In recent months, there has been growing speculation around whether tech giant IBM will withdraw from Russia amid the ongoing conflict in Ukraine. Here we explore what’s happening with IBM in Russia and analyze the likelihood of the company pulling out entirely.
IBM’s Presence in Russia
IBM has had operations in Russia for decades, though its presence significantly expanded after the fall of the Soviet Union in the early 1990s. Today, IBM employs around 1,000 people in Russia spread across offices in Moscow, St. Petersburg, Novosibirsk and Yekaterinburg.
The company provides a range of IT services and products to both government agencies and private companies across sectors like banking, telecoms, retail and energy. Some of IBM’s major clients have included Sberbank, VTB Bank, Megafon, Gazprom and Russian Railways.
In 2021, Russia accounted for around $300 million of IBM’s $57 billion in total revenue. While Russia is not a huge market for IBM compared to the United States and Western Europe, it remains strategically significant given the country’s highly skilled technology workforce.
IBM’s Response to Russia’s Invasion of Ukraine
After Russia launched its invasion of Ukraine in February 2022, IBM moved to suspend all commercial activity in Russia like many other major Western companies. However, it stopped short of fully withdrawing from the country.
In March, IBM CEO Arvind Krishna sent a letter to employees in Russia saying the company had suspended sales of products and services in Russia and would no longer provide consulting or technical support services. The letter also indicated IBM would continue paying Russian employees and not abandon clients.
This balanced approach allowed IBM to adhere to Western sanctions while avoiding a full pullout that would impact staff and clients dependent on its technology. However, IBM condemned Russia’s “unprovoked war” and urged a return to peace.
Ongoing Pressure to Fully Withdraw
Despite suspending commercial activities, IBM has faced growing calls to fully withdraw from Russia as the conflict continues. In April, Ukrainian Vice Prime Minister Mykhailo Fedorov wrote an open letter urging IBM and other major tech companies to cease operations in Russia altogether as part of international sanctions efforts.
“Leading tech companies must take a stand and stop supporting the Russian economy,” Fedorov wrote. “This will help protect thousands of Ukrainian lives and speed up the restoration of peace and prosperity in Europe.”
In recent months, IBM executives have signaled that a broader pullout could be forthcoming. In late April, Krishna said the company was “seriously looking at what it means to suspend operations” in Russia amid tightening restrictions on technology exports.
However, IBM is likely wary of fully abandoning 1,000 local staff who rely on the company for employment. It also has contractual obligations to clients who may take legal action if IBM withdraws support and services without warning.
The Potential Impact of a Full IBM Withdrawal
If IBM decided on a complete exit from Russia, the impacts could be significant for both the company and its customers:
- Loss of revenue – IBM would lose out on around $300 million annually from its Russian operations which support major local enterprises.
- Disruption for clients – Russian companies and agencies dependant on IBM technologies and services would face challenges maintaining operations without support.
- Headaches over infrastructure – IBM would need to decide whether to hand over data centers and other in-country infrastructure to Russian partners.
- Reputational damage – A full exit could harm IBM’s standing in Russia where it has operated for decades across multiple political regimes.
- Redundancies – Approximately 1,000 Russian IBM employees would likely face redundancy absent a transfer arrangement to local companies.
Balancing these local impacts with broader calls for tech industry withdrawal makes IBM’s decision complex amid a volatile geopolitical environment.
The Likelihood of IBM Leaving Russia
Predicting IBM’s next moves in Russia remains challenging. However, here are some of the key factors that may influence the company’s decision-making:
- Compliance with sanctions – Any exit would need to align with sanctions policy which remains fluid and complex.
- Pressure from Ukraine – Demands from the Ukrainian government and IBM’s stance on the war could hasten withdrawal.
- Treatment of staff – IBM will be wary of stranding local employees who are not responsible for the war.
- Russian legal risks – Breaching client contracts may open IBM up to lawsuits if it withdraws support.
- Reputational risks – Being among the last tech giants operating in Russia could damage IBM’s brand.
On balance, the growing complexity of sanctions compliance plus reputational risks suggest an eventual full IBM exit from Russia is highly likely. But IBM will seek to do this in a managed way that protects staff and meets local legal obligations.
Managing an Orderly IBM Withdrawal
If IBM does elect to fully leave Russia, it will need to navigate the exit carefully to protect both its interests and employees. This could involve:
- Providing significant notice to clients to transition from IBM technologies and services.
- Offering redeployment or redundancy packages to Russian staff.
- Complying with all local labor laws around minimum notice periods and severance.
- Transferring data, infrastructure and other assets to partners or clients where feasible.
- Honoring warranties, support terms and contracts until formally terminated.
- Communicating transparently and frequently with all stakeholders.
Some disruption may be unavoidable. But orderly withdrawal procedures could significantly limit the fallout for IBM in Russia if and when an exit decision is made.
Conclusion
IBM suspending commercial operations in Russia was an early milestone indicating its discomfort with remaining in the country amid the Ukraine invasion. While a full exit would now align with sanctions, IBM also has obligations to longstanding clients and staff in Russia.
This challenging balancing act around withdrawal may become more fraught over time as external pressure builds. But if IBM does elect to leave, expect a phased and orderly exit process that aims to protect the company’s reputation and adhere to its core values around good corporate citizenship.