IBM to Close R&D Department in China, Shift Research Business Overseas
IBM’s decision to close its research and development department in China and transfer its R&D operations to other countries has garnered global attention against the backdrop of escalating tensions between the United States and China. The tech giant IBM has become the latest American technology company to withdraw some of its operations from China.
In a statement, IBM China stated, “We will adjust operations as needed to provide the best service to our customers. These changes will not affect our ability to support clients in the Greater China region.”
According to reports by The Wall Street Journal, IBM executive Jack Hergenrother informed employees during a web conference on Monday morning that the company is shifting its research capabilities in China to other overseas facilities. Hergenrother mentioned that IBM has been facing increasingly fierce competition in China, with its infrastructure business shrinking over the past few years.
Employees familiar with the situation disclosed that IBM has informed some staff members that the company will be adding engineering and research positions outside of China, including in Bengaluru, India.
As reported by the Financial Times, IBM employees have stated that over 1,000 employees are facing unemployment, spread across various offices in mainland China. These employees work at IBM’s two research-focused labs, the China Development Lab and the China Systems Lab.
The heightened geopolitical tensions between the US and China have led many multinational companies to reassess their operations in China. IBM is not the only American tech giant to scale back its business in China this year. In May, as the US government sought to impose stricter restrictions on advanced AI technology development in China, Microsoft announced plans to relocate hundreds of its cloud computing and artificial intelligence employees in China to other countries.
Reports at the time indicated that the White House was considering new regulations requiring Microsoft and other American cloud computing companies to obtain permission before providing advanced AI capabilities to Chinese customers.
Microsoft’s Asia-Pacific research and development division employs approximately 7,000 engineers, with a majority based in China. Microsoft’s cloud computing and AI teams in China contribute to the global research and development of Microsoft’s core products. However, the tech giant’s cloud computing business and AI research in China have attracted the attention of US policymakers.
Recordings show that IBM has over 7,500 employees in China, with a major office in Dalian. The presence of a large research team in China may complicate IBM’s ability to secure contracts with the US government, a significant client for the company.
In addition to IBM, Microsoft has also faced increasing resistance in China. In 2023, Microsoft shut down its job-seeking app, LinkedIn Workplace, which was focused on the Chinese market.
Against the backdrop of intensified competition between China and the US, the Chinese government has been actively promoting the “Replace America” initiative in the technology industry. This directive has led local governments and state-owned enterprises to procure more technology products from Chinese suppliers, boosting the competitive advantage of IBM’s Chinese rivals while causing a significant decline in IBM’s market share in China. IBM reported a 19.6% drop in revenue in China last year.
The term “Replace America” refers to “eliminating American technology.”
Citing a former IBM employee, the Financial Times reported, “In recent years, IBM has been steadily reducing its presence – this is part of the decoupling process.”
Two employees mentioned that some affected IBM employees in China have the option to be redeployed to other countries, while those who agree to leave within three weeks may receive severance pay based on their years of service.
Another former employee pointed out the challenges facing IBM’s operations in China. “Just like how they sold their ThinkPad laptop business to Lenovo, IBM now has to close the China Development Lab and China Systems Lab. These businesses have not been profitable.”
According to reports by The Wall Street Journal, IBM had once viewed China as a global growth market research center. However, the increasing labor costs and compliance risks have significantly reduced the appeal of its operations in China in this regard. In 2021, IBM closed a China lab that had been operational for over twenty years, focusing on cutting-edge research.
In April, a survey released by the American Chamber of Commerce in China revealed that the increasingly tense relationship between the US and China has been listed as the top business challenge for American companies operating in China for the fourth consecutive year.