With the war in Ukraine breaking on the heels of the COVID-19 pandemic and its ensuing shutdown, tech companies have been scrambling to fill a talent void, especially as the virtual economy becomes increasingly larger.

The second year of the pandemic in 2021 saw the combined effect of the Great Resignation and accelerating demand heat up the war for talent in technology to extreme levels. Tech companies doubled down on the SaaS revolution, wherein software is sold as a subscription service through the cloud rather than a licensed product. Corporate executives accelerated their plans for digital transformation as they saw the virtual economy become more real than ever. It was a harsh awakening for those who believed the war for talent was overblown. In 2021, wages escalated by more than 50 percent and attrition rates exceeded 30 percent in India—the epicenter of the technology talent war. Other parts of the world were not far behind. Technology service providers ate some of these costs and passed some to corporations who have thus far resisted passing those costs on to customers. Many are betting on the transformative (if not addictive) power of digital solutions to drive future growth.

One would think that the recent market downturn may take a bit of the steam out of the demand for tech talent as major software and services firms like Meta, Uber, Twitter and Salesforce have announced hiring freezes or slowdowns in the past few weeks. Big buzzy names in start-up ecosystems like Mural, Cameo, On Deck, Robinhood, Workrise and Thrasio have announced layoffs. The size of tech start-up bubbles worldwide in Tel Aviv, Silicon Valley and Bangalore also appears to have reduced (if not already burst).

If you are hoping for some respite in this war for talent, it is not happening anytime soon. Most view this downturn as a minor speed bump with structural tailwinds behind the digitization of the business and economy. “The digital transformation services specialists like Globant, Endava and Thoughtworks are still projecting over 30 percent growth for the next 12 months and a growth trajectory that remains north of the pre-pandemic approximately 20 percent norm for at least a couple of years,” says Aswin Shirvalkar, a senior industry analyst from Citibank. It will continue to be a talent-constrained market for the foreseeable future where demand exceeds supply.

Even worse, the permanent dislocation of demand supported by the nearly 700,000 (as per Staff augmentation companies DAXX and Qubit Labs) IT professionals in Ukraine, Russia and Belarus will continue to keep the talent supply chain scrambling even faster in the months to come.

The second year of the pandemic in 2021 saw the combined effect of the Great Resignation and accelerating demand heat up the war for talent in technology to extreme levels. Above, engineers work in the clean room facilities at the LETI, a French research institute for electronics and information technologies, on June 28, 2017, in Grenoble, France

Over the past 10 years, Eastern Europe has emerged as a large and potent talent market in the global supply chain outside of India. Unlike India, however, it is fragmented across multiple countries. Ukraine, Belarus and Russia collectively represent the largest at-scale markets for high-end technology talent in Eastern Europe, besides Poland. Several other countries like Romania, Slovakia, Serbia and Latvia have robust talent pools but at a much lower scale. While many corporations in the United States and Western Europe continue to support Ukrainian tech services, the market for 450,000 professionals in Russia and Belarus will for a long time be dislocated due to the likely reticence of Western companies to do work out of those regions.

While some firms in Russia and Belarus have proactively started relocating their employees to Georgia, Armenia and Mexico (which allows Russians to get work permits), the sheer scale of this talent dislocation would require other parts of the talent supply chain in the U.S., Western Europe, East Europe, Asia and Latin America to step in to support this demand. But are the talent supply chains ready?

From the perspective of the corporate customers in North America and Western Europe, several options exist for the global talent supply chain to step in to satisfy this displaced demand. Still, they are already scarce on technology talent to support existing demand in almost all cases.

Option 1. Relocation of Ukrainian talent to continue to support the demand: Most Ukrainian firms have successfully relocated their employees and families to western parts of Ukraine and neighboring Poland and Romania. While a long-term solution is uncertain, pending the resolution of the war, it would be fair to say that the national pride caused by the war has increased the likelihood that displaced Ukrainian families will want to return if possible. Nevertheless, even if Ukraine remains a vibrant talent market in the future, it will stay a geopolitical risk that needs to be dealt with. Firms are more likely to limit their exposure to Ukraine than increase it.

