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Startups

SoftBank-backed Oyo founder confirms job cuts in India

Sustainable growth and profitability behind decision, Ritesh Agarwal tells staff

An anti-Oyo sign is seen outside a hotel in New Delhi in August 2019. The company's layoffs are being seen as the outcome of SoftBank's changed global strategy.   © Reuters

NEW DELHI -- SoftBank Group-backed Indian hospitality chain Oyo Hotels and Homes has confirmed reports it is laying off part of its Indian workforce as it moves to restructure its teams across businesses and functions.

In an email to employees across India and South Asia, Oyo founder and group CEO Ritesh Agarwal said the decision to ask some of his colleagues to move to new careers outside Oyo was not "easy." He did not indicate the number of people the company is looking to let go at the moment, but Bloomberg last week reported the figure as 1,200 in India, in addition to 500 job losses in China.

The move has been reportedly undertaken to cut down on redundancy as Oyo plans to carve out its strategy "to drive its success in 2020 and beyond."

Going forward, the strategic objectives of the company this year will revolve around maintaining sustainable growth, operational and customer excellence, profitability, and training and governance, said Agarwal.

This would mean cutting some roles at Oyo that will become redundant, he added. The company has been ramping up its focus on tech-enabled synergy, and enhanced efficiency in a bid to remove duplication of effort across businesses or locations, Agarwal said.

"As a result, we are asking some of our impacted colleagues to move to a new career outside of Oyo. This has not been an easy decision for us," said Agarwal. "Every 'Oyopreneur' is important to Oyo and ensuring their well-being both during and after their tenure is our number-one priority. I want to thank them for their efforts and apologize for the impact this is causing," he added.

Oyo has been adopting all measures to ensure that its outgoing colleagues receive as much assistance and support as possible through this transition, Agarwal said, adding that Oyo stands strong with its people -- not just with those who are impacted, but also with those who will remain an integral part of Oyo.

The company late last week made headlines for reportedly culling hundreds of staff in China in a separate move to the reduction in India. According to the Bloomberg report, the company has reduced its total head count of 12,000 employees in China by 5%.

Earlier last month, Oyo reorganized its leadership team with changes including elevating India and South Asia CEO Aditya Ghosh to its board of directors and appointing Rohit Kapoor as its new CEO for India and South Asia.

Kapoor previously led Oyo's new real estate businesses.

The layoffs are also being seen as the outcome of Japanese technology and investment company SoftBank's changed global strategy.

After an enormous loss from investments in ride-hailing company Uber and office-sharing startup WeWork, SoftBank has reportedly asked its portfolio companies, including those in India, to focus on profitability and stop chasing growth as it struggles to raise funds for its second Vision Fund.

Earlier this month, Softbank's portfolio startup in Latin America Rappi said it has laid off 6% of its workforce.

SoftBank, through its Vision Fund, has so far pumped in about $1.5 billion in OYO, pegging its valuation at $10 billion.

According to experts tracking the sector, the problem with OYO has been with its aggressive expansion over the past year in multiple countries and spending hundreds of millions of dollars buying hotel companies.

Oyo's losses widened more than sixfold to 23.85 billion rupees ($336 million) during the financial year ended March 2019, even as revenues rose over fourfold during the period. A majority of the company's expenses are attributed to operational expenses, which escalated to 61.32 billion rupees in FY19, a fivefold increase from a year ago.

Oyo, meanwhile, is staring at other challenges too. It has attracted the ire of hotel operators who have been complaining about being blindsided by fee increases. In fact, a group of hotel operators in the southern city of Bengaluru have slapped criminal charges on the startup for allegedly withholding money due to unfair fee increases. Oyo reportedly charges about a 20% franchise fee on room revenues. Hotel operators, however, claim that it charges much more.

Oyo is currently present in 800 cities in 80 countries, including the U.S., China, Europe, the UK, Malaysia, Middle East, Indonesia, and Japan. The company counts India and China among its largest markets.

DealStreetAsia is a financial news site based in Singapore focused on corporate investment activity in Southeast Asia and India. Nikkei recently acquired a majority stake in the company.

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