The Russia-Ukraine war has dramatically shifted the global geopolitical landscape. Countries and companies around the world are struggling to respond. While not as exposed as European nations, Asian nations, will undoubtedly feel the spillover effects of the economic sanctions on Russia, as will the ICT industry in Asia/Pacific. IDC expects that sanctions, commodity shortages, and higher prices for oil and gas as well as other essential goods will further fuel inflationary pressures and damage ICT supply chains that support the regional consumer electronics/semiconductor manufacturing as well as distribution industries.
The situation is highly dynamic. Just one week prior to the invasion, we surveyed 370 Asia/Pacific (including Japan) organizations about their IT spending. 56% of respondents expected 2022 GDP to be same or higher than expected, and 49% indicated their IT spending in 2022 would increase from 2021 (Source: IDC FERS Wave 1 Survey conducted mid-February 2022). These generally positive views have no doubt darkened somewhat over recent weeks.
“Given the fluid nature of the war, IDC recommends that companies create action plans that enable them to anticipate and react to potential disruptions resulting from it, such as supply chain disruptions, chip shortages, increased inflation and cybersecurity threats. The impact of events can change quickly and so must your plans. Leveraging technology for resiliency should be top of the agenda.”Sandra Ng, Group Vice President and General Manager, IDC Asia/Pacific
IDC carefully evaluated the geopolitical situation and its impact on Asia/Pacific ICT markets, through its broad network of regional, and local analysts and will continue to do so.
Asia/Pacific IT Vendors will be impacted by:
- IT Supply Chain Disruptions for Asia/Pacific IT Vendors: Asian exports to Russia, while small, are sometimes significant, and will be hit by U.S. and EU sanctions. Prominent examples include Taiwan-based TSMC, which manufactures the Russian-designed CPU alternative to Intel/AMD, which has announced that it will no longer ship to Russia. By contrast, Russian exports to Asia/Pacific are much larger. These include industrial gases like neon and C4F6, and metals like copper, palladium, nickel, titanium, tungsten, and vanadium, used in IT products from chips to mobile phones and batteries. While most vendors have large inventories of these raw materials, raw material costs look set to increase. Ukraine and Russia’s supplies to semiconductor manufacturing of commodities are especially critical for Asia/Pacific, as the ICT industry has already been struggling with chip shortages with the pandemic and an extended Russia-Ukraine war will exacerbate this. While larger vendors have large stockpiles, supplies to downstream industries such as phones, laptops, and autos are likely to be delayed.
- Logistics and Transportation for Asia/Pacific IT Vendors: The war impacts the oil and gas industry and therefore has tremendous impact on logistics and transportation costs. Asia, as a net oil importer, is especially vulnerable, and transportation prices will increase. Asian ICT manufacturers and distributors, pressured by higher input costs, may struggle to pass on price increases to consumers.
- Inflationary and FX Impacts for Asia/Pacific IT Vendors: Inflation remains mild across the Asia/Pacific region, but with COVID-19 related spending, and now the Russia-Ukraine war, inflation has re-emerged as a concern. This makes planning harder for Asian exporters, especially in industries like semiconductors and computer hardware whose supply chains span continents. Inflation encourages vendors to lock in pricing for raw materials, while riding market increases (where they can) for output products. Inflation may impact the nature of ICT demand in Asia; for example, increasing the use of as-a-Service platforms, especially public cloud services from hyperscale providers operating regionally, as these allow buyers to reallocate capital spending from IT to increase enterprise resiliency.
Asia/Pacific Technology Buyers will be impacted less in the short term, as they will continue their investments in transformational IT. But if the war is protracted, they too will face issues such as:
- Inflationary Impacts for Asia/Pacific Technology Buyers: While inflation may cause some buyers to delay IT investments, IDC surveys suggest inflation is not likely to reduce investments. This varies by country, with Singapore and Japan more likely to report possible delays compared to China and Indonesia. Inflationary impacts also vary by technology— APJ respondents report that investments in telco/networks, SaaS, and IaaS are more likely to have budget increases because of inflationary pressures. Some well-placed IT buyers, say, those with U.S. dollar revenues may be able to lock in favorable discounts and rates with weaker vendors before any price increases.
- Supply Chain Implications for Asia/Pacific Technology Buyers: Asia/Pacific companies will need to increase logistics and supply chain transparency, beyond tier 1 suppliers. We expect to see greater monitoring and know-your-supplier practices using technologies like integrated ERP, supplier monitoring, blockchain for increased traceability, and environmental monitoring.
- Impacts on Asia/Pacific Technology Buyers’ Russian IT Suppliers and Operations: Many buyers will temporarily pause any Russian operations and suppliers to limit financial, legal, and brand reputation risks. This will probably lead to shift in IT vendor mix for these buyers.
- Cybersecurity Impacts for Asia/Pacific Technology Buyers: Cybersecurity and resiliency top IT spending priorities, and this will continue. Cyberwarfare may spill over beyond the conflict combatants and into Asia/Pacific.
An Open Question? China’s responses to E.U. and U.S. sanctions remain an open question, but these will have political, and economic impacts in Asia/Pacific as well as for ICT markets. For example, will Chinese (and potentially Indian) technology vendors step up to support Russian markets and fill the void left by Western technology suppliers? What will be impact on Chinese ICT vendors should they decide to increase their market presence in Russia? How will it impact their market positioning and ability to sell in other markets around the globe?
IDC will continue to monitor developments closely and provide guidance as necessary moving forward.
This IDC Market Note summarizes the views of IDC’s regional analysts to provide a first take on the Russia-Ukraine war’s impact for Asia/Pacific ICT vendors and technology buyers to help them adapt and react to fast-moving market conditions.