Prospect of war in Ukraine raises concerns over outsourcing industry

The Russian annexation of the Crimea and the possibility of war between Ukraine and Russia are threatening the country’s IT industry and its customers world-wide.


The Russian annexation of the Crimea and the possibility of war between Ukraine and Russia are threatening the country’s IT industry and its customers world-wide.

Tensions have increased since Russia sent troops into the Crimean Peninsula following removal of President Viktor Yanukovych last month. Foreign minister William Hague yesterday called it the “biggest crisis in Europe in the 21st century”.

Ukraine has become increasingly popular for IT outsourcing in recent years with revenues topping £1bn per annum. It has a highly skilled workforce, good digital infrastructure with broadband speeds comparable to the UK, and low wages.

Ukraine’s outsourcing expertise is built on the country’s reputation as a technology hub first developed in the days of the former USSR, and has continued to produce a large number of graduates in technical subjects. Around 30,000 graduate each year in IT-related subjects, a figure comparable to the UK's own numbers.

Torben Majgaard, CEO of Danish outsourcing firm Ciklum, has around 3,000 staff in Ukraine, a third of whom provide outsourced services such as application development for UK businesses, with online reviews site ReeVoo among its clients.

Majgaard is quick to point out that he has experienced no interruption to existing business, but he said that his current customers are “worried” about the situation.

“It has already jeopardised Ukraine’s reputation as an IT outsourcing destination. In the long run [the country] will get over it, but there are certainly companies who, now, and in the future, are going to think twice about putting business here."

“The problem is with customers who have not started business here yet:  they are hesitating and trying to see what is happening.”

With the prospect of greater unrest and the possibility of a war between Ukraine and Russia, outsourcing firms could face disruption if employees are called up to the Ukrainian armed forces. Some reports claim that men across Ukraine have been receiving call-up papers and will start reporting for 10 days training from Monday.

However Majgaard, speaking to ComputerworldUK, said that despite a mobilisation of Ukrainian forces, none of his workers have been called up.

“The Ukraine has ordered mobilisation, yet [yesterday] I asked in an email to our entire organisation how many people have actually been drafted. Out of all of our employees - which are 85 percent men between 25-35, and so the kind of person you would draft for a mobilised army - we have not had one person getting drafted.”

Most of the large outsourcing players in the country will be in discussions with customers over contingency plans, Majgaard added. These include the use of direct telecoms connections to the rest of Europe should internet services be shut down in the country, and the ability to relocate employees and services to cities within Ukraine or other countries altogether.

The situation is more of a concern for customers of smaller outsourcing firms which lack resources, according to Majgaard.

“A lot of small companies don’t have the resources to have contingency plans in place. Having your own … line into Europe requires that you have a certain volume and you are willing to pay for that. A lot of smaller companies will just have to cross their fingers and hope everything is going to be okay.”

“A contingency plan for a small company might be to go home and try to work from home, and hope that they will not try to close the internet. You need to have certain size of a company to seriously deal with things. We have also have offices outside of Ukraine, so we have the capacity.”

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