In today’s hot labor market, with a difficult gap between talent demand and available resources, companies must try to widen the area where they can recruit workers, and hunt for labor pools in new, smaller markets. Google and other tech companies are reaching out to labor markets on the West Coast and in small markets in remote cities. FedEx and other large companies are investing in expensive TV ads to reach workers in non-traditional labor pools. However, the signs are clear that a recession will be upon us in months, and the new strategies for expanding a labor pool often have long run times. What are the best approaches to expand labor pools now?
The Ukraine IT sector has grown as a result of, and not despite, its humble, post-Soviet origins, and characteristics of agility and resilience appear to be serving it well. Read on as we share the viewpoint of our expert who traveled to Ukraine after the dissolution of the Soviet Union in this blog.
In March 1992, four months after the dissolution of the Soviet Union, I traveled to Ukraine to attend a hastily convened conference on the liberalization of post-Soviet telecommunications in the Commonwealth of Independent States. Delegates flew into Simferopol on a Swiss Air charter, and we took a rickety bus ride across the Crimean Peninsula to Yalta, the site of the eponymous wartime conference.
The conference was chaotic but enlightening: Soviet telecommunications had been so Moscow-centric that at independence, Ukraine did not have a singular, state-owned telecom carrier and virtually no direct international circuits. Disparate local networks loosely managed by the Ministry of Transportation and Communications were spread across Ukraine’s 22 administrative districts. These networks became Ukrtelecom in 1994, but outdated and inefficient fixed-line service was overtaken by rapid mobile take-up from the mid-1990s.
The results? A generation of Ukrainians grew up with mobility as their default. And the legacy of decentralized infrastructure led to a fragmented internet marketplace with ten or more internet service providers. Mobility and decentralization spawned an entrepreneurial and healthy, if not spectacularly large, IT services sector that now has some 290,000 professionals – 79% of them “individual entrepreneurs,” that was worth over $6.83 billion in export revenue in 2021, according to industry association IT Ukraine.
The Ukraine IT sector, innately agile and resilient, was in many ways prepared even more thoroughly for the dislocation caused by the Russian invasion, having endured 20 months of pandemic-enforced remote working. Anecdotal evidence, popping up in podcasts, on LinkedIn, and in mainstream media, suggests that the Ukraine IT sector is very much still working. Companies like Intellias and Sigma Software in Lviv, GeeksForLess in Mykolaiv, Reface in Kyiv, and many more, have contributed, according to IT Ukraine, quoted in an April 6 article on DOU.ua, to “almost 85% of [IT] companies operat[ing] in a normal business rhythm.”
How long the Ukraine IT sector can maintain that normal business rhythm, of course, remains uncertain. While some look to post-war opportunities in an independent Ukraine, created by the outflow of business from Russia and possibly Belarus, the current reality is that the reduced appetite by foreign businesses for risk and the execution of business continuity plans have meant that work has started to move outside Ukraine.
That said, I expect a significant share of work that is currently being delivered, and that can continue to be delivered remotely, will remain longer-term with Ukrainian companies or contractors, irrespective of whether specialists are operating in western Ukraine or outside of the country.
Indeed, Lviv IT Cluster, a body representing business, academia, and local government, claims that upwards of 40,000 IT specialists have relocated to Lviv in western Ukraine since the invasion, swelling the available talent headcount in the city to between 70,000 and 100,000. For now, internet and power in Lviv still function, and as long as they do, the Ukraine IT sector will find a way to continue its normal business rhythm.
The traditional strategies for finding the best recruits for jobs are changing. With the talent shortage across all industries, companies are taking innovative approaches to talent sourcing and acquisition. Where will your next-generation talent come from? To stay on top of the war for talent, read on to learn the emerging tactics and a comprehensive framework to expand the candidate pool.
Traditional talent sourcing strategies
The commonly used practices for proactively locating the best potential hires for open or future positions are no longer enough with the great need and talent shortage. Traditional talent sourcing strategies have included:
Using internships to lure top prospects and hiring recent graduates
Hiring from within the same industry or location, which offers the benefits of domain knowledge and cultural fit
Relocating talent from other locations for their experience, skills, and ability to learn
Offering flexible employment such as part-time work and fixed-term contracts. While this is a growing trend, alternative talent for most companies is typically less than 15% of the total workforce, especially for IT and niche skills
Innovative talent sourcing and acquisition strategies
The quest for the right skill sets and talent is driving organizations’ hiring decisions and motivating them to try new operating models. Based on our latest research on the Philippines market and beyond, here are eight emerging talent sourcing and acquisition strategies to consider:
Acqui-hiring or hiring through Mergers & Acquisitions: Acquiring start-ups primarily to recruit their employees with specific talent
Satellite centers to augment traditional hubs: Setting up small satellite offices to diversify delivery location portfolios, creating extended “spoke” offices without setting up large physical sites to attract talent from a wider area
Collaborating with the external ecosystem: Strengthening connections with academic institutions, start-ups, and service providers to leverage their talent pools to develop holistic solutions, increase agility, and reduce go-to-market time
Work from Home or Anywhere (WFH/WFA): Exploring work from home or work from anywhere models now, particularly since COVID-19 has increased the acceptance and openness to virtual delivery models
Gamification/simulation-based screening assessments: Using gamification-based assessments instead of a traditional interview process with a focus on hiring for learnability and applying skills rather than possessing the core skill itself
Hiring next-generation talent and “problem solvers” through hackathons: Hiring candidates through coding events such as hackathons to attract a wider pool of talent from multiple sources and different backgrounds, and to engage with the student community
Co-creating a curriculum: Partnering with educational institutes to introduce curated courses for developing and attracting talent with specific skillsets
Comprehensive framework to expand the talent pool
Everest Group has developed the following comprehensive framework to incorporate the many ways organizations in the Philippines are widening their access to candidates to meet ever-increasing talent requirements.
