Mass layoffs in Chinese internet companies hint at sector’s growth toward quality and efficiency

By Zhang Dan Source:Global Times Published: 2018/12/24 18:23:39

Mass layoffs in Chinese companies hint at sector’s growth toward quality and efficiency

A user uses Zhihu app. File photo: VCG

Before the Chinese New Year, internet companies in China have been going through a cold winter. For people who work in the industry, they are worried about being laid off.

Several big internet companies in China have been reported as cutting jobs since early December, including online travel app Qunar, consumer website Meituan-Dianping and Zhihu, a Quora-like question-and-answer website in China.

A former employee at Qunar told Caixin its q+ project, under the big accommodation division, has laid off more than 100 people as of December 22.

Qunar acknowledged to the Global Times that the project didn't meet its expectation and was closed now, but that only 57 people had left the company within the last two weeks.

"This was the result of normal performance assessment rather than the so-called 'layoffs' described on social media. All of our processes obey the law," Qunar said, emphasizing every year the company has such an optimization index of its personnel.

Meituan-Dianping gave the Global Times almost the same explanation regarding the rumors of its recent layoffs, noting that the scandal of Meituan layoffs is not true.

"There are around 2,000 fresh graduates working in Meituan. The adjustment of graduates is within the normal range. It was a rumor on the internet saying a great number of fresh graduates were laid off," Meituan-Dianping said.

Out of the 51,207 employees at Meituan (as of the end of June), only around 0.5 percent of them (approximately 256 people) were affected by layoffs, the company said.

Although most companies denied mass layoffs and gave the explanation as optimizing business and staffing structure simultaneously, industry insiders told the Global Times that there are indeed significant layoffs in the internet industry and the external business environment plays a bigger part in the downsizing than company's internal problems.

The internet industry has developed so well in China in the past 20 years with an impressive number of internet users growing year after year, but has hit a slowdown in growth levels at present, said Liu Dingding, a Beijing-based internet analyst.

He noted it's very difficult to have an ever larger number of internet users in China due to its slowly growing population.

China has 802 million internet users by June, according to the data from the China Internet Network Information Center (CNNIC), which is more than the combined populations of Japan, Russia, Mexico and the US, Bloomberg reported.

"After we hit 800 million internet users, we are now suffering from a slowdown in growth rates as there won't be significant population growth in the coming years. Once the growth of internet users slows down, the industry will decelerate," Liu said.

Conflict explanation

However, for those who remain within the internet industry, it has been a difficult winter so far.

A woman who only spoke on condition of anonymity was one of the internet people who were forced to leave her former employer, Zhihu. She was made aware of the changes when she was locked out of her user account in early December. In her words, it is a "simple and direct way" to tell you: "You're fired."

"Although having heard about the recent layoffs in Zhihu, I had never imagined it would happen to me," the woman told the Global Times, after she has been working in the internet industry for more than three years.

Most people who were called to the director's office were obviously not prepared for the loss of their jobs, just one month before China's Spring Festival which falls on February 5.

"The layoffs started with the commercial team, then the Zhihu University, and then the community team…" she told the Global Times, "It feels like I was given up by the one who I truly love," but she didn't cry like most of the others did in the office, who were unprepared for the layoffs.

Since December 11, many Zhihu employees posted content about layoffs on the workplace social app Maimai.

Zhihu told the Global Times that the layoffs and cutting business lines were all fake news, and instead, it was part of the company's normal employee turnover as well as structure optimization.

"It is a structural change of our company. It will help simplify our teams and clarify the job responsibilities of each position within those teams," Zhihu responded to the Global Times' inquiry.

Industry future

Industry analyst Liu said it is a trend to cut off the sectors with low output-input ratio and keep the lucrative or potentially lucrative teams in the internet companies.

He also noted some replaceable jobs could be taken over by machines or systems in internet companies, which could also result in the mass layoffs. For example, in the past, a total of 10 engineers are required to manage 1 million users, therefore, 100 engineers were required to manage 10 million users. Now, with the technology of cloud computing, 10 engineers can manage 1 million, 10 million, even 100 million users.

Liu sees the positive side of the slowing development in the internet industry, calling it the survival of the fittest. "Some bankrupt and uncompetitive companies were weeded out. Those that can survive in such a difficult time mean they are approved by users and the market. Therefore, they will better be able to serve the market, which is a positive thing," he said, noting that every economic crisis is like a sifter - sifting the bad and leaving the good.

Li Yi, a senior research fellow at the Internet Research Center under the Shanghai Academy of Social Sciences, echoed Liu, saying Chinese internet firms will not enjoy the stunning growth rate they have in the past. "Many internet startups in China went through disappointment in the last two years, such as fintech and the sharing economy," Li said.

Regarding the next step for Chinese internet companies, Li raised concerns for their internationalization strategy.

After the domestic market became saturated, some internet companies may try other areas worth exploring, whilst others may consider expansion into the global market. "However, internationalization is not as simple as people imagine. It doesn't mean as long as you have a good user experience, you will succeed," Li said, noting that politics now could also weight on internet company's international development.

"US and some European countries may be alert to Chinese internet companies' rises. Huawei is only an epitome," he said.

Both experts agreed Chinese internet companies will slow down their pace of growth in the next coming five to 10 years with a focus on providing more quality and efficiency.
Newspaper headline: A cold winter in internet industry


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