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 European Customer Insights & Analysis)

The war in Ukraine has wrought significant changes to the international geopolitical situation. Tech ecosystems are not immune to geopolitical change, and the long-term implications of the conflict for technology alliances are starting to become more visible.

The isolation of Russia is part of this story, but tech ecosystems across the world will also feel the impact of these changes. We believe there are seven distinctive long-term trends to watch:

  1. Broad isolation of Russia from tech R&D partnerships. The start of the war in Ukraine triggered a flood of announcements from academic and research organisations effectively breaking their ties with Russia-based partners. A very illustrative case of this is that MIT has severed its 11-year partnership with the Skolkovo Innovation centre in the Moscow area.

From this research park, several tech firms have programmes or affiliations with start-ups. These moves are partly due to risks connected with IP protection and reputation risk. However, for the most part they are part of a broader movement in which scientific and cultural ties are being severed as a direct response to Russia’s military action in Ukraine.

Germany’s parliamentary state secretary for research, Thomas Sattelberger, said in early March that “there can be no science diplomacy in the face of brutal, international law-breaking aggression.” Despite public mixed signals on its position on the conflict, even China is cutting ties with Russia. On April 14, the Russian Academy of Sciences announced that China had suspended all formal scientific ties with Russia.

  1. A driver of technology deglobalisation. From the perspective of many countries outside of Europe and North America, economic sanctions and the voluntary technology boycotts of so many manufacturers appear as a unified Western strategy to severely undermine the Russian economy. Put another way, the tools and services that many of us have regarded as universal aspects of the global economy have been weaponised.

There are numerous countries that now realise that this weapon could be used against them. It is highly likely that this situation will lead governments and users in some countries to build strategies to mitigate against this new risk by investing in alternative ICT platforms. To achieve independence of Western ICT, a country needs to develop an entire technology stack — from microprocessors through to operating systems and cloud services. Despite its efforts since 2014, the experience of Russia demonstrates that no country except China is in a realistic position and has the resources to fully achieve this goal.

Russia’s attempts to launch alternatives to the Google Play Store, Instagram and YouTube have largely been met with derision. China has the experience, the motivation, the expertise and the resources to build such an alternative technology stack. Thus, in the long term, we believe that the events of 2022 should act as an accelerator of the further globalisation of Chinese ICT products that can be utilised independently of solutions offered by US vendors. These would likely be used in conjunction with technologies developed domestically — for example, Chinese-manufactured ICT infrastructure and devices deployed using Russian-developed operating systems and applications.

  1. Possible new niches for local players outside of the US and Europe. Preventing Russia from accessing US software might arguably stimulate demand for alternative software from countries currently not part of the sanctions alliance. As well as China, large countries such as Brazil and India and tech-orientated Israel, all of which have significant software sectors, might find new opportunities in territories that would like to plan for the contingency that they might also be subject to similar sanctions in the future.

So far, most countries in Latin America and Southeast Asia have not issued their own prohibitions on local companies working with Russian customers, nor have they explicitly condemned Russia. Companies headquartered in those countries might look to supply customers in Russia, depending on their relative position to the US and Europe. However, similar opportunities could now emerge in Latin America, the Middle East and parts of Asia.

  1. Russia will be isolated from the global start-up ecosystem, but other countries will become home to Russian entrepreneurs. Tech start-ups are inextricably linked with the ICT sector, not only as a growing segment of the market but as a powerhouse of new technologies, innovation and skills. Russians have been behind many successful tech ventures in past decades — often based outside of the country.

An often-overlooked fact is that the Russian start-up ecosystem actually flourished in the aftermath of the first wave of the 2014 Crimea-related sanctions. A national focus on technology independence provided both government seed capital and new market niches that new Russian ventures could exploit.

What founders predictably experienced was that available funding inside Russia was limited and that the Russian market was far too small to enable them to scale their new ventures. There are several specialised venture funds in Eastern Europe that work with Russian start-ups and through which funding came to the country.

These have now been largely suspended because of the economic sanctions. Many of these entrepreneurs now find themselves in locations such as Tbilisi, Yerevan, Istanbul, Dubai or Almaty. As these emigre communities become more settled, we would expect venture funds to refocus efforts from Russia to these locations.

Ukraine clearly has the potential to emerge as a new epicentre of tech investment once the war has run its course.

  1. A war economy will likely drive technology innovation in Russia. Sanctions will undoubtedly provide a serious brake to digital transformation efforts in both Russia’s public and private sectors. As a whole the economy will suffer badly from technological isolation.

However, though it is a grim fact, very often the pressures of war drive innovation that would never occur in peacetime. The experience of several states in WW2 and more recently Israel showed that these processes are predictable but take time (measured in years).

Since the 1990s, the Russian economy has provided no mechanism for new technologies to be brought to market inside Russia. Inside the economy there were insufficient competitive pressures and the only means of commercialising such research was to do so abroad.

Now isolated from both international funding and key technologies, the pressure on Russian science will be much more intense. Solutions to military challenges may well result in new technological approaches that would never occur in peacetime.

  1. Ukraine will emerge as the new epicentre of the ICT business in Eurasia. The European Union has committed significant sums to the rebuilding of Ukraine and clearly ties with the US will be much stronger than they were in the past. Post-war Ukraine will be the obvious location for many Western firms to base operational headquarters, focus their investment efforts and use as an R&D node to serve the broader region including Central Asia and the Caucasus region.
  2. Further localised authoritarian internet governance (balkanization of the internet or Splinternet). The global internet governance efforts could be undermined and an “accessible to all” internet model could be threatened. Russia has been progressively adopting a more “cyber sovereign” approach to regulate its online space, especially after the “Sovereign Internet Law” was enacted in 2019.

The legal framework was aimed at centralising state control of the internet within Russia and enforcing the laws that regulate private speech, media and political organisations. The situation went down the road of further fragmentation when Ukraine requested that the ICANN (the former Department of Commerce institution, now an NGO) expel the “.ru” domains from the internet.

While the ICANN rejected this political interference on internet governance, Russia has withdrawn or been expelled from the European Broadcasting Union and voluntarily left other multilateral organisations. The existence of the internet governing bodies is what holds together one network — instead of several national and regional networks operating under different protocols or even technologies that are incompatible — and what enables ICT businesses to have an underlying common infrastructure to hold international operations. Undermining those institutions could hurt ICT business with operations in multiple locations.

The war in Ukraine will undoubtedly isolate Russia from global technology ecosystems. However, Moscow’s loss may turn out to be a gain for the cities in neighbouring countries to where so many tech entrepreneurs have fled.

Likewise, this isolation forced on Russia will be food for thought for ICT policy makers globally who will actively consider alternatives to Western software platforms and who will review the way the internet is regulated in their countries. The war has brought into sharp focus the neutrality of international regulatory institutions. This has weakened them and in turn has weakened global governance of the internet.

 

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.

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