Option 2. NATO Eastern Europe as the alternative: Poland represents the ideal alternative to Russia and Belarus, given similar time zones, cost structures, talent quality and an at-scale talent pool of 300,000 engineers. However, Poland was already struggling to meet the demand, with attrition rates approaching 20 percent. We already see the demand-supply gap escalating in Poland as many corporations look to Poland to source talent. Poland will likely become overheated with wage escalations and attrition that may start approaching India. That leaves the other Eastern European alternatives in Romania, the Czech Republic and Slovakia—but the relatively low scale of these talent pools will not be able to handle the influx of demand immediately. It will take a couple of years before these markets expand to support this demand.

Option 3. Acceleration to destinations in Latin America: Perhaps the largest net beneficiary of the Ukrainian crisis could be Latin America—especially Mexico, Argentina and Brazil, which represent the most prominent talent pools. It comes far closer to meeting the demand for the same time zone and lower cost structure relative to India—especially for demand from North America. However, Latin America is still in the early stages of developing the talent needed to enable the digital revolution—full-stack coders and native digital skills in cloud, data and analytics. Mexico is already heating up with wages for high-end digital talent reaching $100,000 to $120,000, approaching those of several Tier 2 and Tier 3 locations in the U.S. Given currency fluctuations, Argentina has been grappling with high attrition rates between 20 to 30 percent and volatile labor markets. Brazil is viable, but English-speaking talent is in short supply. Latin America is an option for traditional IT talent, but the war for native digital talent will be a harder one to fight.

Option 4. Scaling up in India and China: India has been running red hot, with attrition rates approaching 30 percent and wages escalating over 50 percent in some cases. In fact, before the Ukrainian crisis, several customers were increasingly looking for alternate destinations in Asia (Vietnam), Africa (South Africa) and Latin America (Argentina, Mexico) to source their talent. While the scale of India is clearly a core strength, as a talent acquisition leader in a major tech services firm put it, “We could find the cream of the crop in India a few years ago. Today, we find the crop.” Furthermore, in the light of the recent evolution of China’s relationship with the U.S., it is improbable that China, despite its large talent pool of more than 6 million software engineers, will become the preferred destination for handling the demand not met through Russia and Belarus.

Option 5. Rely more heavily on domestic talent pools in the U.S. and Western Europe: Global talent supply chains were created over the last two decades due to the inherent talent shortage at cost-effective rates in domestic markets. The total tech talent pool in the U.S. and Canada is smaller than either India or China, albeit more productive given culture, skill and time-zone advantages. Western corporations could always go back to this more expensive option, but this would only compound their battle with rising inflation rates across all labor and non-labor inputs to production in the current economy.

At a minimum, the Ukrainian crisis will force corporations to redraw their global supply chains for digital talent. It will be based on the availability of skill set, time zone, scale, geopolitical risks and other such parameters. So, at least in 2022 and 2023, the war for talent should remain intense.

About the Author

Ranjit Tinaikar is the CEO of Ness Digital Engineering, a full-lifecycle digital services transformation company. Before Ness, Tinaikar served as the president of Fitch Solutions (a data and analytical services business) and as the managing director of advisory and investment management (a data analytics business unit of Thomson Reuters). Tinaikar was a partner at McKinsey and one of the earliest leaders in forming its digital practice. He also founded the Lean Software Development and IT strategy practices.

About Newsweek

Newsweek is a global news magazine that provides high-quality, in-depth coverage and analysis of the major global events. For more than 80 years, Newsweek has been helping its readers navigate a rapidly-changing world through its weekly US and International editions. The Newsweek International edition is available in English and serves the Europe, Middle-East, Africa and Asia-Pacific regions, with a separate English-language edition is also published for the Middle East, while language-specific editions are available in Japan, Korea, Latin America, Pakistan, Poland and Serbia. The latest news updates are also available online on newsweek.com