The global technology giant IBM, headquartered in New York, has decided to follow the footsteps of many well-known American brands and close some of its operations in China.
Despite IBM’s management maintaining a professional tone in their public statement, it is apparent that the underlying message reflects a similar attitude to other American companies. Cutting off longstanding business connections with China abruptly poses significant inconvenience and massive expenses for American companies. However, losing the expertise and business intelligence provided by these international business relationships is of little benefit to the Chinese Communist Party.
The public wonders: Can Chinese leader Xi Jinping read between the lines of this statement?
In late August, a senior executive from IBM held an online meeting with employees from the company’s research and development department in China. He informed the attendees that the company would be shifting some operations to other countries. To fill the gap, IBM plans to increase its research and engineering staff in India. It is unclear how many Chinese employees have received termination notices from the company.
Looking back at history, IBM has been doing business in China for 40 years. The company once considered China a major global growth market. For a period, IBM was one of China’s largest telecommunications operators, serving major banks and energy companies in the country. However, this business has seen a decline in recent years, with IBM’s revenue in China dropping for two consecutive years.
Upon announcing this news, IBM management explained that the decision to leave China was about enhancing global customer service and not related to the revenue decline. It is a common assertion for the top management of any company to claim that improving customer service is a primary factor behind their decisions. Undoubtedly, other foreign enterprises leaving China also have various reasons for their actions.
Firstly, the rapid increase in labor costs in China far exceeds that of India and other regions in Asia. Furthermore, in recent years, Chinese companies have been capturing market share from many overseas companies, including IBM, partly due to the increasing complexity of technological competition. However, the main reason is the Chinese government’s “Decoupling from America” campaign, which mandated national institutions and state-owned enterprises to use domestic products instead of foreign equipment.
Meanwhile, the Chinese government’s growing concern for national security has led to increased intervention in the operational activities of foreign companies in China, subsequently raising the commercial costs for foreign companies in the country. As China sets up these barriers, Washington has also strengthened reviews of American companies operating in China, especially in strategic areas like artificial intelligence. The increasingly tense diplomatic relations between Washington and Beijing have added further uncertainties.
IBM’s decision to reduce its business presence in China is not surprising, as many American and global brands have already closed part or all of their operations in China and moved them to other Asian regions. Prominent companies that have done so include Black & Decker, Nike, Hasbro, LG Electronics, and Sharp. Moreover, leading global technology companies have downsized their operations in China, such as Apple, Dell, Hewlett Packard, Intel, Google, Oracle, and Quanta Computer, among others. This is just a few examples, as nearly 30 American and global brands have either completely or partially withdrawn from China. Each company has its own business considerations but inevitably faces various pressures imposed by the Chinese government.
Undoubtedly, the departure of these multinational corporations has taken away certain elements from the Chinese economy, which could have otherwise aided the struggling economy. Since the reasons behind the withdrawal of these foreign companies are largely related to the actions of the Chinese government, people can’t help but question whether Xi Jinping can see the tremendous damage that the high-pressure policies of the Chinese Communist Party have inflicted on China.