Is a wave of closures hitting state-owned enterprise digital tech subsidiaries?

[[The online claim of a "wave of bankruptcies among state-owned enterprise digital technology subsidiaries" is exaggerated, but digital technology companies do indeed face difficulties such as declining gross margins in integration business and tightening regulation of bidding and tendering. AI implementation brings opportunities, but due to problems with talent incentives and organizational mechanisms, most digital technology companies find it hard to seize them and may be reduced to IT outsourcing departments of their groups.

**Key Points**

**1. The "wave of bankruptcies" rumor is exaggerated, but declining performance is a fact**

Employees at several central state-owned enterprise digital technology companies confirmed they had not received notices of dissolution, but the reduced weighting of qualifications in bidding and tendering and stricter oversight of subcontracting have caused gross margins in integration business to decline severely, and digital technology companies generally face operating pressure.

**2. AI implementation brings opportunities, but digital technology companies lack a productization gene**

There are still gaps in AI applications for industrial-grade and vertically segmented scenarios, and digital technology companies are close to business SOPs and have advantages; but doing projects and doing products are two different things, and they lack the capabilities for standardization, promotion, and customer orientation.

**3. Talent incentive mechanisms are fatal, and outstanding talent continues to drain away**

There is a huge gap between compensation at digital technology companies and the external market; for example, a key employee who jumped to a foreign company saw their salary quadruple, leading to talent "jumping ship once they have mastered the business," while AI innovation projects need more composite talent, and the existing incentive system cannot retain them.

**4. Organizational mechanisms and culture hinder innovation, and there is very little room for trial and error**

English text is being prepared.

I came across quite a lot of content about "a large number of state-owned enterprise digital technology companies going bankrupt." The logic of these articles is roughly: the state requires central state-owned enterprises to clean up inefficient and loss-making businesses, and many digital technology companies perform poorly, so they have been massively dissolved.

I quickly contacted a friend at a central state-owned enterprise digital technology company and asked him: Has it affected you there?

He said: "No impact, and I haven't seen any related notices."

I asked other friends at digital technology companies as well, and none confirmed the rumor that "the state requires the dissolution of digital technology companies." Although this cannot prove that all the online news is false, it at least shows that the claim of a "wave of bankruptcies" may be somewhat exaggerated.

However, the poor performance of digital technology companies is not entirely unfounded either.

Recently, a product manager at a central state-owned enterprise digital technology company told me:

In the past, they relied on their central state-owned enterprise background, group customers, and qualifications to do integration projects, and life was fairly comfortable. But now, the weighting of qualifications in bidding and tendering has declined, subcontracting management has become stricter, and gross margins in integration business have fallen severely. Now they don't know what to do.

So the truth is: digital technology companies have not gone bankrupt in large numbers, but as the state begins to standardize bidding and tendering and strengthen oversight of subcontracting, this is indeed a considerable blow to those digital technology companies that originally lived off resources.

But I do not think digital technology companies have no opportunities at all.

If the digital technology companies can fully leverage their advantage of being close to the front line and familiar with business SOPs, and create industry-vertical AI products that can truly be implemented, then they will have a chance to re-establish their core competitiveness.

But the question is, can the digital technology companies seize this opportunity? Honestly, it's quite difficult.

After all, making products and doing projects are completely different things.

It requires the digital technology companies to first think clearly: why should external customers pay? How should products be standardized? How should products be promoted?

These questions were not important at all in the digital technology companies' original business, and it is impossible for them to suddenly develop the corresponding capabilities.

But these are actually only surface issues. The real problem is talent.

The most fatal problem for digital technology companies is that they cannot retain or motivate talent.

The first company I joined after graduation was a central state-owned enterprise digital technology company. At the time, I was considered a key business employee, and my salary was not low within the group system. But later I jumped ship to a foreign company, and my salary directly quadrupled.

At that time, the ERP wave was still at its peak, and there were actually quite a few top experts in digital technology companies. These people understood business, understood systems, understood delivery, and had truly been tempered on the front lines of large enterprises. But their salary levels were too far behind the external market.

What was the result?

While the digital technology companies were doing digitalization for the group, they were also supplying talent to the market. Many people first learned large-enterprise business thoroughly inside a digital technology company, then jumped to an external software company, and their income immediately rose to a new level.

This is not a problem of any single company, but a problem of the mechanism.

What's more troublesome is that the problem is not only compensation.

State-owned enterprises have their own unique talent promotion mechanisms. For example, there are two candidates for department head. One has stayed in the group longer but is slightly weaker in business ability. The other has stayed in the group for a shorter time but is stronger in business ability. In the end, the one promoted is often the former.

From the perspective of group governance, this mechanism certainly has its rationality. Large organizations need stability, trust, and controllability, and it is impossible to select people entirely according to startup logic.

In addition, besides talent incentives, digital technology companies have an even more fundamental problem: genes.

The essence of developing commercial software is actually entrepreneurship.

What does entrepreneurship require?

It requires being customer-oriented and new-technology-oriented, continuous trial and error, and tolerance for a period without impressive revenue and results.

But digital technology companies are essentially branches of central state-owned enterprises. The first responsibility they must bear is stability, compliance, and preventing the loss of state-owned assets.

In this context, safe inaction is often stronger than risky innovation.

This is not to say which management culture is better. But if a company has neither the motivation for entrepreneurship nor an entrepreneurial culture, and cannot attract and motivate entrepreneurial talent, then how can it succeed in entrepreneurship?

This is a dead knot.

So the truly dangerous thing about digital technology companies is not the so-called "wave of closures." It is that they clearly stand in a very good position, yet may fail to seize this wave of opportunity because of problems with products, talent, and organizational mechanisms.

The company may still exist, and the group will still give it some projects. But it may remain forever a "group IT outsourcing department" rather than becoming a truly market-competitive technology company.

So what should digital technology companies do? It is not about rushing to develop new products, nor about retaining one or two core talents, but about genuine mechanism reform.

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