Last Updated on 11/21/2022 by てんしょく飯
Twitter has laid off about half of its employees, and Meta (formerly Facebook) has cut 10% of its workforce. What is happening to the IT industry, which has been growing at a breakneck pace?
Fears of a U.S. recession are growing.
Twitter has approximately 7,500 employees worldwide, but when the famous businessman Elon Musk acquired the company, he suddenly laid off half of them. The restructuring is being applied to corporations and branch offices worldwide, and Japanese employees working for the Japanese subsidiary seem to be treated in the same way.
Meta, known for Facebook, has also cut 11,000 jobs, and Amazon, which had already frozen new hiring, is reportedly planning to cut 10,000 jobs.
Until now, U.S. Internet companies centered on GAFA (Google, Apple, Facebook, and Amazon.com) have continued to achieve remarkable growth. However, the reason why these companies are restructuring all at once is because of the growing concern about the U.S. economic recession.
The Federal Reserve (FRB), the central bank of the U.S., has been raising interest rates at a rapid pace in order to control inflation. Since raising interest rates means making it harder for banks to borrow money and thus worsening the economy, the possibility of a recession in the U.S. economy from next year onward has increased considerably. The U.S. monetary authorities are planning to raise interest rates, even at the expense of the economy, in order to somehow contain the unstoppable inflation. Simply put, there is a choice between inflation and recession, and they have chosen to take recession as a painful decision.
Since the U.S. economy is the locomotive of the world, if the U.S. economy stalls, it is almost certain that Japan, Europe, and China will also be affected. Internet companies are particularly vulnerable to the effects of the economy, so they are taking large-scale layoffs at this stage in order to minimize the impact on their business operations.
However, the deterioration in the performance of Internet companies is not only due to the U.S. interest rate hike.
In the past 20 years, the IT transition in society has progressed at a rapid pace, and with the exception of a brief period such as the Lehman Shock, the economy has been growing steadily. While it is clear that these Internet companies have been the driving force behind this series of growth, it is impossible for a particular industry to continue growing rapidly forever. Times are always changing, and it has been pointed out that the growth of the global economy through IT may be reaching its limits.
Add to this the Corona crisis and Russia’s invasion of Ukraine, and inflation became serious worldwide. To cope with this, the U.S. monetary authorities raised interest rates, and as a result, the global economy is on the verge of a recession. In other words, the U.S. interest rate hike is merely a trigger, and it is highly likely that the 20-year-long boom and IT trend has reached a milestone.
Internet companies, in particular, are evaluated based on future expectations rather than current performance. Furthermore, companies such as Twitter and Meta, which rely on advertising for most of their revenue, are likely to be the first to be affected by a downturn in the economy.
In fact, the stock prices of Internet companies in the stock market have been falling sharply since the beginning of the year. Stock prices are said to be a leading indicator of the economy, and this means that investors were expecting a recession and a downturn in the performance of Internet companies from the early stages of the year.
Generally, when the economy turns bad, cutting-edge or growing companies are affected first, followed by those closer to home after some time has passed.
The fact that online companies are restructuring at this time means that the recession will become clearer in the first half of next year, and from there, restructuring of general companies is likely to proceed.
The U.S. economy has been booming for the past 20 years to the point of excess, so the impact of a recession would be extremely large. Japan, on the other hand, has been in a recession for a long time, and fortunately or unfortunately, its economy is so stagnant that it cannot get any worse. Therefore, even if the U.S. economy worsens next year, the impact may be minor compared to the U.S.
However, it is common economic sense that if the U.S. economy worsens, Japan will also worsen, and especially for export industries, since the U.S. is the main battleground, it is highly likely to be greatly affected by the recession. It is said that when the U.S. sneezes, Japan catches a cold, so we should pay close attention to economic trends in the coming year.
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