Luxoft ready to relocate engineers if Crimea impasse deepens

Eastern European IT outsourcing giant takes steps to ensure it has the capacity to rehouse Ukrainian engineers elsewhere if conflict escalates

One of Eastern Europe's largest IT outsourcing firms, Luxoft, says it theoretically has the ability to move engineers out of Ukraine if the impasse with Russia escalates.

On a conference call today, Luxoft chief executive Dmitry Loschinin assured financial analysts that its three Ukrainian delivery centres are "stable" and are continuing to operate with no disruptions in transportation, telecoms or other infrastructure.

Luxoft, which boasts a raft of blue-chip western clients including IBM, Boeing and Avaya, employs about 3,400 staff - 48 per cent of its total engineering base - at its bases in Kiev, Odessa and Dnepropetrovsk.

All are hundreds of kilometres from where the Russian military activity has been concentrated in the Crimean peninsula, Loschinin noted, adding that the "overwhelming majority" of Kiev staff were in attendance when the capital (pictured) was at its most vulnerable on 20 and 21 February.

"During the last two weeks, all of our offices have been working at full capacity and notably during February we hired 110 engineers in Ukraine," he said, adding that the firm is on track to meet previously stated expectations by growing sales for its year ending 31 March by 26 per cent to $396m

The economic fall-out could even make Ukraine a more attractive nearshoring destination, he suggested.

"Remember that our business model benefits from an economic rebound in western economies and weaknesses in economies where we have our staff, such as Russia and Ukraine," he said. "We expect the labour market to have a greater availability of talent and cost pressure should ease."

However, Loschinin was also quick to point out that Luxoft has in place contingency plans if the crisis deepens. This could include relocating engineering staff to its other eastern European hubs in Poland, Romania and Bulgaria, the latter of which only opened last month, on a short-term basis at a cost of about $1,500-$2,000 per engineer.

"Right now, if needed, we can scale up," he said. "I think under the current circumstances, we can expect from 20 to 40 per cent of engineers to consider moving, especially from the Ukraine, if the business requires it in terms of relatively short-term movements. But it's unlikely we are going to face long-term disruption."

But Loschinin's overall message was one of business as usual.

"We don't believe that either country would like to start major military action...and Putin said today he had no plans to annex Crimea.

"We sincerely hope the current conflict will find a speedy resolution through peaceful means."

With its cheap labour and rich talent pool, Ukraine has proved a honeypot for western firms looking to slash software development or IT support costs. However, Jeremy Davies, co-founder of analyst house Context, suspected the "gunboat diplomacy" currently on display in Crimea will make western firms think twice about investing not only in Ukraine but also the wider region.

"There's nearshoring, and there's nearshoring." he said. "Spain has become an attractive place to nearshore because average wages have dropped by 20 per cent in the last two years," he said. "People will be thinking, ‘if it can happen in Ukraine, it could happen in Czech Republic or Poland, so let's look closer to home', and somewhere like Spain could gain as a result."

Loschinin, however, said not one client had requested any resources allocated to them be moved out of Ukraine to Luxoft's 19 other delivery centres.

"Even more than that, we continue growing our operations in Ukraine," he said