Brazil Could Benefit from Meltdown in Russia and Ukraine

The ongoing unrest in Ukraine has not yet directly affected outsourcing operations there, but the repercussions of the crisis could impact the industry in both Russia and Ukraine, …

Rahul Singh, Principal Analyst, Pace Harmon.

The ongoing unrest in Ukraine has not yet directly affected outsourcing operations there, but the repercussions of the crisis could impact the industry in both Russia and Ukraine, according to Rahul Singh, a principal at outsourcing advisory firm Pace Harmon.

The perception of greater risk in Ukraine and the possibility of sanctions against Russia could cause potential investors to avoid both countries in favor of Brazil or elsewhere in Eastern Europe, Singh – who grew up in Ukraine and still has friends and family there – told Nearshore Americas.

There have been signs that Mexico could also stand to benefit from Ukraine’s plight, as businesses are putting together contingency plans in case the crisis escalates. Anurag Kumar, the founder and CEO of iTexico, which runs a software development center in Guadalajara, told Nearshore Americas that he had received a tentative enquiry from one prospective new customer who was concerned by the situation in Ukraine and was considering nearshore as a viable alternative.

However, many other Latin American nations are less likely to capitalize on the situation as they are more suited to IT maintenance than the innovative work being carried out in Ukraine, Singh believes.

Nearshore Americas: Has the crisis in Ukraine already affected the outsourcing there?

Rahul Singh: Surprisingly not a lot. The existing operations continue to work. There’s not been a huge impact. We have clients that have got offshore centers there and we haven’t heard any concerns … But most importantly, this is delaying opportunity in the region. Ukraine had a huge opportunity to cash in on some of its skills, but hopefully, whatever the outcome, a more stable, pro-western government will come out of this and that will probably help Ukraine in the long run.

NSAM: So there haven’t been any companies suspending their operations there?

Singh: No, we haven’t heard that yet. There’s this belief that there’s war games being played but it’s probably not going to pan out. Obviously they’re putting contingency plans in place but so far, so good. We haven’t seen any issues. The expectation is that the issue will diffuse without escalating further.

NSAM: What are the primary risks for the companies that are currently outsourcing to Ukraine?

Singh: There are still a few concerns around that the country could split into two. Most of the firms we work with are based in Kiev, which has the largest concentration. If it escalated to an east-west war in the sense that the unrest spreads, or if the eastern part of the country continues to drive for autonomy or tries to join Russia I think that might pose some challenges but that doesn’t seem very likely. But if it does escalate into a war then obviously you do end up in that situation where there’s going to be some impact on outsourcing.

NSAM: Are there any notable outsourcing operations in the Crimea that could be affected by the touted union with Russia?

Singh: Not anyone that we work with. I don’t think the Crimea is big on (outsourcing), probably because a lot of the top colleges and institutions are more in Kiev and other places that are more industrialized in terms of infrastructure.

NSAM: Even if the situation does not escalate further, do you think it will have impacted the confidence of investors? Will people be less likely to outsource to this region in the future?

Singh: I think it will have an impact. If it drags on longer we would be advising to be cautious about doing business in the region. The industry itself is not huge – I think there’s a bigger potential to do stuff in Ukraine and there are lot of people that have advanced degrees in the right skills but they just don’t have the jobs in their specialist areas. The bigger challenge is how long does this lawlessness remain? I can see people being reluctant to outsource there and certainly we would be reluctant until the situation stabilizes.

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NSAM: Given Russia’s involvement in the crisis and the deterioration or US-Russian relations, could that affect companies’ decisions to outsource to Russia as well?

Singh: Absolutely. Russia has sanctions hovering over them. I would see a concern for outsourcing. Personally I think that’s the big concern. Depending on the type of sanctions that are imposed, if this drags on and there’s a situation where the west is forced to impose more sanctions on Russia, then I absolutely see that causing companies to be more reluctant to do work out there. If the situation deteriorates, or the longer the issue drags out, I can see that impacting the Russian outsourcing industry.

NSAM: Do you think Latin America could stand to benefit from the instability, as a possible destination for any firms that decide to pull out of Ukraine or Russia?

Singh: There’s a slight difference in terms of the work that they do out there in Russia and Ukraine in general. It’s more innovation and product development-type work, as opposed to the more traditional outsourcing work. If you look at the IT work that is outsourced to India, it’s more application maintenance than innovation, and I think folks have typically looked to Latin America for more of that kind of work. You would think that they should be an opportunity, but just because of the kind of work that’s done out there I just don’t see that happening. But you’ve got to find an option and there is talent available in Brazil so I could certainly see Brazil benefitting a little bit from that because they have institutes and colleges that can take on more of this type of work which is in the higher ranks of outsourcing and doesn’t require a lot of customer interaction.

NSAM: Where else could that work be relocated to then? What other regions could provide the right skill sets to handle it?

Singh: I’ve thought about that a lot and I haven’t come up with many answers. India is the traditional answer but we look at it more from a scale perspective than an innovation one. Maybe some other countries from Eastern Europe that have a similar type of infrastructure, from a college education perspective.

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