UPDATED 22:17 EST / MARCH 19 2019


Tencent follows other Chinese internet firms with major staff cutbacks

China’s Tencent Holdings is laying off about 10 percent of its senior managers as part of a major organizational restructuring plan, according to local media reports.

The move is the latest in what appears to be a growing trend by Chinese internet giants to cut back on their workforces.

Chinese news website 36kr cited unnamed sources as saying that the layoffs began in December following an internal staff meeting, and are mostly targeted at its middle management. Some 200 workers, including general managers, assistant general managers, deputy general managers and a few vice presidents have been laid off so far, said a second report from Bloomberg.

Tencent hasn’t confirmed the layoffs, but the report said the reorganization is designed to clear the way for younger executives to play a more prominent role at the company. Fresh blood is needed, since fewer than 10 of Tencent’s director-level staff are under 30 years old, the report said.

The cutbacks come in a week when Tencent is scheduled to report its quarterly earnings. Bloomberg said analysts are forecasting a 16 percent drop in net income in the December quarter, which would be the company’s largest decline in at least a decade.

Tencent’s apparent restructuring is being mirrored by several other Chinese web companies, according to other reports. For example, Baidu Inc., China’s biggest search engine, last week announced an executive retirement plan that will see much of its incumbent management team slowly replaced by younger staff born after 1980.

Another Chinese firm, the e-commerce giant JD.com Inc., said in February that it’s also planning to cut about 10 percent of its top executives. Also last month, China’s leading ride-hailing firm Didi Chuxing Technology Co. Ltd. said it’s planning to cut about 2,000 staff members, which amounts to 15 percent of its workforce.

Other Chinese firms, including Huawei Technologies Co. Ltd. and Alibaba Group Holding, are also reportedly planning staff cutbacks.

Some experts have speculated that the Chinese layoffs are due to the ongoing trade war with China and the U.S. or the current slowdown in China’s economy, but analyst Rob Enderle of the Enderle Group told SiliconANGLE the real reasons are more nuanced.

“I think what is happening at Tencent, and this often happens with fast growing companies, is that span of control got too small, resulting in excessive complexity and an inability to execute,” Enderle said. “That often results in a middle-management purge.”

Enderle said such purges are common in the U.S. too, but they usually don’t happen all at once. In China’s case, many of its biggest tech companies have grown in parallel to one another, so it seems they could be all hitting the same problem at once, he added.

“It isn’t uncommon for companies to emulate what they see their peers doing,” Enderle said.

Still, Enderle warned that such widespread layoffs could be risky for Tencent and the others, as critical employees could also be dismissed without those companies realizing just how important they are.

“Often there are critical employees who assure success but they don’t get the credit they deserve,” he said. “You can accidentally lose a critical number of critical people. Layoffs are like doing surgery with an axe, and I expect one or more of these firms will learn this lesson the hard way.”

Photo: Tobias/Flickr

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