Tech companies laying-off employees in hordes in the name of rightsizing as sustained revenue growth become hard to come by
Fans of popular web series ‘Game of Thrones’ would be familiar with the phrase ‘Winter is Coming’ which is indicative of something bad or unpleasant that is going to happen. For tech companies in the US and other major markets there seems to be a long winter ahead of them as recession looks imminent in the world’s largest economy.
In a spate of lay-offs, top companies have handed over pink slips to their employees and technology companies are ‘firing’ on all cylinders. We have seen companies like Amazon, Meta, Disney and Twitter doing this in the name of restructuring or right-sizing. The latest to join the bandwagon is Cisco which will lay-off nearly 4000 employees, according to media report.
Amid a gloomy growth scenario companies have started preparing for what is now being seen as a long winter ahead. The companies are looking to cut cost in the name of restructuring or rightsizing, as revenues become thin.
In Line of Fire
Tech employees have primarily been in the line of fire. An NDTV report suggests that over 2 lakh employees have been asked to leave US tech behemoths like Meta, Amazon, Twitter, Lenovo, Sales Force, Adobe and Cisco.
Employees of Salesforce are staring at another round of sacking after nearly 2500 people were asked to leave earlier.
Lay-off by companies like Meta and Twitter was difficult to even imagine may be a couple of year ago but it has happened as once the deep-pocket companies are now grappling with eroding revenues with future looking further downhill.
First to announce massive lay-offs was Facebook’s parent company Meta Platforms Inc. The Menlo Park, California headquartered company sacked over 11,000 employees and has now put a freeze on new hiring.
Twitter’s ordeal was more dramatic with maverick businessman Elon Musk taking over the reins. He fired almost the entire Indian team. Intel and Netflix are other top companies who have handed over the pink slips to their employees.
Impact in India
With big companies in the developed world already struggling to put their own houses in order, it will become hard for Indian companies to raise funds. The impact will likely be seen in the Indian start-ups as well.
Indian tech start-up story draws a similar picture. The biggest let down has been the Byju’s story. The ed-tech unicorn has reportedly sacked 2,500 employees. The tale does not end here. A New Indian Express report suggests that over 17,000 employees have been sacked from top Indian start-ups Oyo, Meesho, Chargbee, Vedantu, Unacademy, MPL and Innovacer.
Indian startups, many of which have now become unicorns have benefitted from investments from overseas. But the problem for many local companies is profitability. Top global investors have put their money on many of these new-age start-up turned unicorns on their potential to capture market share, overlooking the profitability aspect.
In a tighter global economic situation, these start-ups will find it hard to depend upon overseas investors for funds. The problem becomes more peculiar now as raising domestic capital in face of low profitability will be all-the-more, hard.
After seeing what is happening with companies like, Nykaa, PB Fintech – parent of Policy Bazaar, Paytm and Zomato, investors, especially retail ones will find it hard to put their money in new-age companies only on buzz. This in return will make it difficult for companies to raise money from the markets.
It could be a big roadblock for smooth running of operations, new hiring and sustain the current staff.
Zomato recently announced retrenchment of three per cent of its work force.
The Road Ahead
November inflation numbers have been kind in the US and have come below the estimates. That has rejoiced the economists, markets and other stakeholders. It is already being said that the inflation has seen its peak and is now on a downward trajectory.
The world’s largest economy has seen inflation not witnessed in more than four decades. The cost of living has risen exponentially in the US prompting country’s central bank to swing into action. The US Federal Reserve has hiked interest rates from zero to around four per cent. In its commentary, Fed has unequivocally said that its priority remains price stability and bringing inflation to levels of two per cent.
At 7.1 per cent Consumer Price Inflation (CPI) is still three times the targeted rate and it will take immense work from the US central bank to achieve that.
The monetary tightening and rate hikes have not come without a cost. The US economy has slowed down as a result of these hikes. The cost of capital has increased significantly even as inflation remains high, giving a double blow. The worrying part is that Fed is still some distance to arrive at a pivot. The full impact of the rate hike will start reflecting from March quarter and it is being said that recession is round the corner in the world’s largest economy even if it is for a near term.
So, are more job cuts around the corner! Well let us see how it plays out.