IBM joins growing list of US tech giants to scale back China operations, lays off over 1000 employees

IBM has become the latest American company to scale back its operations in China, reflecting growing 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.

As a result, American tech companies like IBM and Microsoft are beginning to explore other regions to house their operations, signalling a shift away from China as a primary base 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.

IBM has been facing increasing competition in China in recent years, a challenge acknowledged by the company’s executive, Jack Hergenrother, during a virtual meeting with employees. The company plans to relocate its R&D operations to other overseas facilities, marking 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 changes, IBM has reassured its clients that the downsizing will not affect its ability to support customers across the Greater China region. An IBM spokesperson emphasized that the company adapts its operations as necessary to best serve its clients, suggesting that while the R&D presence in China may be reduced, IBM remains committed to its customer base in the region.

The big picture
IBM’s decision is part of a broader trend among American tech companies that are reducing their footprint in China due to rising geopolitical tensions and increasing competition from local firms.

In May, Microsoft also began to scale back its operations in China, asking hundreds of employees to consider relocating to other countries as it sought to reduce its cloud computing and AI research activities in the country. This move by Microsoft reflects a growing concern among US companies about the risks associated with maintaining a significant presence in China.

Additionally, US venture capital firms have started pulling back from investing in Chinese start-ups, indicating a broader withdrawal of American investment from the Chinese market.

This trend suggests a re-evaluation of the risks and benefits of doing business in China, particularly in the tech sector, where the Chinese government’s push for self-sufficiency poses a significant challenge to foreign companies.