After a short time during the war between Russia and Ukraine, it became quickly apparent that the IT and BP BPO delivery centers in Ukraine and Russia would become obsolete. Companies using those third-party services would have to move the people in their captive units and replace those service provider partners. Although the timing differed from expectations, companies are not moving their global business services centers. Consequently, it affects services from other parts of the world.
As I explained back in 2022, we at Everest Group believed companies would move their own global business services units (or captives) out. They would also need to reexamine the relationships they had with service providers that had substantial delivery from Ukraine, Russia, and potentially Belarus and other Eastern European nations affected by the war.
As we move forward in time, we now see that companies did, in fact, have to move their global business services centers. However, many companies were very reluctant to move the work from their third-party providers in Ukraine.
There was a degree of loyalty that companies had to these firms. They believed that if they moved the work, they were undermining the war effort in Ukraine. They worked tirelessly with third-party providers to give them room and opportunity to continue to deliver from Ukraine. Elon Musk’s Starlink helped tremendously with the telecom telecommunications, providing the secure bandwidth necessary to continue doing this as the war progressed.
Despite this goodwill and willingness to work with third-party service providers in Ukraine, companies now are starting to tire of the effort after two years. Increasingly, they are unwilling to continue to invest in relationships where Ukraine delivery of technology and BPO services is an important constituent. And the companies providing it are effectively wearing out in their efforts to continue to patch and move forward.
Despite the desire to support these companies in Ukraine, companies recognize that they must conduct business in an optimal way. So, they are now looking for new opportunities – investment in other low-cost but secure Eastern European delivery centers.
This has an effect on the cost of labor. In Poland, for example, the cost of labor is rising significantly, particularly for high-skilled programming and engineering. The movement out of Ukraine is affecting the affordability of some Eastern European countries.
This is particularly true in the areas of digital engineering support, which was the strength of Ukrainian service providers. Ukraine presented a very attractive mix of cost-effective, high-quality engineering and digital engineering talent combined with an attractive time zone, which is both immediately close to Europe and more accessible than or more preferable for North America.
We see the results of this movement with rapidly rising wages in the Eastern European countries and with huge growth in digital engineering and IT services in Mexico – and now moving into Brazil and other South American locations – that present a rich pool of talent and a preferable time zone.
Some of the work from Ukraine migrated to India. However, moving work to India necessitates having to optimize across an aggressive labor market in which it is difficult to retain talent.
One of the other benefits in Ukraine was that the talent was persistent. Talent tended to stay with one company and was not mobile. They were committed to the companies they worked for. This created a consistency of talent that clients found highly productive. One of the problems with Poland is the intensity of the competition for resources now makes their talent less persistent.
There are some nice characteristics in South America. And some work has gone to India, but there, although companies encounter an attractive price point, they encounter a highly aggressive market where people move quickly, change jobs quickly, or change companies quickly. Plus there is the additional friction of a difficult time zone.
We predicted that there would be significant shifts in both global business services units or captives and third parties as a result of the war in Ukraine. It did not initially happen as we thought it would, but we now see it happening.
I believe this trend will continue as long as there is no foreseeable end to the Ukraine war and the incredibly and increasingly belligerent and aggressive stance that Russia takes not only to Ukraine but to other former Eastern European countries that they formerly controlled.