability to new technologies, fresh perspectives and a willingness to burn the midnight oil. These are the folks that free food, table tennis tables and free yoga lessons aim to attract: workers who will work 24/7.
Compensation also plays a role as seasoned veterans make more than younger counterparts and a trend of the “juniorisation” of roles looks set to continue, where middle-manager jobs are cut and positions restructured to attract younger workers.
The notion of committing to a single employer for life seems impractical. In a world where markets are interconnected, businesses are compelled to adapt rapidly to stay competitive. Companies will undergo long and sustained periods of restructuring and downsizing to meet the demands of a changing global economy, which creates economic dynamism on the macro level but erodes job security and life-long commitment between employers and employees at the micro level.
This trend will be amplified in the tech industry, where rapid innovation, start-up culture, and the demand for specialised skills prevail. Employees in this industry will find it advantageous to pursue opportunities and switch jobs to enhance their skills, boost their incomes and advance their careers.
The blowbacks of fast hiring and firing
A final word: Mass layoffs too can be a red flag, suggesting a tech firm is struggling and unable to navigate challenges in a competitive business environment. They can create an atmosphere of uncertainty within the organisation, and consequently dent investor confidence.
Human capital plans, in turn, may be scrutinised by investors attuned to the importance of organisational culture and employee engagement. Any disconnect with investor expectations of company performance and its actual performance will be exposed.
In 2015, when Yahoo axed 1,000 employees, the move suggested the company was unable to compete effectively in the search engine space, as strong rivals like Google stole market share. The layoffs raised concerns among employees and spooked the tech community. Investors began questioning the company’s direction and long-term competitiveness. Eventually, in 2017, Yahoo was taken over by Verizon for a paltry US$4.5 billion.
Layoffs are often a short-term solution to address immediate financial challenges, and the long-term success of a company depends on many other factors, including its ability to adapt, innovate and respond to evolving market conditions.
A case in point: In the lead-up to a highly anticipated IPO in 2019, WeWork laid off one-fifth of its workforce as a cost-cutting measure after facing intense scrutiny over its financial health upon the release of listing documents. Investors nevertheless remained sceptical of the company’s business model, corporate governance and path to profitability.
In the eyes of investors, a successful business strategy must go beyond mere cost reduction. If layoffs are perceived as a reactive, short-term solution without a clear road map for long-term success, it may trigger concerns among investors about the company’s overall health and adaptability.
The article first appeared in The Straits Times.