Background
Amazon, Airbnb, Blinkit, BlueStacks, BYJU’S, Cars24, Cineplex, CityMall, Clear, Coinbase, Conde Nast, DiDi, Ford, Furlenco, HP, Klarna, Lido Learning, Meesho, Meta, MFine, Microsoft, Netflix, Noom, OkCredit, Peloton, Primark, Robinhood, Royal Mail, Rupeek, Spotify, Shopify, Tesco, Tesla, TikTok, Trell, Twitter, Uber, Udaan, Unacademy, Vedantu, Walmart, Zomato, Zillow – This is not a list of companies in the tech industry. This is a list of tech companies who have announced to lay off employees this year, and this yet doesn’t cover the other companies who have announced to freeze hiring. Every week there’s a new headline that a particular company in the tech sector is beginning its layoffs. At the beginning of the year, the companies and the numbers were smaller, however, towards the end of the year, even behemoths of the industry like Meta and Amazon have also joined the bandwagon. The tech industry is going through major turmoil this year as many companies have announced to lay off employees. Many corporations are witnessing their highest-ever layoffs since their incorporation. On a broad level, some common reasons quoted for layoff by the companies are – a) Inability to adapt to the new world after the lockdown and pandemic b) Rising inflation c) Financial difficulties d) Slowdown of investor funding e) Ukraine invasion by Russia whereby many companies have stopped doing business with the latter f) Cost cutting and inefficiency of the workforce g) Restructure and modernisation of the company. The reasons quoted by the companies are different from case to case, however, the result is the same – layoff employees. And it’s not just a few companies or companies of a particular region, or a particular niche activity – the phenomenon is everywhere. Is this an indication of something bigger than the public eye can perceive? Is the tech industry going through a recession? Is the tech bubble about to burst? Is this the end of the startup frenzy? There’s a lot that we can ponder.
Overhiring during pandemic
In many ways, the current round of layoffs is to fix a mistake previously made. During the pandemic, there was no work commuting, no Saturday nights and no outdoor hobbies. Everyone was forced to stay home and spend more time online. Online shopping became the only mode of shopping, the streaming services took the places of cinemas, and food delivery services replaced dine-outs, lunch breaks and date nights. Despite the global turmoil, the upsurge in online activity led to a boon for the tech companies and they pulled in record levels of revenue and thereon profits. This fueled a hiring frenzy with fat salaries and larger benefits. Many companies believed that this was the beginning of a new normal and that this shift to work from home would become a new permanent. So, the tech companies expanded their teams, created new ones and grew at a very fast rate. Most companies hire additional employees in every team although there wasn’t enough work for all the employees hired to ensure the smooth functioning of work and protection against health emergencies due to the pandemic. This is a common phenomenon in the tech industry. Hence, most of the companies who are laying off employees had likely overhired during the pandemic to sustain higher usage. However, the world has mostly returned to normalcy after the pandemic and therefore, those extra employees hired are of no use to the tech companies.
Potential recession
The overhiring wouldn’t have been a major concern if there were healthy growth prospects in the tech industry. Hiring too many people a little early before a growth outbreak isn’t a big problem, as most employees would need training and gain acquaintance in the new work environment. If new clients or assignments are 6 to 12 months away then having too many employees on the payroll isn’t going to break the bank for stalwarts like Meta or Alphabet. However, with a recession looming on the head, the short-term future for tech companies doesn’t look rosy. It’s been in the news for months now that the United States is heading into a recession, Brian Armstrong, Elon Musk, Mark Zuckerberg, Jeff Bezos and many others have already called out the same. Recession entails lower consumer spending and, therefore, for many tech companies, lower advertising spending. Thus, with a recession in sight, tech companies have to realign themselves from the hiring frenzy during the pandemic to the cost-cutting measures in the recessionary times and the same has begun to reflect in the layoffs.
