The Russian invasion of Ukraine has severely impacted global markets. Prices of commodities such as wheat and gas have skyrocketed after Russia declared war on Ukraine. However, the conflict has not only resulted in commodities prices rising but has also created severe challenges for tech companies.
Ukraine, pre-invasion, was one of the favourite destinations for global tech companies. The easy availability of skilled talent resources and low cost of living attracted many IT companies to set up their offices in Ukraine.
With a talent pool of over 24,000 IT professionals, Ukraine transformed itself into a leading IT outsourcing destination in Europe. In fact, the outsourcing industry in Ukraine is expected to reach USD 8.4 billion of industry export volume by 2025.
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The Russian-Ukrainian conflict has had a double impact on the tech world. Firstly, it has created a severe tech talent crunch. Secondly, it put the much-needed resources for manufacturing chips used by tech companies at risk.
IT firms to face tech talent crunch
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Trade sanctions levied on Russia by the US are likely to affect tech companies operating out of the country. Various Russian companies have significant exposure to the US, EMEA and Asia markets. As a result of these sanctions, revenue generated from these regions is expected to take a severe hit.
Global tech firms have invested heavily in Russia to build a strong developer base. Outsourcing tech work to Russia and other East European countries provide Western firms access to high-quality labour with the best combination of value and cost.
Ukrainian cities like Kyiv, Lviv, Kharkiv and Dnipro, which used to be major IT hubs, are under siege by Russian forces. The ongoing crisis in Ukraine has badly disrupted the operations of many IT global companies who had set up their offices in the country.
Many global tech firms rely on the Ukrainian workforce to get their work done. However, in the recent wake of events, many tech companies with offices in Ukraine have halted their operations completely, while some have moved their employees to safe locations in nearby countries.
Aggravating existing chip shortage crisis
The pandemic-induced supply chain disruptions caused the world to experience severe chip shortages. The demand for chips surged as countries began to lift lockdowns and encouraged businesses to operate as normal. Experts were hoping the chip shortages would subside by the end of this year. However, the ongoing Russian-Ukrainian conflict has made matters worse for the chip industry. Major Ukrainian companies form a critical part of the semiconductor supply chain. These companies supply semiconductor fab units with gases like neon, helium, xenon, krypton and their isotopes, which are used by powerful lasers to etch the fine engravings onto the silicon wafers.
With the US and allied countries restricting air travel and imposing trade sanctions on Russia, the largest producer of palladium, the supply of palladium is in tight supply in global markets. Palladium is used in the semiconductor industry as a replacement for gold; its prices are already at a seven-month high in the global markets on fears of shortages.
The White House has already warned the chip manufacturers in the US to diversify their supply chain due to the ongoing political tension between US and Russia.
Chips are used extensively in servers, laptops, automobiles and electronics. A global shortage of chips will likely push the prices of electronics and automobiles higher, as manufacturers will have to pay a higher price to source them.
Indian IT companies to the rescue
Many IT firms are halting or stopping their operations in Ukraine and shifting their workloads to Indian tech firms, as they possess the talent and the ability to scale up to provide services to these global firms whose work has been affected by the ongoing conflict.
The world is experiencing a severe talent shortage in the tech industry. According to a report from consulting firm Korn Ferry, the world would see an estimated global deficit of more than 85 million tech workers, representing USD 8.5 trillion in lost annual revenue. In addition, the onslaught of the Covid-19 pandemic forced many companies to go digital, leading to an upsurge in demand for skilled tech workers. The ongoing Russia-Ukraine conflict will further deepen the global talent crunch. Over 100,000 tech workers from both countries will be unavailable in the resource pool for a considerable period of time, various reports estimate.
Global markets will witness severe disruptions due to the unavailability of Russian and Ukrainian tech talent for three to six months. However, the situation will ease gradually over three months. It will take almost nine months to get the capacity of 70,000 – 100,000 tech resources back, said Peter Bendor-Samuel, Founder and CEO of Everest Group, a leading research firm based out of the United States.
