SINGAPORE: Tech companies have been laying off staff across the world. Shopee said in June it was “rationalising its e-commerce business” and reducing headcount across markets in Southeast Asia; robo-adviser StashAway and cryptocurrency exchange Crypto.com both announced staff cuts; even the Singapore country manager of Tesla was let go in a company-wide layoff.
Why is this happening as economies reopen post-pandemic? And why are tech companies expecting a recession ahead even though economists believe it’s not inevitable, based on the US’ strong economic recovery and labour market?
A large part of the growth during the pandemic was a result of the trillions of dollars of excess liquidity the US Federal Reserve pumped into the economy. That pushed asset prices up and borrowing costs down.
Tech companies benefited from this cheap capital and thrived during the height of the pandemic. They kept us connected with friends and family, well-fed when we couldn’t leave the house, and entertained with cinemas shut and concerts cancelled.
It was during this period that we learnt we could dabble in crypto and non-fungible tokens, or even just scan a QR code to view a menu and make payment.
Private companies with decent use cases had investors lining up willing to put money in at very attractive valuations. A number of tech companies in Southeast Asia finally went public. And those that invested in tech companies from 2020 to 2021 saw share prices shoot through the roof.
THEN INFLATION CAME
Inflation became a concern, but for a long time, the Fed regarded it as a “transitory” problem. However, with the war in Ukraine, global energy and commodity prices climbed, pushing inflation into dangerous territory.
US consumer prices rose by 8.6 per cent in May year-on-year, the highest since 1981. In response, the Fed raised interest rates three times this year, with the latest hike the largest since 1994.
With the evaporation of cheap capital, investors have become jittery and more prudent with their portfolios. As a result, stock markets and riskier assets across the world plummeted, with tech companies bearing the brunt.
In a world where much of trade and international debt is denominated in US dollars, the impact on the real economy is significant. Everything from electricity tariffs to ride-hailing prices in Singapore have increased.
TECH COMPANIES CHASED GROWTH OVER EFFICIENCY
How have these factors contributed to tech layoffs?
During the pandemic, there was a big opportunity for tech companies to scale. Some companies burnt through cash to grow, so efficiency was not the top priority. They hired aggressively to expand as quickly as possible.
To attract fresh talent, some offered such high compensation and benefits that they might have influenced the “Great Resignation Wave” – where employees were picking jobs instead of the other way around. Companies like Twitter were among the first to encourage work from home. Others like Google offered extra weeks of family care leave – some like Amazon even subsidising backup childcare.
But in 2022, pandemic winners from Zoom to Netflix have announced lower-than-expected consumer growth. Within the region, Grab faced tumbling share prices and has yet to reach profitability.
Recent layoffs are part of a cost-cutting exercise, as tech companies now pivot towards efficiency.
As the industry matures, the number of new customers a tech company can acquire naturally reduces. Tech leaders have seen this happening before and during their heyday, have been expanding their product offerings and even expanding into other countries.