Tech disrupted by reality
published : 20 Jun 2022 at 04:30
newspaper section: Asia focus
When Covid-19 emerged more than two years ago, millions of people including myself suddenly found ourselves stuck at home. To survive the unprecedented challenges and stress, I started to befriend mobile apps I hadn't used before to buy things and pay bills online, among them the e-commerce platform Shopee.
I was attracted to Shopee basically because of heavy promotions such as price discounts and free shipping. Later, I switched to other apps and used Shopee less often. But Shopee's big, celebrity-heavy TV promotions led me to believe the e-commerce arm of the Singapore-based Sea Group was doing fine.
So, it surprised me when I heard that Shopee is laying off staff across Southeast Asia including Thailand, Indonesia and Vietnam. Affiliates ShopeePay and ShopeeFood are also facing cuts so that the company can "optimise our operations in certain segments and markets", according to a June 13 memo from group president Chris Feng.
"Given elevated uncertainty in the broader economy, we believe it is prudent to make certain difficult but important adjustments to enhance our operational efficiency and focus our resources," he wrote. "This is to ensure that, as a business, we remain in the best possible position to continue scaling sustainably and, ultimately, to win."
The total number of Shopee employees affected is not yet known. According to LinkedIn, Shopee employs over 48,000 people worldwide. But nearly half of its payment and food delivery teams in Thailand are said to be affected. It will also cut staff in Mexico, Argentina and Chile.
The company says it is "rationalising" its e-commerce business as rising inflation and high interest rates have hit the startup ecosystem globally. It has also reportedly put a freeze on hiring.
The layoffs represent further pullback, following a withdrawal from India in March, months after starting operations there. The exit came just over a month after the Indian government banned the Sea-owned gaming app Garena Free Fire. In the same month, Shopee shut down operations in France, which it entered last October as part of a European push. A pilot project in Spain will also be scrapped.
New York-listed Sea actually beat first-quarter revenue estimates last month, driven by improvements in its core e-commerce business in Southeast Asia and Latin America. Total revenue jumped 64.4% year-on-year to US$2.9 billion, against analysts' average estimate of $2.76 billion. It is still losing money, though its net loss of $580.1 million was lower than the $722 million expected by analysts. But its shares are down 80% from their high last October.
Shopee is still losing money despite a 71.3% year-on-year increase in orders to $1.9 billion in the first quarter. Gross merchandise value rose 38.7% to $17.4 billion and the gross profit margin rose, helped by faster growth in transaction-based fees and advertising income.
Given how most tech companies are focused relentlessly on growth, cash burn and inefficiencies are expected. Like its peers, Shopee's strategy has been to achieve scale first, and only solve inefficiencies when they become a problem.
Many established corporate entities execute restructuring, cost cutting and layoffs once every few years -- in tech companies, like everything else, the cycle is compressed; but essentially, they serve similar objectives -- to become leaner and more efficient and, hopefully, more profitable.
Chinese tech companies have been using "winter is coming" and "everyone is doing it" to justify layoffs almost every year. This year will be no different amid a lockdown-linked economic slowdown.
Elsewhere in tech, the crypto meltdown is taking a toll, with Coinbase, the largest US digital-asset trading platform, announcing plans to lay off 18% of its staff. Netflix, seeing slower growth in new streaming customers, let go 150 people from its 11,000-strong workforce, along with contractors and part-timers. Meta, Facebook's parent, has paused hiring for several units, triggering fears of layoffs among employees.
The e-commerce business is highly competitive and heavy investment is required to win customers' hearts. Now, macro headwinds, including inflation and rising interest rates, pose new challenges as they may dampen consumption demand. Consumers are also rediscovering offline stores as Covid restrictions end.
Shopee's layoffs, though not a surprise to some, may signal more cuts in the e-commerce business. It just goes to show that no matter how big you are, the quicker you can adjust to the changing landscape, the better. Disruption can happen at any time and in any business, and the "disruptive" world of tech is no longer immune.
Acting Asia Focus Editor
Acting Asia Focus Editor