Robert Farish (Vice President and Regional Managing Director, CIS)
Robert Farish (Vice President and Regional Managing Director, CIS)
Anielle Guedes (Senior Research Analyst, IDC’s European Customer Insights & Analysis)
Anielle Guedes (Senior Research Analyst, IDC’s EMEA Cross-Industry Research lead in the Industry Insights Group)

The vast majority of technology vendors suspended their operations in Russia in March, but this does not mean any less work for executives with geographical responsibility for Russia. Sanctions have generated new challenges even if business volumes have been cut back or reduced to zero.

These are the key challenges for tech vendors operating in Russia (or operating there until recently).

ICT Hardware Vendors Prepare for a Surge in Deliveries to Russia via Unauthorised Channels

The sudden decision by so many suppliers to suspend shipments to Russia created an immediate demand for those products from wherever they can be sourced. There has even been an announcement by the Russian Prime Minister effectively approving imports via unauthorised channels.

These alternative channels can range from small traders reselling iPhones brought to Russia in their personal luggage, to container loads of office or datacentre products reshipped from their original destinations in Asia or the Middle East. Refurbished products were also in hot demand in March from Russia-based companies desperate to fill holes in their equipment stocks.

This situation creates broader company risks that go way beyond channel management challenges. If a suitcase full of microchips and disk drives finds its way into Russia this could place a European or US manufacturer in technical breach of sanctions. But can this realistically be prevented?

Software Vendors Brace for a Swell in Software Piracy in Russia

Russia-based organisations that have standardised on Western software products now face a race against time to keep their infrastructure and applications working. Depending on their sanctions status or the policies of the Western vendors they purchase from, CIOs may find that their licenses or subscriptions have been suspended, that they no longer have access to support or that they have lost the opportunity to purchase any new products or versions.

In almost all cases, functionality and support are available only until the current contracts expire. Coupled with this, it’s now unlikely the Russian courts will support the enforcement of IP rights of Western software vendors. Users will inevitably take matters into their own hands to keep their systems working any way they can.

Software Vendors Wrestle with a Bewildering Number of Customer Scenarios

Any software vendor that was present in Russia at the start of 2022 is now dealing with the complexities of how much business should be done with customers in Russia. Some vendors have chosen to completely leave the Russian market; others have resolved to halt new sales but to support their existing customers.

In all cases, however, the process of winding down commitments in Russia has created a myriad of scenarios for different customers. If a customer in Russia is directly subject to economic sanctions, then the case is straightforward — subscriptions are cancelled and no further services can be purchased.

Some customers are not directly sanctioned but can’t be provided with debt services. In these cases their terms of business need to be adjusted. Most vendors seem to be honouring existing contracts and subscriptions but are not committing to renewing them. But even in this case, “leaving” the Russian market can still take years, as SAP has explained.

Many vendors have resolved to halt new sales, but in most cases they have been forced to limit this to new customers as existing customers still need to purchase upgrades. When software is delivered as a service this creates another dimension of complexity.

Where a customer and its users are based in Russia then service may be terminated. In situations where customers are billed outside of Russia and users are located inside the country, so far it appears that these services are still being offered.

What to do with Russia-Based Staff?

Suspending Russian operations has created an immediate staffing dilemma. Western ICT vendors employ thousands of staff inside Russia. Not all are ready to send out redundancy notices — and by acting too hastily they can also fall foul of the local authorities.

Can Russia-focused staff be repositioned to support business outside Russia? Can staff be relocated outside Russia? In some cases, employers are finding that Russian staff have moved outside Russia of their own accord. In this case it may be necessary to find ways for these people to continue to be employed and paid in a third country.

Where businesses are locally facing, an option might be to try to sell local operations to a Russian partner. Another option is to sell the operation to the local management team.

New Team Dynamics Challenges

Beyond Russia, everyone in the Eastern European region is stressed. Teams in Ukraine, Russia, Poland and Romania are engulfed in personal and humanitarian crises. This demands a sensitivity in managing these teams and a proactive effort to support their mental health and well-being.

The added challenge is that collaboration between Russian and other European staff may become strained. Managers need to be aware that the propaganda war currently being waged both inside and outside of Russia is souring human interactions everywhere.

Keeping business and politics separate will be increasingly difficult but increasingly important if teams are to remain functional.

 

For more information, please contact Robert Farish or Anielle Guedes, or head over to https://www.idc.com/eu and drop your details in the form on the top right.

Spread the love