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Rebecca Buckman  |  February 24, 2022
The Other Side of the Russia/Ukraine Conflict—High Tech in Flux

As Russian forces invaded Ukraine this week, Western governments moved swiftly to impose severe economic sanctions and much of the world held its breath, wondering how quickly Europe’s biggest military crisis since World War II would escalate.

Also watching the events unfold were Western businesses that employ critical software developers and other IT professionals inside Ukraine. The country has quietly become one of the globe’s major IT hubs, with a tech sector now valued at roughly $5 billion and employing more than 200,000 people, according to the Atlantic Council. Most of these professionals are contractors, including many working for large IT-outsourcing agencies serving Western companies, including Fortune 500 brands. The industry grew out of Ukraine’s Soviet-era prowess in military and related scientific technologies.

The current, escalating conflict with Russia understandably has many companies doing business in Ukraine extremely worried. Last week, Battery held a webinar for its portfolio to help attendees assess their potential business risk in Ukraine and think through business-continuity strategies in light of the evolving situation.

Speakers included Vinod Venkatasubramanian, the managing director of U.S. business for Ciklum, a large digital solutions/IT-sourcing company with about 3,000 contractors in Ukraine; Leo Nekhymchuk, the founder of TwinTip, a tech-outsourcing firm founded in Ukraine; and Steve Sivitter, the CEO of 1WorldSync*, a product-information and content-software company using outsourced software talent in Ukraine.

Some of the key takeaways from the discussion were that:

  • The political risk in Ukraine has been around since at least 2014, when Russia annexed Crimea, and likely will be around for years to come no matter how the current crisis plays out. This is one reason why many Ukrainians on the ground, as opposed to those in the West, for at least a time have seemed less concerned about a Russian invasion—though that likely changed this week, as Russian airstrikes hit multiple Ukrainian cities.
  • There are many different scenarios for a Russian invasion, and one solution for companies to help manage it might be relocating developers from the eastern part of Ukraine—closer to the Russian border, including cities like Kharkiv—to the west. Other companies, however, are working quicky to relocate development teams and their families to other countries, including Poland, Bulgaria and the Czech Republic. Many may be unwilling to move, however.
  • Scenarios including electricity and Internet-service/phone cutoffs, and cybersecurity attacks, are likely. However, the panelists didn’t think those scenarios would be long-lasting, and the recent move toward distributed workforces and work-from-home setups—reinforced by the pandemic—will make it easier for people to continue to work over the long term even if it is difficult to get to a physical office.
  • The Russia/Ukraine conflict is unlikely to lead to a fundamental rethink about using offshore IT resources, or a push to move more development back onshore. If anything, companies may move toward more of a “right-shoring” concept, using more-sophisticated processes and criteria to move manufacturing, IT and business processes to an even larger set of locations to guard against crises related to geopolitics, natural disasters/climate change, and other events. This is already underway as basic labor arbitrage becomes more difficult, and the pandemic has increased the acceptance of remote and offshore work from new locations.

Battery Ventures provides investment advisory services solely to privately offered funds. Battery Ventures neither solicits nor makes its services available to the public or other advisory clients. For more information about Battery Ventures’ potential financing capabilities for prospective portfolio companies, please refer to our website.

*Denotes a past or present Battery portfolio company. For a full list of all Battery investments, please click here. No assumptions should be made that any investments identified above were or will be profitable. It should not be assumed that recommendations in the future will be profitable or equal the performance of the companies identified above

Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this post nor notify its readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate.

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