Below are some approaches leading enterprises are exploring:
Leverage tier-2/3 locations: Tier 2/3 locations: Bacolod, Cebu, Davao, Iloilo, and Pampanga (Angeles City, Metro Clark) for the following reasons:
Lower operations costs – Costs in tier-2/3 cities are 10-20% lower compared to a typical tier-1 city because of lower salaries and facility-related expenses
Better work-life balance – Tier-2/3 cities provide a decent alternative because employees don’t need to travel to tier-1 cities for employment. The growing adoption of the long-term WFH model may also increase the pool of tenured IT talent operating from these locations
Reduced risk – Tier-2/3 locations can act as Business Continuity Planning (BCP) locations to tier-1 locations, providing opportunities to diversify delivery location risk
Lower human capital costs – Multiple tier-2/3 cities offer a large, untapped talent pool with relevant skills, providing scalability and the potential to reduce people costs
Greater retention – Attrition rates in tier-2/3 locations are 10-15% lower than in tier-1 locations, translating into better service delivery and lower hiring and training costs
Adopt the contingent workforce model: Using contingent workers such as freelancers, independent contractors, consultants, or other non-permanent workers offers cost savings, increased flexibility, and caters to workers’ changing preferences. This trend is growing with 36% of enterprises classifying more than 16% of their workforce as contingent workers
Increase the use of gig workers: Accessing next-generation skills in locations where companies do not have a physical presence for short-term assignments, tasks, or jobs
Establish satellites/pods: Setting up small-scale (less than 50 full-time equivalent employees) or sub-scale centers, typically within a shared workspace to tap into new locations. Additionally, these arrangements enhance access to scarce talent and aid in Business Continuity (BCP) goals, provide a platform for possible collaboration, Centers of Excellence (CoEs), and offer flexible workspaces
Adopt internal and external crowdsourcing: Leveraging social media and networks to spread the word about job availability. Crowdsourcing across companies has been on the rise
Explore talent hotspots: Establishing a presence in emerging talent hotspots (e.g., Israel, Lithuania, Egypt) to access next-gen skills
We expect a notable increase in the adoption of these talent sourcing and acquisition strategies over the next six to 12 months by Philippines-based shared service centers and other organizations.
To share your comments and questions on talent sourcing and talent acquisition, please reach out us: contact us.
As the world emerges from the pandemic and looks for new destinations for high-end information technology and business process services, put Latin America on the radar screen for its lower costs, talent availability, language proficiency, and other factors. Learn why this region is an attractive emerging destination for global service delivery, what countries offer the most promise, and the trade-offs and risks.
Latin America has emerged in recent years as a leading nearshore destination for companies in the US and Canada, primarily driven by its unique position of cultural parallels and geographic proximity to the North American market.
This popular delivery destination for IT and BP services has undergone dynamic shifts in the past few years, and its location can be increasingly critical post-pandemic to filling talent gaps and providing a more stable geopolitical climate than destinations in Europe, given the current Ukraine-Russia conflict.
Increased capabilities, aided by digital infrastructure investment, and scaled operations delivery are attracting companies to leading locations such as Mexico, Argentina, Brazil, and Costa Rica. Companies that are reimagining delivery in Latin America and growing operations in the region are differentiating themselves by capitalizing on the region’s attractive proposition.
Other favorable factors such as lower costs compared to North America, increased government support, and rising English proficiency are enabling growth, especially for the contact center industry. While promising, organizations need to be aware of some trade-offs and associated risks for operating in the region.
Trade-offs and risks
Organizations looking to enter the Latin American market should be concerned about market congestion, lack of digital infrastructure, and an unfavorable macroeconomic environment in a few key locations.
Leading cities in the region (e.g., San Jose, Mexico City, Sao Paulo) are experiencing growth in competitive intensity, threatening their cost arbitrage against North America. Moreover, countries like Argentina, despite their large talent pool, are facing major macroeconomic challenges brought forth by the pandemic.
On the other side of the coin, countries such as Jamaica, Uruguay, and Guatemala have low market congestion and are primarily leveraged for transactional BP services but have limited maturity in IT and engineering services. Organizations keen to support complex and judgment-intensive processes will need to make substantial investments in talent development in these markets.
Further Latin American destinations also face some challenges around reliability and digital infrastructure scalability. While investments are continuously being made in this area, certain countries within the region still rank relatively lower on the digital readiness scale. This potentially poses challenges for remote working in the post-COVID era.
