The impact of Russia’s invasion of Ukraine on the Indian IT sector

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For a global economy still reeling from the epidemic, Russia’s invasion of Ukraine poses a significant threat.

The battle appears to be Europe’s most serious since World War II. In the immediate aftermath of the Russia-Ukraine conflict, both the area and the world are affected. Many people will experience grief and loss in the coming weeks due to this catastrophe when sorrow and loss have become trademarks of COVID-19.

Within a few days of Russia’s invasion of the Ukrainian territory, countries worldwide have placed sanctions on Russia while extending their humanitarian support to the people of Ukraine. There is widespread global uncertainty about the future of business, even as peace negotiations continue. As an emerging player in the global IT industry, the Ukraine war is likely to have significant consequences, including the trickle-down effect on Indian IT firms that have delivery centers in and around Ukraine. 

Ukraine is one of the main sites for offshore and near-shore third-party services, particularly engineering and information technology expertise. Thus, Russia’s invasion of Ukraine wreaks havoc on American and European businesses.

India’s IT services firms, which don’t have a significant presence in Ukraine, have decided to adopt a wait-and-watch approach to the crisis and have activated business continuity plans in Eastern European countries such as Hungary, Poland, and Romania. An estimated 50,000 tech workers and 200,000-odd tech freelancers in Ukraine could be affected by the crisis, according to research firm ISG.

The impact of the war on Indian IT business

Data from the top Indian IT companies shows that Europe is the second-most important client geography, with 20-25% of the overall business. Approximately 90% of this business comes from Western Europe – however, the Eastern part has been growing as an essential strategic delivery center for Indian IT firms, mainly for proximity to European client offices to serve them more effectively. While no decisions are being taken yet, Indian IT service providers are considering moving their service/delivery locations from Eastern Europe to India. This will affect the service delivery flow and impact the local Ukrainian economy. 

Many Indian engineering firms had started acquiring Eastern European firms in the banking, utilities, and energy sectors to enhance their delivery capabilities. With ongoing conflicts, many of these firms deal with supply constraints that could significantly affect operations and even cause the deals to fall through. Even if existing contracts are not affected, new ones could go on hold as businesses in Europe reconsider their strategies and finances. This has significant consequences for Indian IT firms seeking to expand the software start-up ecosystem. 

From an employment perspective, too, the situation is concerning. European IT service providers are likely to pause or reduce their hiring for the foreseeable future, which could leave many talented Indian candidates either out of a job or competing fiercely for India/US-based jobs. At the same time, many of the global IT projects that were earlier outsourced to Ukraine and other East European countries (which are rapidly gaining a reputation as a hub of tech talent) are likely to be relocated to India, increasing the demand.

“There is going to be a lot of work moving to India, so there will be a short-term increase in the need for local talent.” Recently quoted by a leading research firm.

What the Indian IT sector can do to help

Currently, IT firms remain cautious about the long-term impact of the Russia-Ukraine war. The top brands have all expressed their commitment to maintaining high-quality service delivery levels while supporting the employees affected by the conflict. The chief priority is to personally and professionally support Ukrainian employees while ensuring uninterrupted service delivery. For instance, firms with a European presence can set up offshore delivery centers in and around Ukraine to absorb workers whom the conflict has displaced. They can also work with Ukrainian vendors to develop safe alternative channels for product transport and delivery to continue business flow. Much can be done from a humanitarian point of view, including financial support to displaced workers and emergency supplies to employees, service partners, and their family members currently living in Ukraine.  

While times are trying at present, it is to be hoped that the fighting will cease before long. Exercising caution is advisable when it comes to business decisions like acquisitions or hires. The focus, therefore, should be on taking advantage of the sector’s considerable resources to support all those who have been affected directly or indirectly by the crisis in Ukraine.

– By Subodh Parulekar – CEO & Co-Founder, AFour Technologies.

Read the full article at Times Of India

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