The impact of the prolonged war will be huge, and many enterprises who were offshoring their work to Ukraine might consider India a top choice for offshore IT services
The ongoing Ukraine-Russia conflict has shaken the geopolitical and economic world orders. Like any other war, it has resulted in a staggering loss of life and human suffering while also causing severe damage to the economies.
While the conflict may be between the two countries, the long-term implications of the war will be felt across the globe. The situation is even more troublesome because it happened when the world was yet to recover from the deleterious effects of the pandemic fully.
In a recent press statement, Kristalina Georgieva, who currently serves as Managing Director of the International Monetary Fund, says that countries with very close economic links with Ukraine and Russia are at particular risk of scarcity and supply disruptions and are most affected by the increasing inflows of refugees.
With US and EU imposing hard-hitting sanctions on Russia and Belarus, the crisis could also have several long-term repercussions for the Indian IT and outsourcing industry and need tactical solid, and strategic measures. According to Nasscom, the total market size of the Indian IT market, including eCommerce but excluding hardware, is US $ 235 billion and comprising over 5 million employees. Over the past two years, many Indian IT services and consulting providers have expanded in Eastern Europe to meet near-shoring requirements and support their global clients to deliver next-generation services. In recent years, they have spent a considerable amount on acquiring new companies, sourcing engineering, and tech talent, and building their R&D centers in these regions.
The biggest challenge for Indian companies would be to transition the local talent in Ukraine and find ways to help their customers who depend on Russia, Ukraine, and Belarus. In addition, due to the war-triggered inflation, IT Services firms may also find it challenging to increase the price of their contracts, at least in this financial year.
Focus on employee safety and business continuity
Against the backdrop of the Ukraine conflict, Indian IT Services majors such as Infosys, TCS, Wipro, HCL, Tech Mahindra, and Mphasis are focusing on their standard operating procedures in the war impacted zones and accordingly realigning their business continuity and employee safety strategies in Europe. There has been a consistent review of the factors that may disrupt business or affect their ability to deliver work for the European clients, the second most crucial geography for Indian software service providers as about 30% of their overall revenue comes from that region. Many of these companies have clients directly or indirectly affected by the war as they have vendors and contractors working in Ukraine.
As a first step, Indian tech companies with offices in Russia or Ukraine are aggressively moving their staff to safer locations. Since the war broke, it has been the highest priority for these IT Services providers to mitigate business and supply chain disruptions. Another top concern for the leading IT majors who have expanded their presence in Ukraine and border countries is talent repositioning. Ukraine is a higher-end offshoring hub known as a top hub for talent by companies with clients in many European countries.
While TCS may not have a direct presence in Russia and Ukraine, the company continues to monitor the situation, strengthen its business continuity plans, and support its customers in emergencies.
Infosys, which has offices in Russia, Finland, Bulgaria, Latvia, and Lithuania, has already announced that it was transitioning its business from its center in Russia and exploring alternative options outside Russia. Wipro, another top IT services major, has offices in Ukraine, Hungry, and Poland, monitoring the situation closely before deciding on exiting any of the war-impacted zones.
Tech Mahindra, which recently bought Com Tec Co IT Ltd (CTC), software solutions and service provider with development centers in Latvia and Belarus, for €310 million, is also working internally to provide all the necessary support to its impacted employees. The company is also working to redeploy Ukraine-based talent to neighboring locations.
The Indian IT giants would also be cautious of cybersecurity attacks, which might significantly rise amidst the current unstable environment.
A new opportunity for Indian talent?
The impact of the prolonged war will be huge, and many enterprises who were offshoring their work to Ukraine might consider India a top choice for offshore IT services due to the availability of global-standard skilled talent and the ability to scale up to provide uninterrupted services.
Ukraine has been a go-to destination for offshoring for many global tech firms, especially those with a significant US and Europe presence. However, in the wake of an ongoing war, many multinational firms have to move their workloads out of Ukraine. "While many consider moving to a nearby location in Ukraine, others think of India and the Philippines as strong alternatives. Besides the availability of skilled talent resources at very competitive prices, India also offers a much-needed stable economy with a positive growth outlook critical for any business today," says Gaurav Arora, Managing Partner of G9 Consultants, a South-Delhi based IT talent recruitment firm.
Indian IT service providers with a strong presence in Europe also stand to gain as many companies prefer delivery locations close to their offices. However, commentators watching the unfolding conflict say that too much reading into the impact of war on the Indian IT sector may not be a wise idea at this moment.
"The total IT/ITeS exports from Ukraine are pegged at around US $ 5 billion, which is barely 3% of India's IT/ITeS export. While the prolonged war, close on the heels of the COVID-19 impact, has crippled Ukraine, it has also adversely affected countries that were offshoring IT work to Ukraine. So, first of all, the market size under consideration is already getting somewhat shrunk. Next, there is a strong likelihood of a significant share of the work getting restored to potential near-shore contenders from Europe, e.g., Hungary, Poland, and Romania," opines Deepak Kumar, Founder Analyst at B&M NXT, a marketing research and professional consulting firm.
Deepak agrees that the solidarity and support extended by these countries to Ukraine are quite likely to get translated into business sentiments. Moreover, many of the Ukrainian IT personnel have moved to these countries, so they will be in an excellent position to help drive business continuity for the clients.
"Indian IT companies like Infosys, which decided to exit Russia, albeit after some delay, may also benefit from the reshoring. However, they are unlikely to see a material impact on their toplines, partly because the size of the reshored work would be quite small compared to the size of the Indian IT companies.
India’s top software services exporters TCS, Infosys, and Wipro, have been making significant strides in strengthening their footholds in the European market through several acquisitions and the opening up of new centers. In recent years, the digital transformation wave has given them a considerable boost in these markets. While margins from many global clients may be stressed due to supply chain disruptions, it is expected that their growth momentum is likely to remain as most companies continue to invest in their digital transformation and cloud-shift initiatives.
Apart from IT Services companies, the country also has an opportunity to create a favorable ecosystem for hardware and software product-based companies such as Google, Meta, Apple, Dell, SAP, Intel, HP, and IBM, among others who have been on an expansion spree beyond Europe. They have been exiting Russia and would consider widening their presence in steady economies such as India, offering a massive technology talent base and a robust startup ecosystem.
Over the last few years, the 'Atmanirbhar Bharat' or 'Self-reliant India' initiative of the government of India has helped many companies strengthen their indigenous technology manufacturing initiatives. It can yield more significant dividends if supported by a well-defined roadmap and more attractive incentives, especially for the IT companies operating at a small to medium scale.