IBM Reportedly Closing R&D Division in China, Affecting Over 1,000 Jobs

IBM's Plan to Shut Down its R&D Division in China

Shanghai's business and financial media outlet, Yicai, reported on Monday that International Business Machines (IBM) is planning to close its research and development (R&D) division in China. This move is expected to affect over 1,000 employees. The decision comes amidst China's economic slowdown and the increasing trend of US companies exiting the world's second-largest economy. These companies are opting for 'friend-shoring' or 'reshoring' to secure their supply chains amid the vast uncertainty caused by the deteriorating Sino-US relations.

Impact on IBM China Development Lab and IBM China System Lab

Yicai detailed that the IBM China Development Lab and IBM China System Lab would be wound down, and over 1,000 employees would be laid off.

IBM's History and Future in China

IBM's R&D division's closure in China marks a significant turning point in the company's 40-year presence in the country. China was once IBM's most well-established regional market outside of the United States. The company had previously shut its China Research Lab in January 2021, which was known for its main product, Watson, a computer system launched in 2011 that can answer questions in natural language. One IBM employee expressed regret over the closure, stating, "I've served IBM for several decades, and the shutdown of its Chinese R&D division is a pity." However, a person who has worked in many US software companies told Yicai that the closure would only impact testers, who are not responsible for R&D in the strict sense. They added that "IBM actually moved its entire R&D division to the US years ago." IBM China stated that the company would adjust its operation based on needs, and these changes would not impact their ability to support customers in China.

The Trend of 'Friend-shoring' or 'Reshoring'

IBM's decision to close its R&D facilities in China is part of a broader trend of 'friend-shoring' or 'reshoring.' This trend sees US companies moving toward friendlier, more stable environments amid deteriorating US-Sino relations. In recent years, Apple's move to diversify its production from China to India and other countries suggests that this trend will continue through the end of the decade. Companies exiting China are turning to the Americas, such as the US and Mexico, India, Japan, Vietnam, Indonesia, and Japan. The significant shift of Western companies out of China, coupled with the nation's property crisis and demographic winter, suggests that the high growth rates of 8, 9, 10, and 11% may not be achievable in this decade. Instead, growth rates of 2, 3, and 4% may become the new normal, and these rates might be even lower in the next decade.

Bottom Line

The reported closure of IBM's R&D division in China is a significant development, reflecting the broader trend of 'friend-shoring' or 'reshoring' by US companies. This trend, coupled with China's economic slowdown, could potentially reshape global economic dynamics. What are your thoughts on this development? Do you think this trend will continue, and what could be the potential implications? Share this article with your friends and spark a conversation. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.