Last week, Amazon announced the layoff of another 9,000 employees. The company explained the move as "uncertainty in the economy". This is not the first round of layoffs; at the end of last year, Amazon axed about 10,000 staff. Amazon shares fell by 1.4% on the back of this news.
Amazon is not the only tech giant to announce further layoffs.
Earlier, Mind explained why large international companies were "falling away" and how this avalanche of layoffs will affect the Ukrainian IT market.
Google, Microsoft, Meta, Amazon, PayPal, Twitter, Apple, Tesla, Netflix, Zoom, Dell, Klarna, Intel, Spotify, IBM, SAP, Vimeo, Glovo, Philips, Salesforce – this is far from a complete list of international tech giants that are reducing the number of their employees. The first wave of dismissals began last summer. The second is in full swing now. Such news is now appearing almost daily. Not only employees of American and European offices are being fired, but also Ukrainian ones (Vimeo and Astound Commerce are the first ones). They're firing 2.5%, 7%, 10%, and 13% of the staff. It seems like a small number, and definitely less than the number of specialists hired by the same companies at the beginning of the pandemic. However, in absolute terms, we are talking about tens of thousands of specialists overboard. In addition, some companies (such as Intel) have begun to cut not only people, but also the salaries of those who remain.
What is happening in the Ukrainian IT market? Are we already witnessing an indirect impact of the dismissals in Big Tech on the quantity and volume of orders in the domestic industry? Will there be a wave of dismissals in Ukraine as well? Mind asked the leaders of EPAM, SoftServe, GlobalLogic, Ciklum, Intellias, Sigma Software, and Genesis to tell us about this.
What exactly prompted this avalanche of firings? The key driver was the exaggerated expectations of digitalization of everything at the beginning of the pandemic. "In 2019, there were significant changes in the IT industry. Many companies moved from offline to online, and e-commerce experienced a large-scale boost. At that time, FAANG tech giants were hiring and hiring people, planning was driven online. Few people thought that sooner or later the rapid growth would go down. A decline in share prices, bloated covid-era budgets, and unrealized financial forecasts became the result. Now companies have to optimize costs and cut back on staff," explains Genesis COO Artem Kopanev.
According to Stepan Mitish, Vice President and Country Head of ERAM Ukraine, during the pandemic, there was indeed a huge demand for the digitalization of various types of businesses around the world. As a result, many companies have increased the number of employees (including in Ukraine) to handle such orders and projects. However, this demand cannot be constant. Moreover, global business is now entering a new economic cycle caused by global economic uncertainty.
Ciklum CFO Andriy Okseniuk adds that global economic difficulties, rising inflation, central bank interest rates, and market fluctuations are forcing companies to cut costs to maintain business momentum.
Valeriy Krasovsky, CEO and co-founder of Sigma Software Group, is more optimistic: "Since the beginning of the pandemic, a huge amount of work related to digitalization and remote delivery has indeed appeared. Some of our customers have grown tenfold in terms of digitalization and remote delivery. At the beginning of the pandemic, due to uncertainty, there was a short-term decline, but then demand recovered. It continued to grow rapidly throughout 2021 and until mid-summer 2022. So, in fact, companies' confidence that demand for digitalization would grow was justified," says Krasovsky.
He clarifies that starting in mid-2022, largely due to the war, as well as disruption of supply chains and general instability, there has been a recession and a downturn, which certainly affects the number of vacancies. However, not in all segments. Dismissals are mostly happening in companies that are highly dependent on market fluctuations.
How painful are the consequences for global Big Tech? The interviewed speakers say that everything is not as catastrophic as it seems at first glance. "Many IT companies and startups, including tech giants, have been actively investing in the future in recent years. Companies have been looking primarily at business growth, technology development, and accelerating market penetration, rather than at profitability or self-sufficiency of initiatives. Accordingly, business valuation multiples were insanely overestimated, and the talent market – overheated," said Yaroslav Lyubinets, co-founder and chairman of the board of directors of SoftServe.
According to him, the processes we are witnessing today are the normalization of business, and a return to the assessment of the situation, which takes into account economic feasibility and other business indicators.
