IBM becomes the latest Western enterprise to withdraw from China's market.
Tensions between the United States and China have escalated in the realm of technologies such as AI and green technology, largely because of security concerns. Several companies have subtly dismissed or relocated staff.
On Monday, Yicai, a Chinese state-run financial news outlet, reported that IBM (IBM) was discontinuing its research operations in China altogether. This included the shuttering of its China Development Lab, established in 1999, and the China Systems Lab, the outlet noted.
IBM didn't comment on the number of job losses or if it would retain any research personnel in China when approached by CNN on Tuesday. In a statement, IBM stated, "We adapt our operations as needed to best serve our clients, and these changes will not impact our ability to support clients across the Greater China region."
Jiemian, another Chinese state-owned outlet, reported on Monday that the job cuts (supposedly affecting staff in Beijing, Shanghai, and Dalian) were announced by Jack Hergenrother, an enterprise systems development executive. He reportedly informed staff that IBM's infrastructure business in China was deteriorating and the research work in the country would be shifted to other labs, potentially including IBM's labs in India.
IBM has a rich history in China; it supplied machinery to a major hospital in Beijing back in 1934 and reentered the market in 1984 after China opened up to the world. At the time, China was viewed as a significant opportunity due to its vast potential.
However, in recent years, that enthusiasm has significantly diminished. The intensifying tech war between the world's two largest economies has made it increasingly challenging for American businesses to operate in China.
David Hoffman, a senior advisor at the Conference Board Asia, explained to CNN that market access for Western firms is increasingly restricted or even frozen in certain sectors in China due to national security concerns. He further commented that enterprise IT, which refers to sophisticated systems used by large organizations to manage operations, is one such area, particularly since state-owned organizations represent a significant part of the market.
Declining revenue
In the statement, IBM noted that Chinese firms, especially privately-owned businesses, are progressively focusing on hybrid cloud and AI technologies and that it aimed to capitalize on these opportunities.
China, which once held great promise for various industries, is no longer the thriving growth market it once was after several years as a growth market. In IBM's most recent annual report, it revealed that revenue in the country had dropped by 19.6% last year.
The IBM announcement follows close on the heels of Microsoft (MSFT)'s confirmation that it had offered to relocate some of its employees in China. Reports indicated that Microsoft had made this offer to more than 100 staff members.
Like IBM, Microsoft has prioritized building good relations in China. It first entered the market in 1992 and relied heavily on its influential research lab, Microsoft Research Lab Asia, to strengthen its influence. Its software is also utilized by the Chinese government and businesses, and Bing is the only foreign search engine with any traction in China.
However, it, too, has faced challenges in light of geopolitical tensions affecting AI and cloud computing research in China.
Many US businesses were persuaded to establish research operations in China years ago due to Chinese incentives and bureaucratic encouragement, according to Anne Stevenson-Yang, co-founder and managing principal of J Capital Research.
"This was once a significant point of pride for the Chinese government. Now, political risk and IP risk are reversing that trend," she told CNN.
Given the current tech war between the United States and China, some businesses are adjusting their operations in China. For instance, IBM has decided to discontinue its research operations in China, affecting its labs in China and potentially shifting the research work to other international locations. This move comes as IBM notes that Chinese firms are focusing on hybrid cloud and AI technologies, but the company's revenue in China has reportedly declined by 19.6% last year.
