The Impact of the Russia-Ukraine War on the Global Software Development Industry
Many top companies had their developers in Eastern Europe. What happens next?
I live in a country most of you were never interested in. When meeting people abroad I said “I am from Ukraine” and it was not uncommon to hear in response something like “Near Mongolia, right?”
Now everyone knows where is Ukraine. You don’t just know its notorious neighbor countries, but also can tell whether it is Kyiv, Kharkiv, Chernihiv, or Bucha in a blood-curdling picture. You know the name of my President and most likely you applaud him.
I work for a software development company called Clockwise Software. Our headquarter is located in Dnipro just about two hundred kilometers from the current frontline. My colleagues hear air raid sirens 4+ times a day. In most cases, the air defense does its job, but sometimes the Russian rockets hit their targets. For example, the civil airport in Dnipro has been destroyed a few days ago.
However, despite all the anxiety, the work in the teams hasn’t stopped for a single day since February 24.
Why do we keep working?
- We work because we are able to
The work of a software engineer, UI designer, or project manager isn't locally bound. All we need is a computer and an internet connection. Some of our colleagues moved to neighboring countries, some of them chose the western cities of Ukraine to bring their families to safety, but most of them are still in Dnipro. Sometimes we even see people coding in bomb shelters — they decide not to waste a minute while hiding from possible air attacks. - We work to support our countrymen
Many Ukrainians have lost their jobs as a result of the war. IT is one of a few industries that didn’t shut down. Since most of the software development services are being exported, our company keeps attracting foreign capital to Ukraine. Also, we actively donate to volunteering organizations and buy necessary stuff for our peers who decided to join the armed forces. As for now, three of our colleagues are defending the country and we can’t be more proud of them. We keep paying taxes. And last, but not least, we spend the money supporting local businesses that are experiencing tough times. - We work to maintain the positive image of Ukraine as a major player in the software development market
At Clockwise Software, we have dozens of clients from different parts of the world. All of them know well that Ukraine is a reliable partner in software development. They have trusted us with their projects and it is important for us to fulfill the obligations. The war will end. Hard work won’t. We have to make sure that these clients are satisfied with our services and spread the word about Ukraine as a go-to software development destination.
When the war began, it was impossible to plan anything further than a few days ahead. Everything looked unstable. People were afraid of the rapid occupation. The sales process in our company paused for a few days. We didn’t know what to expect.
Now, in the second month of the war, our plans and goals are clear again. We see the West actively supporting Ukraine. We see Russia drowning in sanctions. We can predict how this brutal war will affect the global software development industry and what is our role in it.
But first, let me give you some context.
The state of the IT industry in Eastern Europe before the war started
Eastern Europe has been one of the world’s largest IT hubs for the last decade. Journalists wrote about Lviv, Kyiv, and Kharkiv as the next Silicon Valleys. Dozens of successful startups were born here. Minsk and Moscow actively invested in the development of high-tech businesses and innovation centers. Well-known companies had their R&D teams in Ukraine, Russia, and Belarus. Startup founders and managers at enterprise companies were attracted by the strong technical education, moderate tax rates, and relatively low prices for software development services in Eastern European countries when compared to countries with higher costs of living.
Ukraine is the biggest European hub for tech talent. In 2021, the IT industry generated 4% of the country’s GDP, which translates to $6.8 billion in exported services.
Software development is an attractive sector for Ukrainian businesspeople, experienced engineers, and rising talents. The reason is the difference in the cost of living between Ukraine and countries in Western Europe and America — the main consumers of software programming services. Ukrainian IT professionals have a chance to earn salaries that are much higher than the national average while charging rates that are lower than what companies in Western Europe and North America can offer.
According to the Ukrainian Tech Market Overview 2021 published by DOU.ua, there were over 200,000 software development specialists in Ukraine last year. Before the war, most of them lived and worked in the large tech hubs of Kyiv, Lviv, Kharkiv, Dnipro, and Odesa. These cities were the top choices for global companies opening branches in Ukraine. Also, as a result of COVID-19, remote work became the new normal, which spread IT professionals out across even the most distant Ukrainian villages.
Ukrainian IT industry during the war
Russia has attacked Ukraine on several fronts, with Kyiv, Kharkiv, Mariupol, and Odesa among the primary targets.
Many software development companies based in these cities anticipated the assault and developed an evacuation plan for employees in advance. Some teams moved to neighboring countries including Poland and Slovakia or countries further afield including Germany, Ireland, and Israel shortly before the invasion.
With the start of the war, Ukraine banned men aged 18 to 60 from leaving the country. This has meant that evacuation to central and western regions of Ukraine is the only option available to IT companies to keep all of their employees safe.
At this point, companies and branches located in Lviv, Ivano-Frankivsk, Chernivtsi, Uzhhorod, Lutsk, and other cities in western Ukraine continue working in relatively safe conditions.
Companies from Kyiv managed to get most of their employees out of danger. Though the city has experienced much damage at the hands of the Russian armed forces, the situation appears to be somewhat stabilizing. Developers who stayed in these cities are now returning to regular work on projects.
Other important IT hubs such as Dnipro and Odesa remain relatively safe despite being only a few hundred kilometers from the front lines. The average day in these cities is currently interrupted by frequent air raid alarms and responding to urgent requests for volunteers. However, work on client projects hasn’t stopped.
