Will Ukraine’s Invasion Have a Domino Effect on Other Geopolitical Equations? | Blog

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 to integrate 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:

Risk management actions to take

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.

If you have questions or would like to discuss this topic, please feel free to reach out to us at [email protected], [email protected], or [email protected].

As we continue to watch the events in Ukraine, you can access our  resource center where you’ll find our consolidated coverage of this evolving situation, or watch our LinkedIn Live event, “How to Manage the Ukraine-Russia Impact on Service Delivery.“