Leading Latin American locations for financial attractiveness, talent availability, and operating and business environment
Here’s a quick look at the top four global services delivery locations by largest to smallest market size in Latin America:
Mexico – boasts the largest scale among Latin American locations for global services delivery (both transactional and judgment-intensive processes). Leveraged to support IT-BP service delivery along with next-generation digital services (e.g., Artificial Intelligence, Internet of Things, analytics), the market faces one of the highest competitive intensity in the region, driven by a large player base and strong sector growth
Colombia – primarily a global hub for voice-related services and transactional BPS delivery. Although it has limited maturity for next-generation digital services delivery, it holds the potential for increased IT and non-voice BP services delivery, given its large talent pool
Argentina – a large-scale, multi-functional hub location to support service delivery to the Americas and some European locations. It exhibits relatively high maturity for next-generation digital services, including AI, analytics, cloud, and IoT, delivered from its highly congested Tier 1 cities
Brazil – primarily delivers IT and BP services to Latin American locations. It has a large base supporting domestic demand (within the country) but global service delivery is limited. While it has a highly skilled talent pool supporting complex/niche skills and judgment-intensive IT work (e.g., cloud computing, big data), its more costly base owing to higher salaries and real estate costs affects its attractiveness as a global service delivery destination
Global service delivery destination to watch
Latin America is well placed in its growth journey to emerge as one of the leading nearshore destinations. Industry verticals such as retail, telecommunications, and Financial Services and Insurance (BFSI) continue to drive overall regional demand. Its unique positioning, strong government support, and growing talent pool make the region a destination of choice for some of the world’s biggest brands, including Amazon, PricewaterhouseCoopers, Galileo, and Pinterest, among others.
To learn more about the dynamics in the region, please read our recently published report Reimagining Latin America Delivery in a Post-COVID World, which highlights the relative attractiveness and talent-cost proposition of key Latin American locations to support global services delivery, based on our holistic and multi-faceted assessment across 12 critical parameters.
For more information on Latin America as a global service delivery location, please reach out us: contact us.
The Russian military action in Ukraine has already significantly impacted thousands of services jobs in this region, but the potential reverberations to nearshore European countries and the larger global services industry could be far more damaging – making it essential tointegrate geopolitical risk management in your decision-making now. Learn the immediate steps to protect against risks during these increasingly unpredictable times as we continue our expert analysis on this critical issue.
In our recent blog, we wrote about service delivery risk in Ukraine. Since Russian forces invaded Ukraine on Feb. 24, almost 150 companies operating out of the region supporting IT, Engineering, and Business Process services have ceased or at least suspended operations in the region, impacting thousands of jobs.
But the crisis is not limited to Ukraine, Russia, or even Belarus. Several Eastern European countries such as Poland, Hungary, Slovakia, and Romania are directly impacted. These neighboring countries are taking in refugees, providing financial aid, declaring states of emergency, preparing for military confrontation, and most importantly, witnessing a significant drop in employee morale as individuals and families experience anxiety over the recent events.
These nearshore European countries – Poland, Hungary, Romania, Slovakia, Czech Republic, Latvia, Lithuania, and Estonia – collectively host nearly ~1.5 million Full-time Equivalents (FTEs) in global services delivery, accounting for 15-18% of the total global services workforce worldwide.
We are advising our clients that significantly rely on Central Eastern Europe to stress test their Business Continuity Planning (BCP) strategies at the same time hoping that the ongoing conflict doesn’t escalate to the neighboring countries.
But while we hope for the best, we must prepare for the worst. One of the lessons from this crisis is to not assume that diplomats have everything under control. The events of the past few weeks are extremely disturbing and could embolden authoritarian leaders in some of the other countries.
