Russia-Ukraine war : Impact on India’s IT and Chip Industry

Overview of the Russia-Ukraine war

Within a few days of Russia’s invasion of Ukrainian territory, countries around the world imposed sanctions while providing humanitarian assistance to the Ukrainian people. Even as peace talks continue, there is widespread global uncertainty about the future of business. As an emerging player in the global IT industry, the Russia-Ukraine war is likely to have far-reaching consequences for Indian IT firms with delivery centers in and around Ukraine.

As the Russia-Ukraine war worsens, India’s information technology (IT) service providers are waiting to make strategic decisions, such as shifting service or delivery locations from Eastern Europe to India and have activated business continuity plans in countries such as Hungary, Poland, and Romania.

How Indian Firms are tackling the situation?

According to data compiled from the quarterly earnings reports of top Indian IT service companies, Europe is the second most important client region for Indian software service providers. It accounts for 20-25 percent of total business. More than 80% of this revenue comes from Western Europe. Whilst the Eastern part of the region has recently emerged as a key strategic delivery center location. Where IT firms have begun to confirm their appearance.

To improve their delivery capabilities, many Indian engineering firms began acquiring Eastern European firms in the banking, utilities, and energy sectors. Many of these firms are dealing with supply issues. As a result of ongoing disputes, which could have a significant impact on operations and even cause deals to fall through. As European businesses rethink their strategies and finances. This has serious implications for Indian IT firms looking to expand their software start-up ecosystem. In terms of industry verticals, sectors such as banking, automotive, oil, energy, and utilities in Europe, particularly those with high exposure to Russia, may face supply issues, potentially delaying new deals for Indian IT companies.

Russia-Ukraine war- Impact on Jobs

The situation is also concerning in terms of jobs. In the near future, European IT service providers are likely to take a break or reduce hiring. Potentially leaving many skilled Indian candidates unemployed or competing fiercely for India/US-based jobs.

Many global IT projects that were previously outsourced to Ukraine and other East European countries (which are quickly gaining a reputation as a hub of tech talent) are likely to be relocated to India, increasing demand.

Although existing deals are unlikely to be significantly impacted by Europe’s ongoing crisis. The new deal pipeline may face pressures as enterprises across the area rebalance their spending and slow down on digitalization initiatives in the short term.

There will be a surge in the requirement for local talent. This will short term as a result of a lot of businesses shifting to India. It will create many employment opportunities for skilled people.

Current Scenario

Currently, IT firms are concerned about the long-term influence of the Russia-Ukraine conflict. The top brands have all stated their commitment to maintaining high levels of service delivery. While also assisting employees affected by the conflict. The highest priority is to provide personal and professional support to Ukrainian employees while ensuring continuous delivery of services. Firms with a European presence, for example, can establish offshore delivery centers in and around Ukraine to absorb workers displaced by the conflict.

They can also collaborate with Ukrainian vendors. This is to create safe alternative channels for product transport and delivery in order to keep business flowing. From a humanitarian standpoint, much can be done. This will give financial assistance to millions of workers and emergency supplies to employees, service partners, and their family members currently living in Ukraine.

Russia-Ukraine war Impact on Chip Industry

The Russia-Ukraine conflicts will also affect the supply chains of the global semiconductor industry, which were severely disrupted during the COVID-19 period, and may face further setbacks.

The conflict may have a particular impact on the supply of neon gas and palladium, which are used in the processes for chip production.

Shortage of Raw Material

The photolithography process, which is the most prevalent method for creating integrated circuits, uses neon gas. The neon gas is specifically employed in the laser devices that cut integrated circuits.

However, in order to be used in the semiconductor sector, neon gas must have a purity of 99.99 percent. Making it a rare commodity. Incas and Cryoin, two Ukrainian businesses, produce more than half of semiconductor-grade neon.

Palladium is utilized in semiconductor and electrical production for a variety of purposes. It’s used to coat electrodes that aid in the control of electrical flow. It’s also used in the plating of microprocessors and printed circuit boards. Which is an important step in the chip manufacturing process. Russia supplies about half of the world’s palladium. And the many trade sanctions imposed on Moscow threaten to limit the element’s availability.

Russia supplies over 40% of the global supply of palladium. And Ukraine produces 70% of the global supply of neon. We can expect the global chip shortage to worsen if the military conflict continues.

As resources exported from the Russia-Ukraine war are critical for semiconductor manufacturing. This includes the rare gas neon, the chemical C4F6, and metals such as palladium, nickel, platinum, rhodium, and titanium.

What would happen in the chip industry

Granted, technology has progressed tremendously since 2015. And chipmakers have stocked up on resources in anticipation of increased demand during the epidemic. But inventory can only last so long. Expect the chip shortage to worsen if an agreement isn’t reached in the coming months. And sectors that rely on them to be similarly impacted.

“According to Moody’s Analytics, “many automakers, electronic device manufacturers, phone producers, and other sectors that are highly depended on chips for their goods to work face significant concerns.”

According to a Reuters story, even though estimates on how many neon chipmakers have on hand vary greatly, everyone agrees that if the issue continues, production will suffer.

This will very certainly result in additional supply chain limitations and the inability to build the finished product for many major customers.”

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