During the war, most technology companies were able to ensure the continuity of business processes, maintain productivity at the level of 85-90%, in the first month of the war, and starting from April — restore positive growth dynamics. What’s happening inside the market?
According to the data of the IT Association, more than 34.3% of companies have successfully adapted to new realities, and 61.3% – the vast majority of IT companies — have yet to overcome all challenges, but generally work stably. According to another study, conducted by Payoneer study, 92% of Ukrainian technology SMEs working with foreign clients continue to operate during full-scale war. With 4,200 of respondents, results showed that 70% of businesses work full-time, and 22% — part-time. In other words, 9 out of 10 companies have adapted to the conditions of war and continue to face the threats associated with it.
What’s happening with job cuts?
Dealing with the initial shock and panic created a large-scale crisis in many companies and, unfortunately, not all were able to adapt and return to normal operations. Of course, this caused negative consequences for the Ukrainian economy. According to the ILO, more than 5 million Ukrainians have lost their jobs. And according to the estimates of the National Bank, wages decreased by 25-50%.
However, this is a picture of the beginning of the war with a tendency to a slight improvement. The field for improvement became available for companies that demonstrated flexibility in adaptation. Some of them moved their business to safer regions, some switched their operations to remote work, and some began to expand their geographical presence and look for clients abroad.
The war forced Ukrainian businesses to reorient their programs, which can now be safely called programs of sustainable development. If a year ago entrepreneurs invested in projects to reduce emissions into the environment, waste management, and support socially vulnerable population groups, now most of the funds are directed to support the Armed Forces and victims of Russian aggression. Businesses regularly transfer funds to help the government, and purchase equipment, drones, necessary equipment, and weapons to bring victory over the enemy closer. The involvement of businesses in helping the Armed Forces is important for Ukrainians. About half, namely 44% of Ukrainians, when choosing a brand, pay attention to its assistance to the Armed Forces. And 34% are interested in whether the company continues business operations in Russia, according to a study by Gradus Research. For 21% of citizens, the brand’s active engagement in volunteering plays an important role, and a firm political position is an important aspect of choice for 18% of customers. in addition to the obvious help to Ukraine, volunteering businesses were able to help themselves as well. 84% of managers believe that volunteering has increased the company’s team spirit during difficult times. Moreover, lots of companies report their management and employees joining the Armed Forces.
New times also force companies to respond to social requests faster, which means constant learning, experimentation, and, as a result, better service. It is clear that with the beginning of the war, the priorities and requests of customers change, and this, in turn, will inevitably be reflected in business metrics.
Digitalization despite the war
Ukrainian businesses became more active in using digital technologies to perform business operations. According to the received data, 70% of entrepreneurs use digital sales channels, and they, according to 39% of respondents, bring more than half of all orders. Moreover, due to the Russian invasion, the share of entrepreneurs accepting payment in cashless form has now increased to 87%. The Russian-Ukrainian war also pushed Ukrainian businesses to more actively use cryptocurrencies to pay for goods and services. So, for now, the share of entrepreneurs who allow payment in digital currencies is 10%, and another 24% consider it quite realistic in the future.
Quick jump to anti-crisis strategies
Quick situational response to challenges brought Ukrainians to a new level. Autumn and the beginning of winter of 2022 brought Ukrainian businesses new obstacles. Power outages made operational processes difficult for all businesses. Many businesses provide their teams with mobile routers and power banks and organize relocations to Western Ukraine. However, it is too early to draw conclusions about the labor market precisely in the context of energy problems that have arisen now. Most companies are still in the process of adaptation. The overall effect on the market will get a clearer perspective by the middle of 2023. Of course, it was not easy for anyone. And while adapting to the new reality, businesses had problems. 35% of companies encountered financial difficulties, another 29% faced high levels of employee stress, and one in five companies had problems with logistics and/or communication. Resilience is manifested in how they overcame them. Thus, 36% of managers decided to keep employees’ salaries (at least partially), even if they could not work for a certain time, and 17% issued one-time payments. 20% relocated the company to safer areas, and 16% of SMEs provided specialists with free psychological assistance. All this indicates a high level of responsibility of Ukrainian businesses for their employees and their business.
After the war
The tech field will become one of the key fields in the recovery of Ukraine’s economy after the war. According to the National Bank of Ukraine, in the first quarter of 2022, Ukraine’s IT industry brought in $2 billion in revenue, which is 28% more than last year, despite the devastation caused by Russia’s invasion. It is obvious that micro and small businesses now have a harder time than large companies because their margin of safety is much smaller. Moreover, entrepreneurs’ assessment of their own financial stability naturally worsens in war conditions.
However, it is worth to already start thinking about recovery. It is good that the Ukrainian authorities are aware of this and are starting to take steps in this direction. In particular, the National Council for the Restoration of Ukraine was created, within which more than 20 working groups will work. It is especially important that they include representatives from the Association who will be able to provide their suggestions and comments on behalf of the business.
At the same time, realizing the urgency of this issue, the government launched a separate Committee for the Restoration of Ukraine within the Association and plans to focus on the preparation of expert materials on the priority directions and ways of rebuilding Ukraine. Special attention will be payed to the development of the B2B sector, starting from finding potential partners in Ukraine and abroad, to creating new supply chains.
Of course, in the context of recovery, the question of where exactly to get funding and what the final amount of losses will be is an important issue. After all, the war continues — accordingly, losses also increase. According to the calculations of the Ministry of Economy and the Kyiv School of Economics, the total amount of infrastructure damage as a result of the war is already 103.9 billion dollars or 3 trillion hryvnias. In addition to the sources of funds, their rational use will remain the same important issue. Corruption risks can become a red flag for foreign partners’ investments.
It is obvious that the recovery of the business sector helps to keep the economic front. Nevertheless, the pre-war performance of the business still remains unattainable. Some of the entrepreneurs talk about recovery with a 10% increase, some with 30%, and some with 50%. At the same time, 70% of directors witnessed negative dynamics in their business by the end of 2022 which brings up the complicated strategy of saving the existing metrics.
Ukraine really has tremendous prospects, tremendous opportunities, and valuable resources, but getting the investment requires the end of hostilities and taking off a number of restrictions introduced at the beginning of the war. Undoubtedly, they were effective and helped maintain macroeconomic stability at the most critical moments. However, now they often act as a restraining factor for the effective operation of businesses.
Among such restrictions, we can mention the List of critical imports. Although there is no single and unequivocal opinion about it even in the Association, no restrictions have ever contributed to the normal development of entrepreneurship. An equally important aspect for business would be the regulation of the procedure for booking employees for temporary travel abroad. There are many requests from entrepreneurs in the tax context as well. For example: not to increase the fiscal burden, resume the VAT refund procedure, etc.
Under such conditions, more and more Ukrainian companies will return to work. Respectively, the more of them can survive the current storm, the faster the country will recover after the end of the war.