Below is our analysis of some of the hostile geopolitical equations globally that could impact the global services industry in the event of a major escalation in the associated countries:
Global services Impact
(number of centers and FTEs)
Key players with large footprint
Russia versus NATO
Poland, Hungary, Romania, Slovakia, Czech Republic, Latvia, Lithuania, and Estonia
While we can only hope that none of the above-mentioned scenarios take place, organizations need to be well-prepared to manage the risk impacts. Everest Group advises the following:
Move geopolitical risk management up your enterprise agenda
New risks require newer risk management systems. While most global companies invoke reactive measures to the changing risk environment, they lack integrated capabilities for managing the cross-enterprise impact of geopolitical risk. Integrate geopolitical risk management into a systematic process and move risk functions beyond the formal views of governance/administration to influence your firm’s core strategy
Deploy refreshed risk management mechanisms and take a portfolio view of risks to better understand the implications and interdependencies
Empower risk management teams with access to geopolitical intelligence relevant for not just short-term, but long-term challenges and opportunities. Ensure that updated assessments and implications of geopolitical risks regularly feed into the decision-making machinery across the firm
Anticipate business-risk implications
Examine and understand potential business consequences of geopolitical risks. More often than not, geopolitical movements lead to regulatory changes (e.g., sanctions), thereby impacting corporate risk exposure, with implications for tax rates, cross-border trade, and exchange-transfer risk
Scan the horizon for changing sanctions and resultant changes to your third-party ecosystem
Rehearse and stress-test the readiness of contingency plans regularly
Consistently run tests of work from home and other BCP models to ensure familiarity and effectiveness (in terms of devices, connectivity, collaboration, and project management tools)
Strengthen digital security and ensure tech readiness
Cyber risks are increasingly associated with political origins, including war and terrorism. Keep a hawk-eye on potential threats related to cybersecurity and invest in strengthening network infrastructures and stronger encryption algorithms to insulate against potential cyberattacks
Be aware that historical evidence suggests that cyberattacks are not restricted to just the conflicted zones and often spill over, causing collateral damage in neighboring countries and also putting them at risk
Maximize delivery portfolio resiliency
Diversification is becoming mission-critical. Instead of operating large hubs in one or two locations, look to dip toes in multiple talent pools across locations (while simultaneously assessing fragmentation risks)
Reassess your Global Business Services (GBS)/shared services and vendor portfolio to ensure enough overlap and redundancy across both operational and management processes
Invest in process simplification and re-design to reduce hand-offs, decision-points, and dependence on people
Increase BCP-led talent management
Cross-skill/cross-train the workforce across centers in critical processes to enhance BCP and resilience, and manage workloads in case of a country/center work stoppage scenario
Maintain select forms of dispersed/distributed workforce (not co-located with delivery centers). Examples include remote working models or “pods,” contingent and gig workforces
The nature of geopolitical risk is changing and becoming increasingly unpredictable. It is now imperative for organizations to integrate geopolitical risk management in decision-making processes across the organization.
Acknowledging the reality of the current climate crisis, forward-looking corporations are adopting business strategies to make their organizations more resilient to its far-reaching consequences. Climate change can directly impact employee well-being, service delivery location decisions, and other critical business operations. Read on to gain a better understanding of its short- and long-term impacts and what to consider.
“Jakarta is sinking,” screamed headlines as Indonesia announced moving its capital 2,000 kilometers northeast to Nusantara, on the island of Borneo. The move that could cost Indonesia upwards of $30 billion is driven by concerns of Jakarta’s submergence by 2050. Jakarta could be the first of many cities to be adversely impacted by climate change.
The debate on climate change has moved from whether it is real to when will it impact us. Climate change has become inescapable. The discussion on climate change featured primarily in social media, conferences, academia, and educational institutes have moved to boardrooms. Corporates are increasingly concerned about the short- and long-term impact climate change can have on their businesses.
Facing pressure from employees, customers, and investors to act on climate change, corporations are increasingly forced to acknowledge climate change’s economic, physical, and operational impact on their business and human capital.
Hotter summers, colder winters, and an increasing frequency of extreme weather events like storms, hurricanes, and floods are all signs of the climate crisis. According to multiple studies, the earth’s surface temperature has seen the highest increase in the last 40 years, with 10 of the warmest years occurring post-2005. Scientists worldwide have reported record ice cap melting and glacier retreats.
The exponential increase in extreme weather events and natural disasters should be a more pressing concern. In 2020 and 2021, the world has seen a spike in natural disasters in the last few years, with a five-fold increase over 50 years. Climate change has led to warmer temperatures, leading to more frequent heatwaves and droughts. Sea levels have been rising steadily, coupled with frequent coastal region flooding.
Corporations taking notice
Corporations are now acknowledging that climate change can have a significant impact on business functions. Extreme weather events in recent years have disrupted business operations and resulted in the loss of human life, physical assets, and infrastructure.
Companies are trying to think beyond the short-term consequences already being felt and understand the long-term effects of climate change on international business strategies. In addition to business disruptions, climate change can have implications on employees’ mental and physical well-being and, in extreme cases, loss of life. In most companies, especially the global services industry, human capital is the most critical asset. Climate change can significantly impact business operations due to lower productivity, loss of work hours, and possible higher attrition rates.
As companies acknowledge climate change’s direct and indirect business impacts, the more forward-thinking companies have started adopting plans to make themselves more resilient to climate change and its consequences. Although this is just the beginning, a lot more needs to be done in terms of workforce and location strategies.
Location strategies need to consider climate change
Most companies are still more focused on the short-term, like building climate-resilient buildings and reinforcing existing infrastructure to make it more resilient to the impacts of climate change. Location strategy is a long-term decision with significant investment and sunk costs. Once a company decides to start delivery operations from a particular location, it is an irreversible long-term decision due to the high capital and labor investment.
Companies will have to consider the impact of climate change on future location strategy decision making, which traditionally includes talent, cost arbitrage, and conventional operating and business environment parameters. Climate change impacts different regions, locations, and geographies differently. Although two locations might be neighboring coastal cities, the impact of climate change could differ depending on the landscape.
Hence, it is paramount for companies to understand the effects of climate change on the particular location they are accessing and the degree of its impact. The holistic, long-term assessment should consider historical and predicted climate patterns, government mitigation measures and their effectiveness, and geographic factors.
