It was a bolt out of a blue for the industry when the tech giant google announced Tech Layoffs and terminated 12,000 employees overnight which is around 6% of their workforce worldwide. Next morning after the layoff, Sundar Pichai’s letter was all over the internet media. Yes, mass layoffs by a tech giant which was perceived to have very strong business fundamentals and an employer everyone wanted to work with took such an unanticipated and drastic step.
There were heartfelt messages by many terminated employees and people started sharing their opinions about the trigger of layoffs and the strongest one was the launch of ChatGPT and the opinion got stronger foothold when Microsoft made an announcement of long term investments of multi billion dollars in the OpenAPI, the organization who rolled out ChatGPT.
I think that alone is not the only cause. Prior to this mass layoff by tech giant Google, many other tech giants also laid off. In 2022, some of them as below:
| Tech Giants | Number of People Laid Off |
| Amazon | 18,000 |
| Alphabet (Parent Company of Google) | 12,000 |
| Meta | 11,000 |
| Microsoft | 10,000 |
| Salesforce | 8,000 |
| HP | 6,000 |
| 3,700 | |
| Seagate | 2,000 |
*Source: Bloomberg
Aside from the above organizations, there were around 1,50,000 layoffs in 2022 by tech giants as per the site Layoffs.fyi and the highest ever layoffs in a month since 2000 were in November 2022.
The layoffs continue in 2023. The January, 2023 woke up with the news of Alphabet layoffs with negative sentiments soaring all over. As the dust settles of Google layoffs, the more pragmatic views are coming up about tech industry being in such gloomy shape.
“It’s a recession when your neighbour loses his job; it’s a depression when you lose yours.”
Some of the Compelling Reasons for the Layoffs Are As Under:
Looming Cloud of Recession
Many top notch economists have predicted and cautioned regarding economic recession. International Monetary Fund and The World Bank have already cautioned economies to get prepared for slow down.
Due to envisaged geopolitical tensions, Europe and US are anticipated to do monetary tightening.
Technology is one of the biggest sectors and many IT firms are cutting down on their spending to and getting prepared for potential slowdown. Given the caution, many new initiatives by the IT firms where investment is required have been put on a back burner. Google has made cost cutting moves in cancelling the next version of its pixelbook and has shut Stadia, its cloud gaming service arm. Likewise, majority tech giants are focussing on their cash cow and profitable offerings.
Recession is not just for individuals; entire nation gets affected
Digitization Initiatives During Pandemic
During Pandemic, for businesses to remain viable, digitization was a must. To get digital ready, virtually every sector ramped up the recruitment of resources. Fintech and Retail were two major sectors. The digital customer interfaces were developed by sky rocketing speed. However, the majority of the technical resources hired for the digitization objective became redundant after the development work was over resulting in layoffs.
Rise in Interest Rates Globally
Persistent price escalations put central banks under pressure to opt for monetary policy tightening since 2022. After a long halt, virtually every central bank increased the interest rates. The interest rates are not looking to get under control any time in near future. The conventional wisdom says that shoppers would cut down on expenses if the inflation is high. Manpower is the major cost that gets optimized first in such situations.
Reduction in Consumer Market Demands
There is a weak consumer demand. Compounded by geopolitical crisis, the inflation too has escalated in majority of the economies of the world – UK, US, India, Japan and Europe. When things were looking to get better, the war between Ukraine and Russia jeopardized the key trade route. At the end of the day, technology is there for people and consumers. Any negative impact on consumer markets will cascade to tech organizations which will lead to cost cuttings hence layoffs.
Enforcement Measures by Investors
As per Reuters report, Alphabet’s layoffs were due to the pressure of investors to adopt an aggressive strategy to reduce spending. In November last year, TCI fund management said that Alphabet has too many employees and the cost per employee is too high. There has been a similar outlook of investors in every IT company they have invested in. At this stage, they want to minimize the risk of the capital that they have invested as most of the IT ventures are long shot before they get return. In such an economy, it’s only cost cutting that reduces the exposure of investors.
As the fear of recession looms, the layoffs are not limited to tech companies, the heat is being felt in other sectors including retail, finance healthcare and power sector. Goldaman Sachs, Citigroup, Jhonson & Jhonson and Apron holdings are few examples from these sectors that have laid off employees.
Things are not that bad for India as compared to other economies. The credit access to SME’s has increased drastically and new employments opportunities are emerging.
The economic cycles are inevitable. Let’s embrace these times and hope that future holds good – the tech in the long run is only going to grow and create opportunities like always!!
