Microsoft (NASDAQ:MSFT): Close on the heels of news coming in from China about the decision of the Chinese government to remove foreign companies from the list of government procurement, comes the news of Microsoft’s latest corporate salvo that will see at least 9000 Chinese workers laid off from its factory floors.
Recently, the Chinese government had replaced several western companies with domestic companies in the public list for government procurement. This move was seen as a protectionist step against the interests of globalized corporations. This step of the Chinese government combined with other problems that have emerged in the context of China’s unhindered economic growth over the past two decades, may have started playing spoilsport with business sentiments.
China’s worker wages have been rising even as the average Chinese person is growing older. This implies that Chinese labor in the future will be older and costlier; a proposition not very palatable to most manufacturers based out of China. In such an upcoming scenario, other South Asian countries such as Vietnam, Indonesia, and Philippines have emerged as the next attractive destinations for factory based activity.
After its decision, Microsoft intends to close down the manufacturing plants that it had acquired as part of its Nokia acquisition deal. The two plants that will be shuttered down are located in Beijing and Dongguan in China’s southeastern region. With these closing down Microsoft will have closed down half of the factories that it had come to control post $7.5 billion Nokia deal.
However, a Microsoft spokesman, in a response to earlier reports of the labor layoffs, had clearly stated that the restructuring plans had been devised quite early in July of the year gone by. However, the exact official declaration could come out only after regulatory and legal requirements and compliances were met with.
This trimming down step by Microsoft is to be also seen in the light of the fact that the Nokia acquisition deal had seen an addition of 25000 strong labor force worldwide. Logical restructuring in the face of falling sales, therefore, is along expected lines. Although, it must be mentioned here that other factory locations that were manufactured for Nokia earlier, have been spared the axe for the time being. These other locations are in Manaus, Brazil and Reynosa, Mexico. These two facilities have been taken beyond the limited mandate of mobile handset manufacturing and have been strategically repurposed to serve Microsoft’s larger goals.