Grab’s job cuts show Singapore tech firm not immune to ‘frosty times’ of higher interest rates, slowing economy: analysts
- The cuts follow a global wave of tech lay-offs last year, with Grab’s CEO saying in September that the firm was not at the ‘desperate point’ of cutting jobs
- ‘Extravagant growth’ pursued by firms including Grab in the pre-pandemic era is unlikely to be replicated in the current economic climate, say analysts
Grab chief executive Anthony Tan said in a private letter to staff on Tuesday that the redundancies – amounting to 11 per cent of its multinational work force – were a strategic reorganisation to adapt to the business environment, and not a “short cut to profitability”.
“We must adapt to the environment in which we operate. Change has never been this fast,” he wrote. “Technology such as generative AI is evolving at breakneck speed. The cost of capital has gone up, directly impacting the competitive landscape.”
The “primary goal” of the move, he wrote, was so the firm could “strategically reorganise ourselves, so that we can move faster, work smarter, and rebalance our resources across our portfolio in line with our longer term strategies”.
This is the firm’s first lay-off exercise since 2020, when it showed about 360 employees the door, in response to the pandemic.
It does suggest that the frosty times of extravagant expenditure and a ‘growth at all cost’ mentality may be coming to an end
Last September – as a global wave of tech lay-offs intensified – Grab’s chief operating officer Alex Hungate said that the company had been “very careful and judicious about any hiring” and hence was not at the “desperate” point of cutting jobs.
“Around mid year, we did some kind of specific reorganisations, but I know other companies have been doing mass lay-offs, so we don’t see ourselves in that category,” Hungate said.
But in December, Grab introduced a series of cost-cutting measures which included a hiring pause, salary freezes for senior managers, and cuts in travel and expense budgets.
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In February, Grab forecast an upbeat 2023 revenue and pulled forward its profitability timeline – predicting a break-even on an adjusted core earnings basis from the fourth quarter this year to the second half of 2024.
Singapore-based SEA, which has links to China’s Tencent, cut more than 7,000 jobs last year while Grab’s rival GoTo laid off 600 workers this year, in addition to 1,300 positions removed last year.
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The consensus view of analysts who spoke to This Week in Asia was that the “extravagant growth” pursued by companies including Grab in the pre-pandemic era was unlikely to replicated in the current climate.
The rise of artificial intelligence, cited by Grab’s Tan as among the key challenges his firm faces, was just one of various hurdles the industry would have to overcome, they said.
Assistant Professor Ng Weiyi, from the National University of Singapore (NUS) Business School, said the venture and big tech sectors boomed during the pandemic, as a result of greater demand for e-commerce, logistics and IT platforms.
But the environment had since shifted, with rising interest rates resulting in weakened interest in high-risk and high-reward tech investments, Ng added.
“What we’re seeing does not suggest the existence of a bubble,” he said. “It does suggest that the frosty times of extravagant expenditure and a ‘growth at all cost’ mentality may be coming to an end.”
Lawrence Loh, a business professor at NUS, said the issues were “more industry rather than Grab-specific”, adding that technological developments had created a shorter lead time for the industry.
“Many tech companies now have to deal with dynamic uptake in hiring during tech boom time during the pandemic which resulted in surpluses now in the economic downturn,” Loh said.
Grab’s decision to cut workers has been a result of both internal and external factors such as aggressive hiring during the pandemic and expansion into various new ventures, as well as shifting investor sentiments and the rise of generative AI, say observers.
Tech firms like Grab hire in anticipation of future growth, said Carmen Wee, the founder and CEO of a strategic HR advisory services firm.
“No CEO can ignore generative AI and the implications it has for their business, especially in this current climate,” she said, adding that it had created immense uncertainty and competition for firms.
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On external factors, Adrian Goh, co-founder of tech talent platform NodeFlair, said that investor sentiments had shifted towards “prioritising profitability over unlimited growth”, especially for mature firms like Grab.
“In light of these circumstances, companies including Grab need to make more calculated decisions when it comes to hiring and explore sustainable growth approaches,” he added.
On where the industry was headed next, Ng said it was a cyclical process. “We spent too much too soon, we cut costs, we let people go, and hopefully we will then recover and grow again in a more sustainable, steady way,” he said.
“And if that doesn’t work, the cycle then repeats itself yet again.”
Additional reporting by Reuters