What can you expect from IT in Ukraine in the near future?
The brutal war launched by Russia has already turned the eyes of the world to Ukraine. Even those who had never heard of Ukraine as a player in the software development market are discovering ways to support our country.
Elon Musk has held a Twitter campaign to support Ukraine and discredit the Russian government and its minions.
We know well how a single tweet by Musk can impact the market capitalization of a small company (remember the story with Signal?) Musk has also donated Starlink satellite hardware to ensure Ukraine has stable internet connections even in the event of massive outages. This move by Musk along with the continuous support of the whole nation is an invitation for investors worldwide.
Unfortunately, a large number of Ukrainians have lost their jobs due to the Russian invasion and forced evacuation. As a result, many see switching to a career in IT as a chance to find a stable source of income with a job that is location-independent and offers salaries tied to the dollar. Those looking to start a new career in the IT sector will not only increase the number of IT professionals in Ukraine but also bring previous expertise in various industries such as healthcare, real estate, logistics, and commerce. These diverse backgrounds are especially valued at outsourcing software development companies that work on various types of apps on behalf of their clients.
How the war is affecting the IT sector in Russia and Belarus
A full-scale war against a sovereign country has its consequences: Russia is drowning in sanctions that are partially affecting Belarus as well.
Everything Russian is now seen as toxic. As a result, countries and corporations are cutting ties with Russian companies. Doing international business in Russia is already close to impossible:
- The majority of Russian banks are banned from SWIFT, which makes external money transfers extremely complicated.
- Visa, Mastercard, and American Express have suspended operations in Russia — so no more cashless payments for holders of major credit and debit cards. American Express also quit the Belarusian market.
- Money transfer services including Western Union, PayPal, Revolut, PaySend, and Apple Pay have stopped their work in Russia.
- The EU and the US have banned the supply of euro and dollar banknotes to Russia.
- The airspace in the US, Canada, and the majority of European countries is closed for Russian planes. Russians can now take private and business trips only to some countries in Asia and Africa.
- Apple has stopped sales of its products in Russia, as have Samsung and ASUS. Chinese smartphone manufacturers Xiaomi, Oppo, and Huawei have significantly decreased their shipments. IBM, Intel, and Qualcomm have also stopped their business in Russia. The country won’t have access to the latest technologies anymore.
- Many software providers have either left the Russian market or dramatically shortened the list of services available to Russian users. Among them are Slack, Atlassian, AWS, Adobe, Microsoft, and Google Cloud — services that are essential for software development teams. Also, many service providers have stopped selling and revoked active SSL certificates for websites registered in Russia and Belarus.
- Freelance platforms including Upwork and Fiverr have banned Russian and Belarusian freelancers, making it difficult for individuals in Russia and Belarus to start or maintain cooperation with foreign clients.
As a result of the war, global tech companies have exited the Russian market, closed their R&D centers, and ended contracts with local vendors. The Belarusian IT market has been less affected, but it is still experiencing troubles.
In short, the international software development market seems to be shutting down in Russia and Belarus. The internal software markets in these countries are definitely not large enough to employ all the software developers and other specialists living there, forcing tech workers to emigrate.
Is it safe to hire software development vendors from Eastern Europe?
It is already clear that software development outsourcing to Russia is dead. In Belarus, it is passing away. IT companies in both these countries will carry on trying to build clones of banned software for the internal markets. However, doing so will bring neither significant money nor trust to the companies involved. It is highly unlikely that the export of software services from Russia and Belarus will return to pre-war levels.
Tens of thousands of software developers, quality assurance engineers, designers, marketing managers, and project managers are leaving Russia and Belarus. These bright minds are moving to Armenia, Kazakhstan, Turkey, and Georgia. Perhaps we can expect active development of the IT sector in these countries. However, the transformation may take years.
As for Ukraine, local software development companies keep working. They not only continue to fulfill their obligations to existing clients but are also signing new contracts. Such devotion is a good sign for potential clients who are considering Ukraine as a possible outsourcing destination.
Companies that used to cooperate with Russian IT agencies are now seeking alternatives, and they are likely to consider outsourcing to Ukraine. Doing so is a winning strategy, allowing companies to not only hire experienced and reliable engineers with fluent English but also support the Ukrainian economy. This is especially significant as IT is one of the few industries in Ukraine that can keep bringing money into the state budget during the war.
Summing up
Being a small software development company with a single headquarter in Ukraine and without a solid backup plan, we anticipated the crisis.
Prior to and in the first days of the war, any cooperation with Ukrainian companies seemed like a risky arrangement. It was hard to speak of a positive outcome for the country. Potential clients postponed their decisions, existing ones were cautious with planning.
However, after almost two months of fighting, it is clear that Ukraine is successfully defending itself against the Russian invaders. President Zelensky and the rest of the government are standing strong and proudly representing Ukraine in the international arena which also has a direct effect on our industry: the IT outsourcing market is stabilizing and has a ground for active development.
We at Clockwise Software hire new employees and sign new contracts. So do most of our fellow companies in Dnipro and the whole of Ukraine.
Millions of people around the globe now know not just Ukraine’s exact location on the map, but also the strengths of the country. After actively dropping contracts with Russian companies, investors are likely to turn their heads to Ukraine.