Okseniuk from Ciklum is sure that the situation is not as difficult as it is sometimes depicted: "The number of vacancies in the tech industry is growing, and former FAANGs are finding jobs quite quickly. Obviously, the new realities may adjust the salary expectations of candidates and employers, but it is a natural balancing act of supply and demand."
Kopanev from Genesis adds that even amid large-scale firings in Big Tech, the unemployment rate in the US is 3.5%. It is one of the lowest rates in the last 50 years.
Valeriy Krasovsky from Sigma Software gives examples of niches that are helping the industry grow again: "Large industrial businesses engaged in R&D (and especially in the automotive sector, such as our client Volvo) are not feeling the downturn as such, or feel it to a much lesser extent."
Other segments that are developing even better than before the recession include artificial intelligence, biotech, logistics, cybersecurity, and others. It is confirmed, among other things, by the recent investments. "For example, Microsoft is investing $10 billion in ChatGPT, and Google has invested almost $400 million in its competitor Anthropic. Another example: Clean.io, a cybersecurity product that came out of Sigma Software, recently made an exit: it was acquired by a well-known Human company. It's clear that investors are looking more closely at what they are investing in, but there are still many such examples," adds Krasovsky.
How will the staff reduction ricochet off the Ukrainian IT market? The war has a more tangible impact. However, the problems of Big Tech also add to the "fun." "Exports of computer services from Ukraine in 2022 increased by 5.8% compared to 2021. Compared to the usual industry rate of 25-30% annually, the growth has slowed down significantly. These changes are partly dictated by the global recession, as clients are also revising their plans in light of the market situation," explains Okseniuk.
However, it is the impact of the war that is significant. For instance, domestic service and product companies quickly restored productivity after the start of the full-scale invasion and continue to maintain it at a high level despite the undeniably difficult infrastructure situation. However, clients are sensitive to the business risks associated with working on projects in Ukraine due to the energy situation and the risk of shelling.
According to Liubinets, firings in American tech companies will affect the Ukrainian IT industry. On the one hand, we will see fewer projects. Companies will get rid of or pause economically unjustified or too long-term projects. Less quantity of projects means less demand for Ukrainian engineers.
Kopanev adds that the Ukrainian market is closely linked to the global tech industry, so we are also witnessing a downward trend. While it is not widespread, the first quarter of 2023 will be indicative.
In general, statistics do not indicate a negative trend. Although the IT industry has reduced its growth rate over the past year, it has become the only industry that has maintained positive dynamics. Even in the midst of war, we confirm our title as one of the world’s most advanced technological nations.
What is the dynamics in the number of orders in companies? Not all speakers are willing to talk about it in detail. "The global economic recession and general uncertainty in global markets have a direct impact on the work of Ukrainian IT companies. After all, most of our clients and partners are residents of the United States, the United Kingdom, Germany, and the Middle East. The impact of the economic recession was already felt in the fourth quarter of 2022, when Intellias' business growth slowed down. Some of our customers have temporarily postponed new projects and/or revised the scope of cooperation in current contracts. Nevertheless, we are actively investing in business development, hoping to bring more projects in the near future, while building a sales team," says Vitaliy Sedler, CEO and сo-founder of Intellias.
According to Krasovsky, Sigma Software continues to grow: "Last year, we grew by almost 40%, which was even more than in previous years. This year, we expect slightly lower figures, at the level of 20-25%. In January, we have already won six new projects from companies in Sweden, Germany, the UK, and the United Arab Emirates."
GlobalLogic is supported by its parent company, Hitachi. "In particular, through expanding cooperation on mutual projects. There is also support from our current customers and interest from new ones. Over the past year, we had projects that had ended or were scaled back. It is a normal state of affairs in the service business, even in peacetime. At the same time, in 2022, we found new projects for more than 1,000 internal specialists who had been without a project for some time. During any crisis, there are businesses that seek to optimize their costs, and there are those that see opportunities for further transformation and development. At GlobalLogic, we know how to help both through our digital product and solution development services," says Andriy Yavorsky, Senior Vice President at GlobalLogic.
Ciklum, according to Okseniuk, is also standing firmly on its feet: "We continue to find new clients and are ready to increase investments in the Ukrainian market. The potential of Ukraine and Ukrainian talents is significant."
