Tech layoffs in Southeast Asia rise as unprofitable startups seek to expand their leads

More tech startups in Southeast Asia have laid off workers this year as macro headwinds deepened losses and venture capitalists pushed startups to expand their leads.

Last week, online marketplace Carousell announced that it was laying off about 10% of its workforce, or about 110 positions.

In November, Indonesia’s GoTo Group – a merger between ride-hailing giant Gojek and e-commerce marketplace Tokopedia – cut 1,300 jobs, or around 12% of its workforce.

Both companies cited tough macroeconomic conditions.

They join Sea Group and other businesses in the region to reduce their workforce. Sea Group, according to local media, has laid off more than 7,000 employees in the past six months.

“The founders are cautious in managing costs in this environment to ensure there is sufficient runway through the end of 2024,” Jia Jih Chai, co-founder and CEO of the company, told CNBC. Singapore-based e-commerce brand aggregator Rainforest. Chai was previously a senior vice president at Carousell and general manager at Airbnb.

“There are signs that we are entering a recession, if we are not already there. Therefore, customer demand will likely be slower in 2023,” Chai said.

In a memo to Carousell employees, CEO Quek Siu Rui acknowledged that “critical mistakes” had been made. He said he was “too optimistic” about the Covid recovery and underestimated the impact of growing his team too quickly.

“The reality is that we quickly increased our spending and our hiring, but returns took longer than expected,” Quek said, adding that there have been cost-cutting measures over the past few months and that Carousell management will make voluntary pay cuts.

Quek also said it was prudent for the company to achieve profitability as a group as quickly as possible, as it is unclear whether market conditions will improve.

Carousell reported slower revenue growth of 21% in 2021 to $49.5 million, compared to a tripling of its revenues in 2020. Meanwhile, GoTo saw its losses swell from the January to September period.

“I was amazed that companies predicted that Covid behavioral changes would last forever,” Alex Kantrowitz, a Silicon Valley journalist who also runs an independent newsletter and podcast called Big Technology, told Monday. CNBC’s TechCheck.

“Obviously, once you’re allowed to go out to restaurants, hang out with friends outside, your use of Netflix, Facebook, Shopify and Amazon would go down. So why are they all acting like it will last eternally?”

“It used to be that businesses were designed for rapid growth, so changes need to be made when the organization moves from high growth to sustainable growth. For example, you may not need too many marketing staff if the marketing budget is cut,” said Jeffrey Joe, co-founder and managing partner of Indonesia-based Alpha JWC Ventures.

Tech startups in Southeast Asia are still largely unprofitable, with names like Sea Group and Grab racking up billions in losses each year.

Existing investors in the company are also actively advising founders to prepare for winter, Jussi Salovaara, co-founder and managing partner of Antler for Asia, told CNBC. Venture capitalists are pushing founders to have a longer lead, he said.

“We tell founders that they need to be prepared that next year won’t be any easier than this year,” Joe said.

“These companies can do well operationally. They still have some growth. They may be close to profitability, but they need to make sure they are sustainable for the future,” Salovaara added.

Tech companies are only seeing the beginning of layoffs, Kantrowitz said.

Globally, tech companies have been making massive layoffs, especially the US tech giants. For instance, Meta cut around 11,000 jobs while Microsoft reportedly laid off less than 1,000 people due to slow growth.