(Bloomberg) -- Oyo Hotels is firing thousands of staff across China and India, people familiar with the matter said, adding to growing signs of trouble at one of the largest startups in SoftBank Group Corp.’s portfolio.
The company has let go of 5% of its 12,000 employees in China partly due to non-performance, while dismissing 12% of its 10,000 staff in India, one of the people said. It plans to shed another 1,200 in India over the next three to four months, the person added. Oyo is undergoing a restructuring, trimming redundancy in China and India, leading to thousands of dismissals, according to the people, who requested not to be named because they aren’t authorized to talk to media.
“We continue to be one of the best places to work for and one of the key reasons for this has been our ability to consistently evaluate, reward and recognize the performance of individuals in a meritocratic manner, and enable them to improve their performance,” Oyo said in a statement.
Oyo’s downsizing is another setback for Masayoshi Son‘s SoftBank, whose portfolio has been buffeted by recent trouble at WeWork and slumping share prices at Slack Technologies Inc. and Uber Technologies Inc. The billionaire has called for greater financial discipline among the founders in his portfolio, spurring job cuts at smaller outfits such as Zume Pizza Inc. Other SoftBank investees, including Getaround, Wag Labs Inc., Fair and Brandless Inc., have had to cut staff or changed business models once it became apparent revenue and profits were not living up to their once-grand ambitions.
Read more: SoftBank Vision Fund Employees Depict a Culture of Recklessness
Adding to Oyo’s challenges, hotel owners in China have been protesting in front of the company’s offices, accusing the startup of violating contractual agreements. The growing turmoil may complicate SoftBank’s efforts to raise a successor to the Vision Fund, the world’s largest pool of startup investments.
Oyo will “enhance communications with hotel owners and develop owner loyalty” this year, the company said in the statement. “We will launch the VIP owner program, and contact owners regularly, to ensure that the interests and needs of theirs and ours are equally taken into account.”
Son has been a keen supporter of Oyo founder Ritesh Agarwal, helping fund the hotel company’s fast international expansion. Oyo had been growing at a rapid clip, but its reputation has suffered due to customer complaints about bad experiences along with grievances about poor or unfair treatment from several of the more than 20,000 hotel owners in its chain.
“Oyo is one of SoftBank’s current crown jewels,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina. “Issues in China, Oyo’s largest market, continues the Vision Fund’s woes.” It would make raising a similar-sized second Vision Fund a challenge, he added.
SoftBank’s Vision Fund has so far invested about $1.5 billion in Oyo, pushing its valuation to $10 billion. The company also counts Airbnb Inc., Sequoia Capital and Lightspeed Venture Partners as backers. It promoted its real estate business chief, Rohit Kapoor, to CEO for India and South Asia in December to shake up the business.
In its aggressive effort to acquire market share, Oyo offered hotel stays for as cheap as $4 a night, according to one person familiar with its practices. The company also stocked up on rented room inventory by signing exclusive deals and guaranteeing income to hotel owners. It’s now allegedly reneging on those guarantees, the cause of the protests outside its Chinese offices, one person said.
Read more: Ritesh Agarwal, the Amazingly Ambitious Hotelier
(Updates with Oyo response starting in third paragraph.)
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