Why disruption to IT services delivered from Ukraine and Russia could digitally cripple the West

There are concerns over energy prices and supply if Russia invades Ukraine but is the fact almost every European corporation relies on Ukrainian software developers as big a problem?

IT OutsourcingUPDATED ON April 7, 2022

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Cover image for blog on topic of how Ukraine Russia tensions could impact IT services exports Western organisations rely on

In terms of the most directly felt consequences for Europe and the West should tensions between Ukraine and Russia come to the worst and end in war, the focus has been on fuel costs and supplies. But what hasn’t been mentioned is how much the West relies on IT services delivered out of Ukraine and Russia.

Directly, or indirectly via outsourcing providers of IT services, practically every big company in Western Europe, and many in the USA, relies on software developers and other IT specialists from Ukraine. Many also work with tech talent from Russia.

If Russia were to invade Ukraine it would inevitably impact the ability of the company’s IT specialists to work if, as could be expected, internet connectivity was disrupted.

What happens to the global digital economy if the hundreds of thousands of IT specialists companies in the West rely on every day suddenly go offline? Or can’t be paid as a result of sanctions?

What happens to the strategically important, sometimes critical, new apps they are building, and those currently used by customers or by staff internally they are maintaining? And the digital infrastructure many help keep running?

It’s a big, and open, question no major politician or business leader has addressed. At least not in public.

We asked Ukrainian IT outsourcing companies how it affects them and their clients:

  • Are you are planning for the worst-case scenario and, if so, what measures have you taken?
  • Are your international clients worried and what plans they are putting in place to cope if their vital developers and other IT specialists can’t work for a non-defined period?
  • Has there has been any notable drop off in the number of West European, American and other international organisations eager to recruit IT specialists from Ukraine?

We spoke to:

K&C’s own CEO Michael Krusche (around 30% of our specialists are based in Ukraine)

Dmitry Ivanov, Head of Marketing Department at Elinext

Max Klimenko, Key Clients Manager at SPD Ukraine, and;

Eugene Odyntsov, CMO, SPD Load

1. Are you are planning for the worst-case scenario and, if so, what measures have you taken?

Michael Krusche (K&C): “Ensuring business contingency is an essential part of our customer relationship, so we are already working on a fallback plan when the contract is signed. In addition to such critical events, COVID has already shown us how to deal with risk management around unplannable and sometimes major shifts in team member availability.”

“For larger projects, we therefore rely on distributed locations and a secure infrastructure – hosted in Germany.
Our employees can also work at any location at any time. Either in our offices like in Krakow or Sofia, or remotely.
But in addition to all the plans and procedural solutions, one thing above all is important: transparent and honest communication with our clients and employees.”

Dmitry Ivanov (Elinext): “Most of our projects are developed by international teams with members from Ukraine but also other countries like Belarus and Germany. Clients are mainly concerned about the technical skills in teams working for them rather than the location of the individual team members and while there would inevitably be some disruption in the worst case scenario, no client has asked for a back-up plan and they presume any issue will be temporary.”

Max Klimenko (SPD Ukraine): “Our company offers relocation in Ukraine, from one city to another, to Lviv. It’s in the west of Ukraine next to Poland. But I prefer relocate to another country. For example, I’m from Kharkiv it’s next to Donetsk and Luhansk, so I’m going to move to Georgia this month. It’s short-term plan.”

Eugene Odyntsov (SPD Load): “Mostly, it’s about preserving the investment. We take care of duplicate code and other things to ensure security. The same goes for current clients so even if there is interruption, there is no major risk to ongoing projects.

“I know many tech product companies that have an office in Ukraine, and they are preparing a plan to evacuate the office to Poland. The business environment is traditionally pragmatic, so instead of panicking both clients and employers are considering realistic options to continue their operations.”

2. Are your international clients worried and what plans they are putting in place to cope if their vital developers and other IT specialists can’t work for a non-defined period?

Michael Krusche (K&C): “These questions are asked, of course. We support our customers in the business-critical areas where a longer breakdown of maintenance but also of further development is unacceptable.”

Dmitry Ivanov (Elinext): Our experience of a similarly complicated situation in Belarus recently shows that a well-written contract is enough for a client to make them feel calm and protect them from unforeseen circumstances.”

Max Klimenko (SPD Ukraine):” Existing clients and partners ask us what we plan to do in case of full scale attack. Have we got any plans for relocation etc.? In some cases they offer their help. They don’t break contracts or short our teams, so everything is ok.”

