How Russia’s War on Ukraine Will Damage their IT “Health”

Disclaimer: Because the Russia – Ukraine crisis is unfolding so fast and things are changing so quickly, this post isn’t meant to be exhaustive by any means. Even since the time I originally published this piece on 3/7, I’ve had to update it a few times.

It’s not news that technology companies of all sorts are leaving Russia. But I want to point out 3 problems that Russian companies will face when it comes to their IT supply-chain and operations specifically:

• Talent Brain Drain

• Russia’s Ban from SWIFT

• Businesses Leaving Russia

Talent Brain Drain

Since the war between Russia and Ukraine began, more Russians than ever before are searching “how to leave Russia.” It’s getting so bad that Putin has banned people carrying more than $10,000.00 in cash from leaving Russia. IT talent, in particular, seem to want to leave the country – apparently 5000 specialists have already expressed their desire to leave.

It makes sense that IT people want to leave Russia. They have the skills to find work elsewhere, why tie yourself down to an unstable country? Especially if you expect economic conditions to only grow worse due to sanctions and multinational companies exiting the country.

This is going to immediately damage Russia’s IT “health.” Simple things like data center maintenance will become hard to do. If IT people leave the country, who’s going to be able to keep the data centers running? Who will make sure the networks are operating properly? Companies operating in Russia will face an uphill battle to just keep their services online. 

In an attempt to limit the potential brain drain, Putin’s PM, Mikhail Mishustin has stated that IT workers at Russian firms would receive preferential government mortgages and military deferment benefits. They’re also looking to exempt IT companies from income tax for 3 to 5 years. 

But I don’t think what Russia is offering is competitive enough to stop talent from wanting to leave. The only thing that will stop talent from leaving in the long run will be because they’ll have no choice but to stay. E.g. Martial law, can’t bring family, lack of money to migrate, Russian isolationism by the rest of the world.

Russia’s Ban from SWIFT

Russia being cut off from SWIFT affects both Russian companies and multinational companies operating in Russia. Russian companies with international clients will find it hard to receive payment and will most likely lose a lot of that revenue. Money that’s generated by multinational companies in Russia will effectively be isolated from the rest of the world. This will disincentivize companies from continuing operations in Russia, which brings us to the next point – business leaving Russia.

Businesses Leaving Russia

IT supply-chain issues were already bad enough even before Russia engaged in the war with Ukraine. Now, Russian companies can’t even buy hardware from some of the most important OEMs, for example:

• Dell Technologies (Suspended Business Operations)

• Cisco Systems (Suspended Business Operations)

• HPE (Suspended Business Operations)

• IBM (Suspended Business Operations)

Without infrastructure from the above companies, it’s only a matter of time before Russian systems start failing. According to IDC analyst, Philip Carter, Russian companies have largely been reluctant to rely completely on US cloud services. In the short term, this could serve as a boon for the major cloud providers, like AWS, GCP, and Azure, as they may become a more viable option. But most likely, like other tech firms, they may end up suspending new sales. The question is whether they’ll stop servicing existing customers.

(UPDATE 3/9:

AWS published a blog post stating that “Unlike other U.S. technology providers, AWS has no data centers, infrastructure, or offices in Russia, and we have a long-standing policy of not doing business with the Russian government. We have also stopped allowing new sign-ups for AWS in Russia and Belarus. Our biggest customers using AWS in Russia are companies who are headquartered outside of the country and have some development teams there.”

I haven’t seen any news on Azure suspending operations in Russia yet. Microsoft is also the market leader for cloud computing in Russia with 17% market share.)

It’s only a matter of time before macro pressures will push cloud providers to halt operations to existing customers. Multinational cloud providers are also not exempt from the IT infrastructure drought.

OEMs suspending operations in Russia is just one of the IT problems that Russia will face from businesses leaving. For example, internet companies, like Cogent, are also suspending their services, which will result in worse internet connectivity. How much this matters is yet to be seen; Russia might be cutting themselves off from the broader internet but that’s yet to be confirmed.

Russia, however, does have one saving grace – China. Chinese companies like Huawei and Alibaba will jump at the opportunity to fill the chasm that Western OEMs and cloud providers have left. In fact, just 3 days ago, news was published that Huawei has been helping the Russian government stabilize their internet. So, this could serve as a stabilizing factor for Russia in this scenario.

But even with China’s help, I don’t think it will be enough to address Russia’s IT supply chain problems. I wouldn’t be surprised to see Putin provide even more incentives to IT professionals to stay in Russia.