During the pandemic, the technical sector grew tremendously due to the low interest rates and the increased demand for software and digital appliances. However, the good years for the tech sector appear to be over, with thousands of layoffs in the sector. Patrick Verwijmeren, Professor of Corporate Finance at Erasmus School of Economics, explains what is happening in De Volkskrant (27 January 2023).
The Professor explains that most tech companies are situated in the United States. And in the United States, the shareholders call the shots. Now, since the share price lowered significantly due to higher interest rates and increased regulations, shareholders are demanding cuts. Still, he does not expect a mass layoff to occur, since this will cause too much negative publicity. What Verwijmeren does note, is that the tech companies are utilizing the current momentum of general layoffs across all sectors to fire their employees, in order to blame the layoffs on a general trend in the market.
Innovation slowed down?
The higher price of money leads to tougher judgements made by shareholders. Hence investments in research and development have lowered. Still, the Professor does not expect innovation to drastically diminish. He remarks that big investments are still being made. For instance, Microsoft recently announced to extend their collaboration with OpenAI, which requires billions of investment. Verwijmeren deems this a general trend. In the developing stage of the techsector, profitability was not the main concern, growing was. Now, shareholders will more and more demand that investments lead to profitability.
Layoffs in the Netherlands
Verwijmeren notes that it is harder to layoff employees in the Netherlands due to relative strict labour arrangements. What’s more, the layoffs are occurring mostly at the research and development departments, which are often located in the United States. However, the economic insecurity will also lead to layoffs in the Netherlands. Already we see layoffs at players like Bol.com and Messagebird.