Author: Faizal Bin Yahya, NUS
2022 saw big tech companies retrench thousands of workers globally. The trend highlights that the era of cheap capital flooding the market and fuelling accelerated growth is over, as rising interest rates kick in to tame inflationary pressures.
Many high-growth tech companies hired too aggressively during the COVID-19 pandemic to meet the unprecedented demand for digital goods and services. Instead of hiring contract workers for greater flexibility in workforce management, companies overcommitted by hiring full-time workers with inflated salaries and compensation packages. In Singapore, internet company Sea aggressively hired engineers by offering to double their salaries in comparison to their competitors. Sea had 67,300 employees at the end of 2021 — a 99.1 per cent increase from 2020.
Waves of layoffs began in Southeast Asia. In Singapore, which hosts 80 of the world’s top 100 tech companies, job openings in the tech sector fell from 9200 in July–August 2021 to 8850 in April–May 2022. Hiring trends have also become more decentralised with the rise of remote work and the expanding gig economy.
GoTo — a merged entity of ride hail company Gojek and e-commerce player Tokopedia — announced in November 2022 that 12 per cent of workers — 1300 people — would be laid off. GoTo’s layoffs, which were triggered by losses of US$1.29 billion in the first nine months of 2022, were needed to support its long-term sustainability.
Sea — a gaming, e-commerce and financial services platform — retrenched 7000 workers, or 10 per cent of its total workforce, in the second half of 2022. Start-ups including Indonesia’s Lummo and LinkAja, Singapore’s Crypto.com and Malaysia’s tech unicorn Carsome have similarly reduced the size of their regional workforces. Bigger companies such as Amazon, Meta and Shopify have also begun laying off their workforce in Southeast Asia.
Many start-ups are cautious about scaling up too rapidly given the uncertainty in the global economy. Big tech companies expanded quickly during the pandemic in response to altered consumer behaviour caused by lockdowns and the rise of remote working. As consumer lifestyles revert to their pre-pandemic mode, spending behaviour has shifted from shopping online to in-person shopping and travel. Concern over rising inflation rates has also curbed consumer buying sentiments.
In 2022, the rising cost of capital forced companies to seek sustainable growth instead of ‘burning cash’ to acquire market share. Companies, especially smaller ones, find it difficult to secure capital amid rising interest rates. With a global recession looming, continued supply chain disruptions and increasing inflation, tech companies’ dependence on funding to ‘stay afloat’ will increase. When the tech industry is able to reduce its reliance on loans, companies will need to consolidate their resources to restructure and build workforces that are more adaptable to changing consumer preferences.
Layoffs will likely continue into 2023 and possibly 2024 as tech companies are still losing money. In Singapore, eight out of ten employees that were retrenched worked in non-tech roles such as sales, marketing and corporate functions. In contrast, workers in the information and communications (I&C) sector have been able to secure employment in other sectors such as financial services. Job vacancies in the I&C sector continued to increase from 11,100 in December 2021 to 12,100 in June 2022.
One silver lining is that some start-ups and tech companies are scaling up their I&C services, so there is an opportunity to attract and retain tech talent that was previously unavailable. Regional recruiters have also seen an increase in applications from former employees of big tech firms like Meta, Twitter and Amazon in areas such as product development, data analytics, software engineering and human resources technology.
The long-term impact of market volatility on big tech companies will be limited for a number of reasons. The demand for tech jobs and talent will continue to exceed supply as economies in the region become more digital. Emerging tech markets such as Vietnam have reported significant hiring growth as companies attempt to diversify their business locations to make their global value chains more resilient.
Southeast Asia’s internet economy will reach US$363 billion by 2025 — surpassing the previous forecast of US$300 billion — which will increase the demand for tech workers in the region. This growth will also provide more business opportunities and pressure non-tech companies to mirror developments in the tech sector.
Despite the losses and layoffs, investors are still interested in tech companies with sustainable business models. Venture capital funds focussed on Southeast Asia raised US$900 million in 2022 — the same amount raised in 2021. With inflation rates expected to ease in late 2023, digitalisation will remain the key driver of a strong economic recovery.
Dr Faizal Bin Yahya is Senior Research Fellow in the Governance and Economy Department of the Institute of Policy Studies, National University of Singapore