Expecting little change but some opportunities in the near term
In the near term, ceased or slowed operations in Russia and Belarus will not significantly affect the revenues or strategic directions of most IT services vendors and management consultancies. Firms will stay clear of Russia, understanding any lost revenues will be well worth forgoing to alleviate the risks of running afoul of sanctions or committing a public relations blunder by staying on in an increasingly isolated country.
Within Europe, management consultancies and IT services vendors with strong consulting capabilities (such as Accenture and Capgemini) will likely see near-term opportunities to provide crisis management, operational expertise and supply chain consulting. Some vendors may repurpose pandemic-created solutions to meet the logistical challenges brought on by the mounting refugee crisis. PwC, for example, could apply the design and technology used to ensure its employees’ safety and security while working remotely during the pandemic to assist Ukrainian refugee families trying to stay connected across multiple borders and amid changing circumstances.
Three factors: Length and resolution, macroeconomic fallout, and risk
Over the remainder of 2022, how the war in Ukraine will change IT services vendors’ and consultancies’ European operations depends on three factors: the length and resolution (or lack thereof) of the conflict; the macroeconomic fallout; and each vendor’s willingness to take risks with talent, acquisitions and clients.
The first two factors necessarily influence each other. A hot war sustained throughout 2022 would severely curtail broader European economic growth, likely keep inflation high, and shift spending by governments and commercial clients alike. Cybersecurity and supply chain opportunities may flourish, but overall reduced spending and economic activity would slow or reverse growth, at least in Europe. A cease-fire and stalemate, with a low-intensity insurgency in eastern Ukraine coupled with an uneasy rebuilding in western Ukraine, would likely produce additional opportunities around risk management, compliance and Industrial IoT. Again, the growth associated with those new opportunities would be tamped down by overall economic uncertainty.
In both scenarios, energy costs in Europe and globally will provide persistent headwinds. TBR anticipates that in the face of persistent macroeconomic pressures in Europe, vendors already active elsewhere will accelerate those investments. In APAC, IT services vendors and consultancies have increasingly invested in regional opportunities, notably the Australian public sector, automation-enabled BPO in Japan, and digital- and e-commerce-driven demand for customer experience applications in many countries in Southeast Asia. In TBR’s view, vendors with the most diversified footprints are the best positioned to absorb new risks — not a novel observation but newly important.
A quick resolution, followed by a return to some measure of normality, would likely alleviate macroeconomic pressures while bringing forward the third factor: appetite for risk. IT services vendors and consultancies would have the opportunity to hire (or rehire) Russian consulting and technology talent, move quickly again on acquisitions, and re-evaluate taking on Russian clients, particularly those pledging to help rebuild Russia’s credibility and good standing in the global market. Clients, both European governments and multinational companies, looking to escape inflationary pressures and find quick growth after a war-based shock to Europe’s economy may look to vendors, particularly the management consultancies, for assistance. And these vendors will be forced to decide whether or not to help high-value clients resume their business in Russia. As quickly as the world closed the Russian economic spigot, it could be reopened.
The determining factor: Leadership
More than any other factor, leadership will determine how these vendors handle the war in Ukraine and its effects on their business, and TBR will be assessing leadership decisions, announcements and strategy shifts over the next few weeks for markers of the most likely near-term and 2022 outcomes.