Genesis is an ecosystem of product businesses that do not depend on customers. "Our products continue to be downloaded by users worldwide, and we continue to run joint training programs with global partners like Meta. Most ecosystem projects showed positive growth dynamics in 2022," Kopanev says.
Will there be a wave of firings in Ukraine? Most of the interviewed speakers, on the contrary, talk about the availability of open vacancies. However, there will be fewer of them. "According to Djinni, in December 2022, the number of vacancies published on the resource was half as many as in January of the same year. Ciklum's hiring volumes in Ukraine have also decreased. Nevertheless, they are ready to return to the previous figures as soon as the situation allows. The beginning of the year is usually not very indicative in terms of the number of vacancies – we currently have more than 170 open positions. We see firings in companies as an opportunity and are ready to offer interesting projects and new professional opportunities to those specialists who have lost their jobs in Central and Eastern Europe countries. We are also developing our other locations: in Asia – India, in Europe – Poland and Bulgaria, where many Ukrainian IT specialists are now also working," says Okseniuk.
Over 800 new professionals joined GlobalLogic in Ukraine in 2022. "So, despite the significant uncertainty, we are doing everything possible to maintain the current and limited recruitment of new specialists. Currently, we have 135 open positions in Ukraine and more than 1,000 offers globally," says Yavorsky.
Intellias currently has about 130 open positions, 56 of which are in Ukraine. "We continue to hire developers with expertise that is not available in the reserve," Sedler clarifies.
Sigma Software has about 100 vacancies. "In times of recession, the requirements for the efficiency of specialists always increase, so some specialists who lack flexibility and efficiency may be fired. Although, inefficient specialists always face this risk," says Krasovsky.
And Genesis has more than 150 vacancies. "We also continue educational projects. Of course, we have also revised plans for new hires in some parts of the ecosystem. We try to do more with the same or fewer resources wherever possible. For us, 2023 is a year of operational efficiency and optimization in order to approach the upcoming growth period in the best possible shape as an organization," explains Kopanev.
EPAM has adjusted its hiring process to meet market demand. "The need for the necessary specialists is currently covered by bench specialists – internal specialists of the company who are not involved in project work with clients," explains Mitish.
According to Lyubinets, SoftServe provides jobs for all Ukrainian specialists and maintains a talent pool: "Of course, the hiring situation in our foreign locations is better than in Ukraine. The situation in Ukraine currently does not allow businesses to plan stably, so we respond quickly to signals from customers and the market. We constantly update our BCP, communicate with partners, and make great efforts to assure them of successful risk management and the ability to fulfil project obligations. However, for a country in which a full-scale war is underway, I think we are doing well – SoftServe and the Ukrainian IT industry are working at high speed."
What will happen to the market next? In short: we will survive, but there are nuances. According to Sedler, the crisis in global markets will last until the first quarter of 2023: "After that, hopefully, the growth of global economies will resume, and the number of orders for IT services will increase. And we will be able to offer reserved specialists to work on new large-scale projects."
Krasovsky also has an optimistic outlook: "Governments of many countries are following the path of digitalization. It is still needed today. Both businesses and governments need it. And even despite the hostilities, many people want to cooperate with Ukrainian IT companies because the whole world knows that our engineers are the best and provide not just outsourcing services but also develop creative high-tech products on a turnkey basis."
According to Liubinets, businesses will look for ways to save money due to the crisis and will choose Ukraine. "The Ukrainian IT industry is cost-effective for Western countries. We have seen this trend before. We have become a lifeline for global businesses in times of crisis. However, this time Ukraine is going through a war, which is a very serious problem for us compared to the economic crisis," emphasizes the co-founder of SoftServe.
Mitish adds that history shows that every crisis is always followed by a stage of development. "Today, technology has already become an integral part of our daily lives. Without it, further development of the world in general and the post-war reconstruction of Ukraine, in particular, is impossible. There will be a demand for digital transformation within the country soon. We already see the world showing interest in the Diya app. It is a good example of the digitalization of public services. About a dozen countries, including Estonia and the United States, have expressed interest in using the app's code for government purposes. So, let's hope it will be an impetus for the spread of Ukrainian innovations in the world," summarizes the Vice President of EPAM Ukraine.