In our recent viewpoint, Impact of Climate Change on Delivery Location Sustainability, we cover climate change’s impact on significant delivery locations around the world, across multiple parameters including rising temperatures, heatwaves, floods, hurricanes, storms, and rising sea levels with qualitative insights on select sites. The report provides a high-level view on short-term and long-term risk management measures to mitigate the effects of climate change on companies and employees.
With Eastern Europe serving as a major hub for Customer Experience Management (CXM), the Russia-Ukraine crisis poses a serious threat to service delivery. Now is the time for enterprises with large presences in this region to diversify delivery locations and mitigate risks.
Read on for our expert analysis on the state of CXM outsourcing here, the potential disruptions, and alternative countries to consider for multilingual customer service and tech support to ensure continued CXM services.
Just as the world was looking to emerge from the global pandemic that caused a seismic shift in work and collaboration models, another highly disruptive crisis looms on the horizon. The recent geopolitical developments in Ukraine and Russia have caused the whole world to take notice, and with new sanctions kicking in every day, many are already preparing for adverse scenarios.
Given that this rift involves nuclear heavyweights in Russia and the NATO countries, the consequences could be far-reaching for the entire world. Consequently, these tense developments have created a lot of uncertainty and consternation for companies having a presence in the affected region.
Eastern Europe, which forms the immediate vicinity of Ukraine, is a major hub for delivering a plethora of customer experience management services for end-users both within and outside this region. Let’s take a look at the potential impacts to CXM outsourcing and alternative locations for CXM services.
Eastern European region CXM snapshot
As a strategic location for CXM services, eastern Europe offers strong multilingual capabilities, relatively inexpensive skilled talent, and cultural similarities and a minor time difference to western Europe. Leading global enterprises and Europe-focused players have a significant footprint in this region, putting them at risk in the current situation. The heatmap below illustrates the country-wise vulnerability index based on the number of delivery centers and corresponding CX agents present in each of them.
Potential CXM services disruptions and alternate solutions
Due to its skilled and relatively inexpensive IT talent pool, Eastern Europe is highly leveraged for its multilingual support for not only the regional languages such as Russian, Czech, Serbian, etc. but also for many of the major west European languages such as German, French, English, Spanish, and Italian. Poland and Romania also are sizeable talent sources for technical support.
Major cities in Ukraine such as Kyiv and Dnipro have been the most severely impacted by the armed conflict with Russia, and enterprises must accelerate Business Continuity Planning (BCP) measures to relocate affected CXM agents to safer parts of the country or outside of Ukraine to provide immediate relief.
If the conflict escalates beyond the borders of Ukraine in the coming weeks, major cities in Romania, Poland, and Bulgaria – which have the highest concentration of CXM delivery centers – could also be directly impacted.
We also envision a potential threat of cybersecurity breaches in Ukraine, inevitably causing collateral damage to its neighboring countries as well. While no one can foresee how the situation will unfold or its duration, enterprise clients must stay well informed and start devising backup scenarios and activate disaster recovery plans if needed. Although we believe the disruption will be temporary, a long-protracted war can’t be ruled out.
Alternative locations for CXM support services
Considering the uncertainty and volatility, let’s look at some viable alternate locations to help enterprises mitigate their emerging risks:
Multilingual customer support – Enterprises should consider new offshore and onshore locations to support major European languages for CXM outsourcing, as illustrated below:
Tech support – The best strategy for enterprises is keeping their complex tech-related support in-house through onshore locations. However, for simpler queries, alternative nearshore locations such as South Africa and Egypt offer similar advantages that Eastern European locations can provide at lower price points without any dip in the talent pool. Even offshore locations such as India and the Philippines are suitable alternatives to consider as long-term tech support outsourcing locations
The last two years have taught enterprises the glaring importance of risk mitigation as a strategic priority to ensure service continuity, and this year seems to be behaving no differently. Customer experience has established itself as a true differentiator for enterprises of all sizes and shapes in every industry. As such, ensuring that customer support services run unhindered is vital for enterprises to achieve their business outcomes.
Now, more than ever, diversification of service delivery locations will become increasingly relevant to counteract the rising instability that the current geopolitical tensions between Russia and Ukraine as well as similar such events could bring in the future.
While we hope that this devastating humanitarian crisis comes to an end as soon as possible, enterprises that closely re-examine their service delivery footprints and proactively mitigate their risks will be better positioned to absorb any shockwaves that could potentially arise in the coming months.
With the continuing escalating events, it is important to stay informed on the latest developments in this region. Contact us at [email protected] or [email protected]to discuss your situation and solutions.
The fresh armed offensive launched by Russia at the end of February has disrupted the service delivery ecosystem almost across the whole of Ukraine. Everest Group moved Ukraine’s operating and business environment risk rating to ”High” and recommends that global services firms intensify and accelerate contingency and business continuity plans to ensure resiliency and employee safety. Read on to learn more about the Ukraine-Russia conflict and its impact on the service delivery industry in Ukraine and the broader Central and Eastern Europe (CEE) region.
