IBM Shuts China R&D Operations in Latest Retreat by U.S. Companies

Hergenrother said IBM plans to concentrate its R&D in several regions, the employees said. IBM has told some employees it is adding engineers and researchers in places outside China including in Bengaluru, India, according to employees who were briefed.

The closure will affect more than 1,000 people, most of them working for the company’s R&D labs and focusing on the development and testing of products such as enterprise software, the employees said. They are based in several Chinese cities, including Beijing and Shanghai.

In a statement, IBM said it “adapts its operations as needed to best serve our clients,” without giving details. The changes won’t affect IBM’s ability to support clients in China, it said.

Geopolitical tensions between the U.S. and China have led many multinational companies to reassess their business in China, with some laying off employees and relocating operations to other countries. 

IBM once saw China as a major growth market, but its market share has tumbled in recent years as local competitors upgraded their services and Beijing pushed Chinese buyers to purchase more from domestic technology suppliers, in a campaign dubbed “Delete America.” IBM said its revenue in China fell 19.6% last year. 

U.S. companies doing business in China also face stricter scrutiny by American policymakers in strategic areas such as artificial intelligence. Microsoft is downsizing its cloud-computing and AI-research operations in China and asking local employees to consider transferring to other locations.

Some employees said IBM’s decision to close its R&D operations came as a surprise after executives recently talked up plans to win new business using IBM’s strengths in cloud computing and AI. In March, Chen Xudong, IBM’s chairman for Greater China, held a news conference in Beijing and said the company wanted to help automakers and multinational companies in China deploy generative AI. 

Employees from the closing IBM labs said they have been approached by headhunters over openings related to AI and cloud computing at Chinese tech companies.

IBM has done business in China for four decades and once counted the country’s biggest telecommunications carriers, banks and energy giants among its customers.

Since the early 2010s, China has become a tougher market, as government agencies and state-owned businesses started replacing IBM servers, Oracle databases and other products of U.S.-based companies. Revelations by former National Security Agency contractor Edward Snowden in 2013 that U.S. authorities had hacked into Chinese mobile communications and corporate networks accelerated the shift. 

At one time, IBM saw China as a R&D hub for global growth markets, but higher personnel costs and compliance risks have made the Chinese operation less attractive for that role, employees said. In 2021, IBM closed a China lab that focused on research into cutting-edge areas after more than two decades of operation.

Write to Raffaele Huang at raffaele.huang@wsj.com