Big Blue leaves

IBM research unit quits China. Why are foreign firms leaving?

It’s known as Big Blue, but in recent years IBM has been better known for singing the blues after disappointing financial results. On a global level, the company is trying to fight back by re-organising itself in a bid to capitalise on cloud computing and artificial intelligence.

But that’s not the story, which is making headlines in China. Instead, the domestic media reports that IBM has just shut its local research institute, one of 12 worldwide. The closure is being described as the end of an era not just for IBM, but for foreign companies as a whole after Yahoo closed its research centre in 2015, followed by Oracle in 2019.

It’s especially symbolic given how long China has been in IBM’s sights. Its history there represents a microcosm of wider Sino-US relations.

In 1928, Otto Braitmayer, one of the original employees from the Tabulating Machine Company that morphed into IBM, set sail to China with a view to growing the business there. IBM formally set up shop a few years later in 1936, only to close down again after the People’s Republic of China was founded in 1949.

The company’s fortunes then foreshadowed a thaw in Sino-US relations a few decades later when it came back (soft of) in 1971 after IBM programmer Jack Howard captained the US national table tennis team in a visit dubbed ping-pong diplomacy. The more formal breakthrough occurred one year later when US president Richard Nixon visited Mao Zedong (for more on that historic grip and Margaret Macmillan’s excellent book about it, see WiC12).

IBM was then at the vanguard once more in 1979 when China’s reformist leader Deng Xiaoping launched the country’s Open Door policy and foreign companies started streaming back. In 1995, it became first multinational to establish a China R&D centre.

Its latest move underscores the accelerating Sino-US decoupling. “The wheels of history are rolling forwards,” says one netizen.

A Huixu.com article concludes that, “the wonderful sight of foreign company employees wearing their suit and ties, drinking coffee and speaking English is disappearing.”

The reasons are well worn as WiC has frequently reported. Sino-US tensions make China a less hospitable operating environment and labour costs are rising. One foreign employee tells Huxiu.com that his company found that it’s now cheaper to hire staff in Hong Kong and Taiwan rather than on the mainland.

Another factor is that the prestige of working for a foreign firm is not what it once was. “When I was looking for a job, IBM was the company that many students dreamed off,” one former employee told QQ.com.

But today, there’s the competing appeal of local unicorn start-ups and homegrown tech giants. The ex-IBM employee added that, “the BAT troika pay a lot more money than IBM now and there’s an element of national pride working for them.”

However, another tech staffer told QQ.com that they still prefer working for foreign companies like IBM because they offer a better work-life balance than the 996-culture (9am to 9pm, six days a week), that many Chinese tech companies operate under.

“There’s more opportunities working for a foreign company as a woman,” one of IBM’s former female employees added. “My new employer has gender and age preferences and girls are pushed into operational, or communications roles. I want to work at the sharp end of the tech industry.”

One of the other notable aspects about IBM’s Chinese media coverage is the racist attention focused on its new CEO, Arvind Krishna. The long-time IBM staffer took over last spring and is one of the main drivers behind the re-organisation, having previously overseen its cloud and cognitive software divisions.

However, it’s his Indian nationality that interests certain netizens more as well as the domestic media, which has been re-publishing their comments. “Another tech champion destroyed by Indians,” fumed one netizen. “Why are there so many Indian running foreign tech companies?” queried another. “Perhaps this explains why they’re facing issues.”

Krishna was born in India, but studied in the US and then stayed there. That’s viewed in a negative light too. “If a country’s talent works in a foreign country, then that shows there aren’t enough jobs locally,” another netizen scoffed. “There’s not much future for countries whose talent runs away.”