Origin and evolution of the Ukraine-Russia crisis
The recent crisis between Russia and Ukraine dates back to 2014 when Russia annexed the Ukrainian peninsula, Crimea, and backed pro-Russian separatists in the eastern Donbas region. Despite a 2015 peace treaty between Kyiv and Moscow, there have been several ceasefire violations resulting in many civilian deaths in both regions. Border tensions renewed in November 2021 when Russia started to amass tens of thousands of troops at the Ukrainian border as both NATO and Ukraine refused to commit to excluding Ukraine as a NATO member in the future. On February 22, 2022, Russia recognized the breakaway regions of Ukraine (Donetsk and Luhansk) as independent states and effectively breached the Minsk Protocol, which prevents war in the Donbas region. On February 24, 2022, Russia launched an invasion of Ukraine and started attacking major cities including, Kyiv, sparking an exodus from these cities. While until now, the conflict was localized in the east of the country and service delivery was unaffected in the other parts of Ukraine, the conflict has now spread to almost the entire country. Depending on how scenarios play out (see below), this could mean a disruption of service delivery across Ukraine as well as ripple effects on the rest of the CEE region.
Current and potential impacts on the services industry in Ukraine
For years, Ukraine has been a sought-after location for companies outsourcing software development and ER&D services. The Ukrainian services sector features deep expertise, and Ukraine’s large talent pool is well-positioned to serve the chronic shortage of global engineering and technology manpower while offering attractive financial arbitrage. During the 2014-15 conflict, most companies had already diversified the risks of operating in Ukraine to a large extent. The recent escalation since November 2021 had also forced firms to activate contingency/BCP measures.
Based on the evolution of the conflict across multiple scenarios described below (or beyond these), companies will need to actively watch and flex their contingency plans further.
We foresee the following scenarios playing out on the ground:
largely limited to the Eastern regions, but not impacting Kyiv and other large cities
Long-drawn conflict extending to key cities in North/West/South Ukraine
Swift brokered peace, retaining the current Ukraine administration
Swift and decisive victory for Russia followed by installation of a Russia-backed government in Ukraine
· Ukraine defense forces are able to counter the Russian attack, but not entirely repel decisively
· Conflict largely contained in the Eastern and Southern regions of Ukraine, with limited disruption in the key larger cities of Kyiv, Lviv, and Dnipropetrovsk
· Ukraine defense forces are able to counter the Russian attack, but not entirely repel decisively
· Pitched battles for and around key Ukrainian cities such as Kiev, Odesa, Lviv, and Dnipropetrovsk
· Large-scale exodus from Ukraine to neighboring countries in the region – such as Poland, Slovakia, Hungary, or Romania
· EU/US/Turkey broker a swift ceasefire and provisional agreement, potentially through concessions such as a commitment for Ukraine not to join NATO and/or threat of further crippling sanctions on Russia
· Current Ukraine administration retains power and authority
· Eastern regions of Donetsk and Luhansk gain independence or autonomy and are not in Ukraine control
· Russian forces do not encounter significant armed resistance and gain a decisive victory over Ukraine OR current Ukrainian administration capitulates to limit loss of life and infrastructure
· Kyiv and other key cities are captured by Russian forces
· Russia installs a puppet government in Ukraine
· Some exodus likely to neighboring countries in the region, such as Poland, Slovakia, Hungary, Romania
Likely impact on global services delivery from Ukraine
· Temporary disruption spanning a few days in the key cities in the North and West of Ukraine; significant disruption in the South and East
· Businesses will be able to operate with minimal disruption thereafter in the larger cities, however, those in Eastern (e.g., Dnipropetrovsk) and Southern (e.g., Odesa) centers will face significant disruption
· Movement of people and operations to centers in the North and West of the country; contingency plans will need to be on standby in case conflict spreads to other regions of the country
· Large-scale and crippling disruption to service delivery across the country, including in larger cities
· Companies will need to move people and operations to other centers in their portfolios, especially to the CEE region
· Limited disruption in the larger cities, especially those in the Northern and Western regions of Ukraine
· Businesses will operate normally post some days/weeks of uncertainty
· Clients still likely to demand diversification as regions in the East will continue to be under some uncertainty, leading to movement of people and processes to centers in the North and West of the country
· Temporary disruption spanning a few days to a few weeks in the key cities in the North and West of Ukraine; significant temporary disruption in the South and East
· Post installation of a Russia-backed government, disruption should subside gradually, and businesses will be able to operate normally and with some levels of certainty. However, this scenario raises a fundamental question of whether organizations are comfortable operating in an environment heavily influenced/controlled by Russia
Likely impacts on the broader CEE region
· Some pressure on firms to diversify as a BCP measure will lead to growth in the CEE region and broader Europe region
· Large-scale movement of personnel and operations to CEE countries
· Likely need to de-risk operations in countries bordering Ukraine (e.g., Poland, Slovakia, Hungary, Romania, Moldova, and the Baltic States) given potential of a westward push of Russian expansionary tactics
· Some pressure on firms to diversify as a BCP measure will lead to growth in the CEE region and broader Europe region
· Lower impacts on the broader region, however, some personnel may want to move out from under a Russia-backed administration and want to migrate to other countries in the region or globally
· Likely need to de-risk operations in countries bordering Ukraine (e.g., Poland, Slovakia, Hungary, Romania, Moldova, and the Baltic States) given potential of a westward push of Russian expansionary tactics
Ukraine is a key global delivery location for IT and Engineering R&D (ER&D) services, which brings widespread uncertainty and significant concerns for the many companies operating there. Companies such as Wix, Vistaprint, Ciklum, and Cimpress had already begun relocating their staff from east Ukraine to relatively safer parts of the country, such as Lviv, Ternopil, and Ivano-Frankivsk, in efforts to continue uninterrupted business processes and keep employees out of harm’s way. Some are even relocating to other countries, like Poland, Turkey, and Israel.
