The fact that Danish LEGO packed up and left Russia because it invaded Ukraine will certainly not be a blow to the Russian economy. However, before that, thousands of technological giants had left Russia (or minimized their operations), including Apple, Microsoft, SAP, CISCO. Russia is becoming technologically isolated and plunged into a permanent digital darkness. The reasons are many.
The US, as soon as Russian troops started invading Ukraine, implemented the Foreign Direct Product Rule (FDPR). This mechanism prohibits the export of a wide range of American technological products. It is a very broad rule, because it prohibits the export of products to Russia if they have used American software or equipment to make them. Naturally, turning off the technological faucet weakens the Russian economy, but also the Russian war machine; common consumer goods such as mobile phones and laptops are not curtailed in principle. This rule is still applied by 30 countries, and multinational technology giants have stopped exporting to Russia. Most companies also closed their stores, while – crucially – they also stopped selling services.
All advanced integrated circuits (the “chips”) are manufactured with software and tools made in the USA, UK or the European Union. So they are automatically non-exportable items for Russia, with huge implications. Almost all of Russia’s infrastructure, armed forces, business and administration depend on a wealth of Information and Communications Technologies that are no longer available. However, the ban on exporting products is the tip of the iceberg.
Software updates, as well as maintenance contracts
The most important – and initially invisible – impact is that software updates will also stop, as well as maintenance contracts. PCs may live quite a while with Windows 10, but the same won’t happen with older systems. Energy, logistics and industry rely on systems from SAP and Oracle. What happens when their subscription or support ends? They will stop working. The same will happen with the backbone of the networks, the CISCO routers for example, where when they break they will have to be replaced by local products, which are generations behind.
And the problem goes deeper: the banks are already struggling, while the agricultural sector that needs information technology in the spring, sowing time, has not been able to function satisfactorily, because American companies such as Trimble that have solutions for precision agriculture are not accessible. This slowdown is logical to create a movement towards cloud solutions, (which exist or will be created) but because there will be no competition, and the need for substitution will be immediate, the prices of products and services will skyrocket. In a more general context, Russia’s digital transformation will slow down, and many projects will freeze indefinitely. In this we have to take into account that the big-mouthed Russian declarations of technological autonomy have been left largely in words.
And China? Will it rush to fill the gap, also looking to a geostrategic advantage? The short answer is that: a) he can’t and b) he doesn’t want to. It can’t because it, in turn, depends on the US for equipment and software, in order to make the chips it produces “fason” for the whole world, but also for its own technological agenda. And he doesn’t want to because he might become a target of the same export ban mechanism, the FDPR. China has already gotten a taste of the medicine — applied in the case of Huawei, causing a dramatic drop in turnover for the company. Moreover, in many cases not even China itself has alternatives: neither in the obvious case of Microsoft (mainly in server and database software), nor in more specialized sectors, such as the almost monopoly solutions of the American Halliburton for the energy sector, oil and gas.
However, it’s not just companies that are leaving: people are also leaving. Russia has always had a strong human resource in IT and especially in software. Now that the job market for these people is tightening, they have begun to migrate to the West in large numbers. Already, an estimated 170,000 skilled IT scientists and technicians have left, and the tide doesn’t seem to be slowing down. Parenthetically, the great exodus from Russia (and Ukraine) of people working in technology, and especially IT, is a great bleed for them—but ironically a great opportunity for us, who could attract a whole city of digital nomads. Turkey has proved extremely hospitable to them. This, however, is the subject of another article.
For Russia, “There is money” from the operation of the large gas station, but no solutions. It will constantly regress to the Great Digital Transformation, and it will take a long time to recover, if it ever does. It’s another reason why it will become increasingly dangerous. And very authoritarian for its citizens, about whose digital isolation we didn’t talk at all. A country where technology temporarily tied it to the West, but these ties have now been broken, almost irreparably.