While the world is trying to wrap its mind around Russia’s gutting attacks on Ukrainian civil infrastructure and other atrocities of war in Ukraine, business is counting its losses. The Russian invasion of Ukraine upended the whole Ukrainian economy and put under pressure many European industries tied to Ukrainian input — and, in no small part, on the technology side.
Ukraine is known for being Europe’s IT powerhouse boasting the most dynamic annual growth (up to 30%) and about 300,000 tech staff involved. The reliance on the Ukrainian tech talent pool within outsourcing and subcontracting talent models in Europe and the rest of the IT world has been huge during the last few years. Still weak after COVID-19 turbulence, the world’s tech sector now has to adjust to the new unknown — geopolitical turmoils of the war that seemed impossible in the XXI century. With almost a year of hostilities behind us (since February 24, 2022), we can now look back and analyze the impact of war on the IT sector of Ukraine and beyond.
Impact of war on business in general
The Ukrainian economy had been operating in a state of a “subtle” war for eight years since February 2014, when the infamous, unprovoked Russian invasion suddenly threw it into complete chaos in February 2022. Broken supply chains, scarcity of goods and fuel, spiking prices, and paralyzed purchasing power had a shocking effect on local businesses.
SME companies, which represent the backbone of the Ukrainian economy (60%), had to adjust to operating in war economy realities amidst the hostilities, under fire, or even in occupation. The ravaging impact of war on business was especially merciless to firms relying on foreign raw materials, big export-focused agricultural companies, and energy-intensive manufacturing.
The war upended Europe’s breadbasket, stalling grain export from Ukrainian ports and putting farmers in southern regions at the risk of blowing themselves on mines treacherously left by Russian occupants. The autumn sowing was far behind: only the fourth part of pre-war areas has been sown due to both the hostilities and inclement weather. But not this was the worst surprise for the Ukrainian business in the autumn of 2022.
The worst and the most disruptive were Russian missile strikes on power plants and other civil infrastructure aimed at wearing out the Ukrainian electric power system and throwing businesses and civilians into complete darkness. Extensive and demoralizing blackouts (due to planned or emergency power outages) that covered the whole country put small and medium businesses on the brink of survival. Firms that could not afford power generators were “blackened out” from the market.
The blackout issue impacted the IT sector too, as the one that is highly dependable on electricity. Frequent power outages caused many IT companies and professionals to consider relocation to other European countries to be able to keep up with the workflow.
Impact of War on the IT Cluster in Eastern Europe and Ukraine
- One of the biggest drivers of the Ukrainian economy, the IT sector comprised 8.3% of the total country’s export and 4% of its economic output before the war. Since the invasion, IT demonstrated remarkable resilience in adjusting to a new war scenario and recovered fairly fast, keeping its operational capacity at 80% of the pre-war level.
- The impact of the war on IT in Ukraine wasn’t disruptive due to the industry’s more mobile and less geography-bound nature. Ukrainian IT survived thanks to remote working or fast relocation of its processes to other European countries. This working model allowed more than 80% of Ukrainian companies to resume hiring as early as April. As of now, the sector maintains a high hiring capacity to satisfy the growing demands for tech staff and tech services in Eastern Europe and across the globe.
- 80% of Ukrainian IT talents are reported to relocate to safer regions (primarily to western Ukraine) or abroad (primarily to Europe). Some IT companies collaborate with only relocated Ukrainian IT talent, while others had to put a big fraction of their IT staff (30%) on hold due to the uncertainty of wartime.
- Nearly 20% of IT companies weren’t able to close new deals, and only 2% had to phase out their operations completely. This, however, didn’t negatively impact the export revenues but rather the opposite. The first-quarter revenues in 2022 were almost 30% higher (USD 2 billion) than the first-quarter revenues in 2021. It demonstrates that the war has not undermined the increased reliance on skilled Ukrainian IT staff and technology globally.
- More than half of the Ukrainian companies shared that they were asked for additional services by their foreign customers as a form of support. In turn, only during the first few days of the war, Ukrainian IT companies donated more than USD 24 million to the Ukrainian Armed Forces and different forms of humanitarian aid.
Impact of War on the IT World
Before the war, the Ukrainian tech talent pool comprised around 300,000 software engineers. Highly professional and affordable at the same time, with top-notch English, computer science, and communication skills, Ukrainian developers became the gold bottom for foreign tech companies relying on outsourced teams in Eastern Europe. Naturally, the war in Ukraine impacted the global IT scene in many ways (and not all of them are negative):
The scarcity of tech talent remains a worldwide issue
The spiking demand for qualified tech staff was evident in the IT world before February 2022. The war only deepened this tech talent crunch because a fraction of Ukrainian developers could be unavailable for some time due to the threats and uncertainties of war.
Outsourcing remains the only viable solution for short-staffed companies
Due to the dearth of local tech talent, it is highly unlikely that such consumers of Ukrainian tech services as the United States and Western Europe countries will slow down outsourcing to Eastern Europe in the nearest future. Hence the importance of taking the risks of war (uncertainty and difficulty of planning ahead) and learning how to mitigate them.
Some companies will leave the East European region
When the war began, many global customers of IT services were concerned about whether the war and the IT business would work well together. No one knew in advance. So a fraction of companies decided to play it safe and pulled out their East European contracts. This tendency may remain for several years, leaving Eastern Europe without contracts in the nearest future.
Ukrainian brain drain becomes an opportunity for some
The Ukrainian tech talents fled the war and found a safe place abroad (primarily in European countries, Canada, and the USA). They are looking for tech jobs in their new home countries, which creates many opportunities for local IT companies to onboard skilled Ukrainian engineers or benefit from relocated Ukrainian outsourced teams. So even in discouraging conditions of war, the Ukrainian IT sector retains its primary pole in supplying talent to European and American tech industries. This seems to be the most significant positive impact of war on the IT industry worldwide.
And in ABNK today our employees are all over Europe, the USA, and other countries. We are continuing to work remotely, but we are staying together and supporting each other.