Approaches and recommendations for firms supporting service delivery in Ukraine
Everest Group has downgraded the operating and business environment risk rating of Ukraine (previously Medium) to High as global organizations continue to face uncertainty, and the threat of disruption is very high considering likely further deterioration in the situation.
Amid these uncertainties and rising tensions, Everest Group recommends the following to global services players with operations in Ukraine:
Intensify/accelerate contingency plans: Global services firms should intensify and accelerate contingency and business continuity plans. These measures could include arrangements for relocations of employees and their families, backing up data to servers based in the US or other locations, developing backup options with independent internet providers, establishing emergency satellite communications, identifying alternative suppliers, and stockpiling supplies
Monitor cybersecurity, especially data security: Firms should strengthen their network infrastructures to insulate themselves against potential cyberattacks and/or a takeover of data infrastructure by Russia or a Russian-backed administration. The conflict raises the vulnerability of companies to cyber-attacks on Ukrainian firms and data assets – and will need to actively consider measures to protect data residing in servers in Ukraine – especially in the event of a Russia-backed administration taking over
Flex talent models and workforce strategy: Businesses impacted by disruption in Ukraine will need to flex talent models and workforce strategy creatively and aggressively to minimize the impact to operations – measures could include cross-training workforce in other centers, hiring contingent talent, expanding remote delivery, provisionally insourcing critical work packets, and rebalancing work across a global/regional delivery portfolio
Centers in the European region will be ideally suited to support work that is/was being supported in Ukraine; however, given proximity with Ukraine, some of the CEE countries may not be obvious choices. Companies may need to redistribute work to other global centers, including in Western Europe, Asia, and Latin America
Smaller companies and startups will be much more exposed compared to the larger global/regional players as they will struggle to rebalance work and people outside Ukraine – these contracts will require urgent attention from sourcing executives over the next few days
Evaluate and identify impacts on broader service delivery portfolio:
Countries neighboring Ukraine and Belarus will need to be reevaluated for delivery risks stemming from expanded Russian influence/control over the above two countries. Further westward expansion plans of Russia could significantly downgrade the geopolitical stability of countries such as Poland, Slovakia, Hungary, Romania, and the Baltic States
The crisis has the potential of destabilizing a decades-long peace in Europe for a long term. With its existing influence over Belarus and Moldova, if Russia gains control over Ukraine, its neighbors will all be NATO members, thus setting the stage for a long-drawn tussle over Western vs. Russian influence in the region
Further, other countries in the CEE region and broader Europe are also likely to see the impacts of migration of Ukrainians. For example, Moldova and Lithuania have already declared a state of emergency to deal with refugees that have already started arriving
The crisis may also create stress on other locations within the global delivery portfolios of companies – both enterprises and their service providers – as they try to ensure continuity by flexing alternative locations, providers, and even sourcing models (e.g., provisionally insourcing work with providers heavily exposed in Ukraine). Given the significant talent crunch already being witnessed by companies globally, this rebalancing may create further stress in existing systems and impact other critical initiatives
Finally, service delivery in Russia and Belarus is also likely to suffer significantly as a result of strong sanctions imposed by the US and Western Europe
Ukraine is one of the top locations for offshore and near-shore third-party services, especially for engineering and IT skills. Thus, Russia’s invasion of Ukraine this week has a significant disruptive impact on American and European companies. What is the impact, which companies are affected, what are the numbers, how will it affect prices, and how long will this disruption last?
The technology surge has created a talent war for digital skills, making selecting the right service delivery locations more crucial than ever. Where should enterprises look to find the human capital they need now and for the future? Read on to discover the hot spots for tech talent in the Asia-Pacific, EMEA, and Americas.
The COVID-19 pandemic has created soaring demand for emerging technologies such as cloud, Artificial Intelligence (AI), Machine Learning (ML), data science, Internet of Things (IoT), Natural Language Processing (NLP), blockchain, and 5G.
But the biggest obstacle to adopting these emerging technologies is talent.
With the huge tech demand and unmet talent supply, developing delivery portfolios that provide a continuous pool of high-quality employees that have the innovation capacity to fulfill digital growth agendas is critical to gaining a competitive edge.
Based on our latest research, here are some of the established and emerging talent tech hubs to watch:
Large talent availability and significant cost arbitrage over other regions continue to make Asia the location of choice for technology services. India has seen the most growth for new centers and the talent pool, followed by China and Singapore.
