Ukraine crisis forces regional tech restructure

The outbreak of the Ukraine crisis in early 2014 has sent shockwaves across the Eastern European technology landscape, restructuring the flows of business process outsourcing (BPO) contracts and diverting venture capital from digital start-ups. Russia and Ukraine, as the most direct participants in the regional conflict, have been most negatively impacted. However, other markets in the region, such as the Baltics, have actually benefited from the transfer of funds and operations. International business transfer agents are likely to see less interest in Ukraine and Russia, and more elsewhere in the region.

Numerous tech companies have relocated their operations from Ukraine and Russia due to the unstable political situations in the two countries. Outsourced software developer Luxoft moved some of its offices from both countries to Bulgaria, Poland and Romania, while game publisher Game Insight moved its headquarters from Russia to Lithuania in mid-2014.

A recessionary climate and the impact of sanctions have forced US digital giant Apple to abandon plans to launch physical retail stores in Russia in 2014, while Sweden’s music streaming service Spotify cancelled launch plans in the country in February 2015. Foreign venture capital inflows into the tech segments of both Russia and Ukraine, which had been extremely dynamic and important in driving local start-ups before 2014, have all but dried up. According to trade sources, tech financing dropped by half in 2014 in Ukraine, with Russia seeing a similar drop-off.

However, Russia and Ukraine’s woes have become gains for other regional economies. With these two previously attractive markets off the table, foreign tech investors have turned more attention to economies such as Hungary, Romania and Poland. The Baltics especially are becoming digital hubs for companies relocating from Russia and Ukraine. Acting as a buffer zone between the EU and non-EU Eastern European countries, states such as Estonia and Lithuania have implemented progressive pro-tech legislations and are home to large, affordable and skilled IT specialists.

Going forward, a brain drain of IT specialists from Ukraine and Russia will certainly test the resolve of local tech industries. More people emigrated from Russia in the first eight months of 2014 than in any full year under President Vladimir Putin’s rule, according to Russia’s Federal Statistics Service. A large number of Ukraine’s computer engineers have also moved to non-EU (due to visa restrictions) IT hotspots such as Belarus. Eastern Europe is one of the world’s leading IT outsourcing and offshore centres, and the Ukraine crisis is ultimately unlikely to transform this landscape. In fact, the currency collapse in both Ukraine and Russia could attract more international companies to set up BPO operations there due to the cost-attractiveness of salaries.

Nonetheless, the entire region is interlinked economically, and any negative financial impact on major Russian telecoms companies such as Yandex and Mail.ru Group (whose share price has tumbled since the onset of the crisis) will be felt across Eastern Europe in terms of both job creation and investments in the information, communications and technology market.

 

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