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Sanctions cost Russia US tech, and that may hurt

The U.S. has issued sanctions against Russia for its military invasion of Ukraine, which could face devastating IT service delivery disruption if the conflict continues.

U.S. sanctions against Russia over its Ukraine invasion will severely hamper its access to imported technology, some of it from major U.S. firms.

Separately, in Ukraine, the military assault could result in severe disruption to IT services delivery. Many U.S. businesses use IT services firms in that country.

The economic sanctions delivered by the U.S. and NATO against Russia on Thursday are expected to stifle Russia's ability to compete financially and cut off its access to imported technology.

Russia's IT market is one of the world's largest and has "significant potential," said the U.S. International Trade Administration in a report in October. The U.S. is also a "leading supplier" of IT products to Russia. Google, Apple, IBM, Cisco, Oracle, Intel, Dell and HP are among U.S. participants in the Russian market, the Trade Administration said.

However, experts said that sanctions against Russia will take time to take effect.

"Russia knew what they were doing; they knew what they were getting into," said Pam Drake, a professor at James Madison University. "They must have anticipated some of this" and stocked up, she said. "In the short term, they're probably fine and won't be affected much at all, and their close ties with China may protect them even longer."

U.S. hits Russia with sanctions

Though Russia has access to products from China and could be self-sufficient in the short term, denying Russia access to up-to-date computers and other information technologies necessary for the modernization of an economy is a strong hit to the country in the long term, said Nicholas Rostow, a professor at Cornell Law School.

"The unity on these sanctions is important in terms of denying new high-technology materials to Russia, and that could have a very important impact," he said.

Rostow said one of the most important goals of the sanctions is to demonstrate to Russian President Vladimir Putin that he's up against international consensus regarding Ukraine and the price paid by Russia will be "very high and painful."

So far, sanctions against Russia have not changed Russia's policy. But demonstrating the unity among countries and tightening the screws on Russia's economy step-by-step could have long-term impacts for the country, Rostow said.

"I don't expect Putin to change. The question I have is just how strong he is inside Russia," Rostow said. "He obviously has a firm grip on the government, but I don't know, as these sanctions make life miserable for ordinary Russians, what impact that's going to have."

Impact to IT services delivery in Ukraine

The Russian military on Friday began striking Ukraine's capital city Kyiv, where most of the country's IT service delivery companies are based. At least 70% to 80% of the IT services delivery market has already been impacted, said Anurag Srivastava, vice president of global sourcing at Everest Group, a research firm based in Dallas.

Companies will have to move people and work to other centers in Ukraine, or they will have to move people and processes outside Ukraine.
Anurag Srivastava Vice president of global sourcing, Everest Group

A significant amount of U.S. companies, as well as countries in the European Union, outsource IT work to Ukraine, he said.

"Companies will have to move people and work to other centers in Ukraine, or they will have to move people and processes outside Ukraine," he said. "We're already seeing refugees filtering into [countries like] Poland, Romania and Latvia." 

Srivastava said there are two main scenarios that could play out and impact IT services delivery in Ukraine. 

A long, drawn-out conflict would create devastating disruption to IT services delivery, he said. Moving people and processes outside of the country is an arduous task that could result in not enough talent from Ukraine staffing new offices outside the country if IT employees are unable to get out of Ukraine.

After the 2014 Russian invasion, Ukrainian businesses developed business continuity plans should something similar occur again in the future. The business continuity plans include relocation to centers outside the country.

However, businesses wouldn't have prepared for such a large-scale invasion as is now unfolding, Srivastava said.

"This is unprecedented," he said.

If Russia completes its attack on Ukraine and quickly installs a Russian-backed government in Ukraine, it would cause a limited disruption of services, but both businesses and customers would have to contend with doing business in a country heavily controlled by Russia.

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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