3. Has there has been any notable drop off in the number of West European, American and other international organisations eager to recruit IT specialists from Ukraine?

Michael Krusche (K&C): “No, not noticeably but we have several nearshore locations, not only Ukraine so the geopolitical situation there is not front and centre of communication. And we’ve still had clients choose Ukraine-based developers we’ve put forward over the past couple of weeks. Their primary concern was recruiting the best person for the team.”

Dmitry Ivanov (Elinext): “No, we haven’t felt any obvious changes in requests yet.

Eugene Odyntsov (SPD Load): “We work with international partners from all over the world. Basically, these are economically developed countries: USA, Great Britain, Germany, UAE and even Singapore.”“If we talk about willingness to work with Ukrainian teams, the demand remains unchanged. I think it has to do with the reputation of our country and local teams.”

Does the lack of a drop in demand for Ukrainian IT specialists despite the threat of war disrupting their ability to work indicate just how dependent Western employers are on nearshore software development talent, especially from Ukraine? Only Poland export more IT services to the West.

Just how reliant are Western businesses and economies on Ukrainian, and Russian, IT-services?

 There are an estimated 285,000 IT specialists in Ukraine, from software developers, cloud computing experts and digital infrastructure engineers. Across Russia, there are over 1.5 million. Of those in Ukraine, a majority work for international companies either as contractors or employees. 60% work for IT outsourcing companies that sell their services to clients in the West.

Others work across the 100+ R&D centres of multinational tech giants like Microsoft, Ericsson, Siemens, and Oracle that are based in Ukraine. The country is also home to international startups and tech businesses including GitLab, Grammarly or Template Monster.

Many of those in Russia do too, though more often as contractors or freelancers than employees.

Ukraine’s IT exports have doubled in 3 years and are officially worth $6.8 billion and contribute twice as much to the country’s GDP as the system that transmits Russian gas over its territory. By 2025 the sector is expected to be worth between $12.7 billion and $16.3 billion.

IT-outsourcing services market revenue in Germany from 2016 to 2021 (in billion U.S. Dollars)

Chart showing IT-outsourcing services market revenue in Germany from 2016 to 2021 (in billion U.S. Dollars)

Source: Statista

IT outsourcing is now a huge industry in developed economies and many IT outsourcing providers employ Ukrainian software developers and other specialists. The market in Germany, Europe’s largest economy, was worth $19.03 billion in 2021.

At an estimate, up to 20% of that huge sum generated by Germany-based IT outsourcers is the result of work done by Ukraine-based specialists. Many outsourcing companies also employ Russians, whom paying could potentially become a problem if the country was subjected to international sanctions.

The UK is the second largest buyer of Ukraine’s IT services exports after the USA.

Chart showing value and predicted value of Ukrainian IT services exports between 2018 and 2025

Source: Ukraine IT Report 2021

The official value of Russia’s IT services exports is $5.1 billion, however, it is likely to be significantly higher with many Russian IT specialists working as freelancers for international organisations, which is harder for national statistics agencies to accurately track.

Export value of information and communications technology (ICT) services in Russia from 2008 to 2020, by type(in million U.S. dollars)

Chart showing IT-outsourcing services market revenue in Germany from 2016 to 2021 (in billion U.S. Dollars)

Source: Statista

Number of information technology (IT) specialists in Russia in 2020, by position(in 1,000s)

Chart showing export value of information and communications technology (ICT) services in Russia from 2008 to 2020, by type(in million U.S. dollars)

Source: Statista

Chart showing number of information technology (IT) specialists in Russia in 2020, by position(in 1,000s)

If Russia does invade Ukraine it will be a problem for the West’s digital economy

 The reality is, there are very few major West European corporations who don’t, to a greater or lesser extent, rely on Ukraine-based IT specialists and thousands of tech start-ups and SMEs also do. Many in the USA and elsewhere are also exposed.

If internet connectivity were to be cut off for a period, or there were other disruptions to Ukrainian specialists being able to work on projects for international clients, it would be a problem. For some organisations more than for others.

Most would find a way to cope in the short term but losing Ukrainian, and Russian, IT team members would disrupt and delay new projects, costing money. Live apps users and companies rely on and are maintained by Ukrainian specialists could be a bigger problem, though internal resources could probably be shuffled to manage.