How Russian Invasion of Ukraine will Impact the Tech Sector – TrendyNewsReporters

How Russian Invasion of Ukraine will Impact the Tech Sector

Russia launched an invasion of Ukraine on February 24, 2022, attacking Kyiv and some other large cities outside of the original conflict zones in the east of Ukraine. This situation is likely to lead to significant disruption to global services delivery in Ukraine and impact the broader Central and Eastern Europe (CEE) region.

Given that Ukraine is a key global delivery location for IT and engineering R&D services, the news has created widespread uncertainty and significant concerns for companies operating in the country and the region as well as other parts of the world.

Over the past decade, Ukraine’s IT industry has become a vital part of the country’s export service economy and a significant contributor to the global tech scene. According to Atlantic Council, with 26% annual growth, it remains the fastest-growing sector in Ukraine outpacing other industries. According to a recent poll conducted by the American Chamber of Commerce in Ukraine, IT is already the second most attractive Ukrainian industry for foreign investment.

The country’s IT sector workforce is dominated by progressive, young, business-orientated, and tech-savvy professionals who are collectively re-defining the future direction of the Ukrainian economy. From 2011 to 2016, the number of IT specialists in Ukraine increased by 144%.

Today, the industry employs over 200,000 highly educated professionals who form Ukraine’s new high-earning middle class. Ukraine’s IT professionals typically earn up to eight times the national average. Additionally, the expansion of this demographic is driving growth in other sectors of the Ukrainian economy including the real estate, retail, and leisure industries.

Multiple Ukrainian companies such as Wix, Vistaprint, Ciklum, and Cimpress had already started to relocate their employees from east Ukraine to other parts of the country such as Lviv, Ternopil, and Ivano-Frankivsk, or to international locations such as Poland, Turkey, and Israel.

“Ukraine is a key global delivery location for IT and Engineering R&D (ER&D) services, which brings widespread uncertainty and significant concerns for the many companies operating there,” says Anurag Srivastava, partner at Everest Group.

Many Indian IT firms have also expanded their presence in Eastern Ukraine. For example, GlobalLogic has nearly 8,000 employees in Ukraine. Infosys set up development centers in Karlovac in Croatia and Moscow in Russia to support Ansaldo Energia, a producer of thermoelectric power plants.

Tech Mahindra bought Com Tec Co IT, a software solutions and service provider, and has development centers in Latvia and Belarus. Wipro has a subsidiary in Ukraine. The tech talent is concentrated in the cities of Kyiv, Kharkiv, and Lviv.

Peter Bendor-Samuel, CEO of IT advisory Everest Group believes that the war in Ukraine is clearly going to cause both customers and vendors to shift production, at least temporarily, out of Ukraine and into other destinations.

“We expect India to be the major recipient of this work as there are no other labor markets able to absorb work at this scale on short notice. We expect the engineering services sector to be most affected as much of the Ukraine delivery centers are focused on engineering and more specifically digital engineering. We can also expect firms with centers in Russia to move work as sanctions hit,” he told TOI.

The research team at Everest Group is downgrading its risk rating for Ukraine from Medium to High. It also is recommended that market participants migrate their critical operations to alternative locations to ensure business continuity and strengthen their network infrastructures to insulate themselves against potential cyber-attacks.

“Attacks on the key business centers of Kyiv and Dnipropetrovsk will destabilize global services delivery from these cities, and companies must intensify and accelerate their implementation of contingency and BCP programs to secure operations being supported from anywhere in Ukraine,” he says.

These measures could include arrangements for relocation of employees and their families, backing up data to servers based in the US or other locations, developing backup options with independent internet providers, establishing emergency satellite communications, identifying alternative suppliers, and stockpiling supplies.

Software house MacPaw, which develops Mac software and utilities, said in a blog post that while its headquarters is in Kyiv, its infrastructure is hosted on Amazon Web Services and physically located outside of Ukraine. Nonetheless, MacPaw said in an email to TechCrunch, “At this moment, we’re staying strong, united, and ready to defend the sovereignty and territorial integrity of Ukraine.”

Global tech firms such as Google, Facebook, Uber, Lyft and others are taking precautions for their Ukraine-based employees. As Facebook head of security policy Nathaniel Gleicher tweeted “In response to the unfolding military conflict in Ukraine, we have established a Special Operations Center to respond in real-time. It is staffed by experts (including native speakers) so we can closely monitor the situation and act as fast as possible.”

Likewise, the Everest Group also said an imminent risk of cyber attack and a potential breakdown of internet and telecommunications systems in Ukraine. Furthermore, cyber-attacks related to regional conflicts often spill over and cause collateral damage in neighboring countries, so they may be at risk as well.

“Firms should therefore strengthen their network infrastructures to insulate themselves against potential cyber-attacks,” it said.

At the same time, Russia’s invasion of Ukraine would strain supplies of semiconductor chips amid a shortage that has already caused global production disruptions for tech companies and automakers for more than a year. Both countries are critical suppliers of neon gas and palladium that are used to produce semiconductor chips. As TechNet President and CEO Lita Shon-Roy told CNBC during an interview, “It will continue to constrain the chip source going into the automotive industry.”

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