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The Eastern European Silicon Valley boom in the middle of Russia’s war


On Tuesday Oct. 31, 2017, male and female software developers worked at their respective desks in Kiev’s Luxoft Holding Inc. office.

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For years, technology has been at center of global security concerns and national economic worries.

This week, U.S. President Joe Biden focused his State of the Union speech on China’s competition and technology manufacturing competitiveness. However, the speech was overshadowed by Russia’s imminent invasion of Ukraine. There is also another important link in technology that has been highlighted in the First Land War in Europe after WWII: the booming hub of tech workersEastern Europe

Ukraine, Belarus and Russia – three countries now intertwined in war – have grown into essential growth areas for tech talent in a world more reliant on digital than ever before. The region has hundreds of thousands tech workers who are essential to the world’s economy.

Gartner has estimated that there are more than one million IT professionals across the three countries. One-quarter of these (250,000) work for outsourcing or consulting firms. They were 200,000 Ukrainian developers in the country in 2020Daxx, a software development outsourcing company based in Amsterdam, claims that 20 percent of Fortune 500 corporations have remote teams in Ukraine.

Big corporations rely on software vendors that rely on talent from the area to create their applications. You can take EPAM SystemsAs an example, take the following: More than 50% of its tech staff are across the three nations – over 30,000 employees. This is a prime example of how war can quickly disrupt organizations’ functioning in ways that are hard to visualize. EPAM leaders now face internal dissension as workers from Ukraine demand their CEO take a more aggressive anti-Putin stance, according to a Bloomberg reportEven though the company employs so many people in Russia, Belarus and elsewhere,

Aleksandr Volodarsky was the CEO and founder of the Ukrainian outsourcing company developer outsourcing. Many have been following developments on social media. Lemon.ioIt has contributed to making the human and tech worker dimensions of war possible. through tweets such as one in which he showed a picture of his chief marketing officer in military gear.

His company had been founded in February. providing two months of pay in advance to employees, and he has since posted that clients are stepping up and “even though developers are mobilized, unavailable, can’t work, or volunteered to help the army, they will keep paying them regular salaries.”

Analysts who cover companies such as EPAM Systems that are associated with rising talent in Eastern Europe have immediate concerns about the people they know and their contacts. The humanitarian crisis is more than just a company’s outlook.

“Yes our teams are sending deliverables from a f—ing parking garage in Kharkiv under heavy shelling and gunfire in the area. In a post posted by PrayingforExits on Tuesday, Logan Bender (chief financial officer) at San Francisco’s software licensing company said that “amazing humans”. 

However, the long-term risk is that technology will ripple across other industries.

Scott Berg, a software analyst for Needham said that “We have seen many Eastern European countries become hotbeds of development.” “Whether they are the right people or the right persons at the right cost, all the companies that I cover have resources in this area, about a third to half of them.”

Another analyst stated that “these public companies, such as EPAM and other headline companies are only the tip of an iceberg.”

Digital geopolitics at the dawn

Gartner refers now to the ubiquity and importance of digital technology as it intersects with countries’ geopolitical aspirations in “digital Geopolitics.” According to Gartner’s Research Vice President David Groombridge and his co-workers, this is a disruptive trend in digital competition among countries. 

Gartner claims executives had concerns about the location of their enterprises long before the Russia-Ukraine War. In fact, 43% said Gartner was majorly concerned by deglobalization.

Although this may not be the best solution, it is possible to stay in the region and pull current accounts from vendors. This is an issue for all companies who have large talent pools. Analysts predict that clients won’t be willing to stop working as long as there is work. However, they may not be as inclined to expand work for companies in this region with greater risk. This could impact the success of the Eastern Europe technology hub and the companies that rely on it.

The region’s companies are only trying to comprehend basic operational issues. For example, how long will they have to access funds to pay employees based in Russia. Financial restrictions from the West may limit their ability to pay workers. Also, making sure that workers have internet access. The conflict will continue for as long as it is raging. Tech firms and clients in the region, and the West, will be more concerned about the technology limitations and the implications of new product development.

Groombridge explained via email that “the current impacts on software development centers in Ukraine, and other countries around the world have made this more apparent,” and that organizations must quickly reconsider where their supply chains and IT services should come from. The answer is not to rely on reactive outsourcing, especially when there are already severe shortages in digital skills. To relocate IT services, executive must manage a complicated balance between competitive advantage, geographical concentration risks, skill availability, legal and regulatory issues and country risk factors.

The technology sector already had a severe shortage of workers. It can take as long as 70 days for a skilled worker to be hired.

According to one Wall Street analyst who had traveled all over the region, “Silicon Valley is home to the most talented people.”

The development of tech talent can be difficult. It’s not as easy as moving a factory to another location.

The people problem is a slow process. The analyst stated that these hubs can take time to build.

Intellectual concentration of resources is rare, unlike the global economic centers that are based on the riches and precious minerals found in natural resources, or the commodities used for fuel. Prior to Eastern Europe it was decades ago that a large new pool of software- and tech talent had not been created.

So far, the companies most exposed are managing — building up a cash reserve in advance, relying on data centers outside the region to begin with, building redundancies into processes in the event that systems aren’t functioning. However, stability will be at greater risk the longer this conflict continues. Although there were some cyber-security concerns and limited access to technology to fulfill core tasks, the worst has not been realized. There have been Internet outages in Ukraine, as well as Russian missiles striking key infrastructure. Russia is increasing its invasion of Ukraine, which will likely target larger populations.

According to analysts who study the region, there might be some silver lining. As other countries in the world such as Israel or South America are growing while European nations commit to higher defense budgets now than they were a month ago. Eastern European nations, such as Poland and Romania, may also see additional support for their economies and investments in the future even if Russia continues to be ignored by the international economy.

Volodarsky was recently laid out a business plan with an end date that isn’t typical for a CEO, not measured in a quarter or year, but rather, “until the end of the war.”

• Keep it running with those who can work.
• Support and pay the team even if they are not available.
• Donate profits to army.

The global consequences of war are still being felt by many, and one technology lesson is emerging that could be important for consumers as well as businesses: While the world economy cannot quickly build the talent pool that exists now in Eastern Europe, it is hyper-real right now, so events can happen in a matter of weeks that it can end up seriously affecting it.

This report was contributed by Natasha Turak, CNBC