India remains the preferred location for large-scale technology services delivery. Over the past few years, it has experienced the highest growth in new setups and existing center expansions. Several leading enterprises have set up Centers of Excellence (CoEs) and innovation centers focused on emerging technologies primarily driven by an increased focus on digital, IT, and engineering/R&D services and to support new products and services development.
While Tier 1 cities remained the most desired locations within India, Tier 2 cities also experienced an uptick due to rising demand for high-quality IT skilled talent and work from home emerging as the new delivery model. Companies and investment promotion agencies remain bullish on the growth in the technology services industry in the coming years as emerging technologies use-cases of cloud, AI, and cybersecurity will become mainstream.
China traditionally has been a strong engineering/R&D hub and continues to see heavy traction from global players setting up engineering/R&D, IT centers, and innovation CoEs. While the pandemic outbreak led leading technology firms such as Apple, Google, Facebook, and Microsoft to temporarily shut down operations in China, activity regained its momentum in the second half of 2021, experiencing significant new center setups for the technology services industry. A major part of the growth was driven by Information, Communication, and Telecom (ICT) companies, primarily focused on establishing centers for Engineering Research and Development (ER&D) such as product development and electric mobility, and digital technologies like AI, IoT, and data analytics.
Going forward, long-term tailwinds such as the growth of the Shenzhen Special Economic Zone (SEZ), government initiatives focusing on Made in China 2025 policies, growth of e-commerce, increased technology adoption, and high export demand for technology developed in China will largely drive growth in the technology services industry.
Other prominent locations: Singapore and Malaysia are other areas in APAC to consider for talent that are undergoing significant technology service industry growth.
Europe, Middle East, and Africa (EMEA)
Several countries within the EMEA region offer highly attractive value propositions to market players for global services delivery. While the majority of Western European countries have achieved a fairly mature technology ecosystem, Ireland offers a significant cost arbitrage compared to others and is highly leveraged by multiple players. Further, the Central Eastern Europe (CEE) region has experienced significant growth in the technology sector, primarily driven by the availability of high-quality technology talent and a mature startup ecosystem. Poland is often recognized as the technology hub of CEE, witnessing maximum traction from global players.
Most African and Middle Eastern countries have low delivery maturity for technology services. However, Israel has emerged as a leading location primarily due to the robust startup ecosystem and government initiatives to advance and develop a competitive edge in the technology space.
Ireland: Global companies are selecting Ireland for a mix of IT, Business Process (BP), and ER&D services, with most of the activity driven by technology firms, primarily to set up ER&D centers and digital CoEs across areas such as AI, cloud, and analytics. Going forward, AI and automation are the key focus areas for the Irish technology industry.
Poland: Poland continues to be the largest global delivery hub in nearshore Europe because of its strong cost-talent proposition, ability to support multi-functional centers, and strong government support. It even surpasses some of the developed technology markets such as Japan for global technology services delivery. Multiple players have chosen Poland to set up innovation hubs for complex IT, R&D/engineering services delivery in Tier-1 locations (Krakow, Warsaw, and Wroclaw) because of its access to a large talent market. Tier-2/3 cities such as Katowice, Tri-City, Lodz, Poznan, and Szczecin are also expected to witness increased leverage for select IT services due to their strong talent-cost proposition and higher competitive intensity in Tier-1 cities.
Israel: With a booming technology services industry, immensely robust digital infrastructure, and highly mature startup ecosystem, Israel has become an established technology services location in the EMEA region. Next-generation IT services have boomed, including big data, cybersecurity, cloud, and IoT with a research focus primarily driven by close academia and industry collaboration. Further, it is a leading delivery location for cybersecurity services and houses almost one-third of the world’s cybersecurity unicorns. Going forward, it will be interesting to see how Israel transforms its position for global market players versus solely being desired by startups.
Other prominent locations: Some of the other locations to pay attention to in EMEA include Germany, France, the United Kingdom, Romania, and Ukraine.
North America: North America is among the most established geographies for technology services delivery. Most product organizations, technology enterprises, and startups are headquartered in the US. It offers a large talent pool and high collaboration prospects due to the presence of multiple technology startups, global business services centers, and service providers. The region is primarily used more for domestic delivery than global delivery because of high labor and real estate costs.
In the wake of the pandemic, multiple enterprises are evaluating Latin America for setting up new centers to diversify their risk concentration and take advantage of its proximity to key source/client markets in the US.
Mexico continues to lead in technology services delivery driven by increased delivery activity by companies for analytics, cloud, mobility, big data, IoT, and AI. Further, government initiatives such as creating a digital hub to accelerate the digital journey and enterprise growth have boosted the country’s tech ecosystem. With its strong trade links, nearshore advantage, and growing technology talent pools, Latin America offers a multi-pronged value proposition to enterprises seeking a technology services delivery destination.
Choosing the best-fit technology services delivery location
Analyzing the features of the delivery sites will help enterprises determine the best strategy to take in the particular market, such as expanding and growing, holding, watching and testing, or shrinking and exiting, as detailed below:
By assessing each location’s value propositions and trade-offs and considering company-specific requirements, organizations can find the ideal spots to tap the talent they need, making the delivery portfolio puzzle less of a mystery.