Wells Fargo, Nokia pullout a vote of no confidence
Credit to Author: Ben Kritz| Date: Mon, 17 Feb 2020 16:38:19 +0000
LAST WEEK, Banking giant Wells Fargo announced it would be shutting down its Manila tech center, causing much wailing and gnashing of teeth here, particularly since the pullout will eliminate about 700 jobs. Wells Fargo’s announcement came about two weeks after mobile technology maker Nokia said it would pull the plug on its research and development (R&D) center in the UP-Ayala Technohub, which will also result in about 700 layoffs. Both companies are expected to start shedding local employees by as early as next month, and wind up operations here by the third quarter of the year.
In both cases, the explanations provided can be accepted at face value, particularly given the broader circumstances of the two companies. Nevertheless, the exit of two valuable players in the Philippines’ burgeoning tech sector are a vote of no confidence in the environment here, and should encourage policymakers to reflect deeply on why this country is becoming so uncompetitive.
Nokia the has-been
In Nokia’s case, the once-dominant cell phone giant has been struggling, and mostly failing, to keep up with ferocious competition from the likes of Samsung and bigger Chinese manufacturers like Huawei. Having grabbed the lion’s share of the mobile market early on, Nokia was slow to evolve, made a bad choice in partnering with Microsoft to try to catch up, and is still treading water in high seas.
The decision to open an R&D center in the Philippines was a reasonably smart one, because the market here looks like a good one, on paper. However, it is a cheap market; Nokia, being nearer the higher end of the mobile technology price range, has not been able to regain more than a shadow of the competitive position it once had. With its need to cut costs on a global scale, it is a bad look for Nokia to maintain a huge cost center in a market where sales are poor.
The recent controversy involving the lease arrangement for the Technohub property may have also played a small role, although Nokia did not mention it. Any change in the contract the amount of rent being paid by Ayala Land Inc. for the property is the specific issue in dispute could result in a change in terms for any of the locators at the Technohub, which means that all of them are, or should be, considering the worst-case scenario of possibly relocating. Even though that is a remote possibility at this point, it is still a bit of uncertainty, and adding that to an already shaky business case for its R&D center may have helped Nokia make its decision.
Wells Fargo on parole
The situation is a bit different with Wells Fargo, which is in no danger of failing but is trying to recover from a string of large-scale scandals that has seen it go through three chief executive officers in as many years and replacing at least four board members, among other things. The biggest scandal was uncovered in 2016, when it is was revealed that Wells Fargo had opened millions of phony deposit accounts and lines of credit under existing customers’ names but without their knowledge.
In early 2018, the US Federal Reserve took the extraordinary step of ordering Wells Fargo to stop expansion plans “until it sufficiently improves its governance and controls.”
“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again,” then-Fed Chair Janet Yellen said in a statement at the time.
In addition to replacing key executives, Well Fargo has also been cutting staff and consolidating operations, in part to get a better handle on managing things, and in response to a marked downturn in business as customers shift to more digital banking. In that sense, the decision to shut down its Manila technical support operation (the bank will maintain its other offices here, for now) was similar to Nokia’s. It will transfer most of the 700 jobs to India, where Wells Fargo employs about 12,000 people.
PH a poor option
While both companies’ decisions to move out were in fact largely driven by internal circumstances, the stark fact remains that neither considered consolidating operations from elsewhere to the Philippines, rather than the other way around. And why would they? India has a far larger and far more tech-savvy population than the Philippines, in large part due to Indians’ fanatical appetite and support for education, has a similar economy in terms of employing people, and does not have dubious problems like the key investment promotion agency of the country actively trying to block a measure that will reduce corporate income taxes, like what the Philippine Economic Zone Authority is doing here.
The bottom line is that both companies had a choice; their larger cost-cutting and consolidation aims are not necessarily location-dependent, and so if the Philippines was a better option, they would be staying. Obviously, it is not a better option, and even if Wells Fargo and Nokia do not want to discuss it publicly, the responsible parties in the Philippine government should at least talk to them in private to find out why. And they need to do that soon, if they haven’t already, because anecdotally, Nokia and Wells Fargo may only be the first in line for the exits.
ben.kritz@manilatimes.net
Twitter: @benkritz