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What triggered LeEco to lay off hundreds in China and the U.S.?

Exterior view of LeEco Headquarters on Wednesday, April 27, 2016, in San Jose, Calif. (Photo by Tony Avelar/Invision for LeEco/AP Images)

LeEco has been trapped in troubled waters since its overly ambitious expansion plan to the U.S., and now the Chinese tech giant is facing the consequences of the financial hole caused by its expansion strategies. The firm recently announced that it is laying off hundreds of employees in both China and the U.S.

Ironically, the company has been massively hiring over the past few years, but the expansion plan has seemingly failed to go hand in hand with its growing staff strength. The Beijing News reported that LeEco had some huge recruitment drives and its employees’ serial numbers surged from 8,000 to over 20,000 within 14 months, according to a former LeEco employee. However, the company has recently cut hundreds of people on staff in China, according to local press.

The Chinese firm’s operations in the U.S. are not doing any better either. Just a little over seven months into its U.S. expansion, the company has reportedly laid off 325 employees in the U.S.

In October 2016, Jia announced LeEco’s official expansion into the U.S. However, just a month later, Jia sent an internal memo to the staff confessing the tech giant’s extremely quick expansion and huge capital challenge. Photo from Sina.

LeEco, also known as the “Netflix of China,” grew rapidly in China with an “ecosystem” where it brought together hardware, software, and content streaming services. Starting with video streaming, Jia Yueting, the former CEO of LeEco who stepped down just this month, crafted a strategy and built an ecosystem for his empire by expanding the company’s business to develop smartphones, televisions and cars.

Fast expansion soon led to financial problems. After LeEco encountered a cash crunch last year, Jia admitted that it was a consequence of aggressive growth. In November 2016, Jia sent a letter to his employees saying that he would cut his annual salary to RMB 1 (USD 0.15) after he acknowledged that the business was running low on cash.

“No company has had such an experience, a simultaneous time in ice and fire,” Jia wrote in the letter, according to Bloomberg. “We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”

After the company’s huge layoff, it adjusted its strategy in the U.S. to target Chinese-speaking audience. After all, it is the cultural and language barriers that stand in its way.

However, the worse has yet to come for LeEco. Local press reported that the firm is expecting more layoffs in China. It is a corporate’s failure at the cost of its employees who suddenly find themselves out of work.

(Top photo from Business Wire)

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