Russia's invasion of Ukraine threatens Eastern Europe's Silicon Valley success.

• Over one million IT professionals work in Ukraine, Belarus, and Russia, with 250,000 employed by consulting or outsourcing firms.
• In the region, major software companies include EPAM Systems, with over 30,000 tech employees across three countries.
• The technology hub in Eastern Europe has become a vital digital link for start-ups and Fortune 500 companies, but its achievements are now being threatened by "digital geopolitics."

For years, national security and global economic issues have been heavily influenced by technology.

In his State of the Union address, U.S. President Joe Biden emphasized the need for competition with China and technological advancements in manufacturing. However, the speech was overshadowed by the urgent issue of Russia's invasion of Ukraine. The conflict has brought to light another crucial aspect of the technology industry: the thriving tech workforce in Eastern Europe.

The war between Ukraine, Belarus, and Russia has made these countries vital growth areas for tech talent in a world increasingly dependent on digital technology. From start-ups seeking developers and engineers to established corporations relying on software partners for digital transformation, hundreds of thousands of tech workers in the region have become essential to the global economy.

Gartner predicts that more than one million IT professionals work in the three countries, with 250,000 employed by consulting or outsourcing firms. In 2020, there were 200,000 Ukrainian developers in the country, according to Daxx, which states that 20% of Fortune 500 companies have their remote development teams in Ukraine.

Big corporations, including those in the financial and retail sectors, rely heavily on the talent cultivated in the region. For instance, EPAM, a software vendor, has more than 50% of its tech staff across three nations, with over 30,000 employees. However, the ongoing conflict in Ukraine has disrupted the functioning of organizations, with internal dissension now an issue for EPAM leadership as workers in Ukraine call for its CEO to take a harder anti-Putin line, according to a Bloomberg report, despite the large number of workers in Russia and Belarus.

Aleksandr Volodarsky, the Ukrainian founder and CEO of Lemon.io, has made the human and tech worker dimensions of the war tangible through his tweets, including one that depicted his chief marketing officer in military attire.

He had announced in mid-February that his company would give employees two months of pay in advance, and he later posted that clients were increasing their payments despite developers being unavailable, mobilized, or volunteering to help the army.

Analysts who have studied companies like EPAM Systems in Eastern Europe are concerned about the connections they have made with company leaders and tech community members in the region, as well as the severity of the humanitarian crisis in the area, which is greater than any industry or company outlook.

"Our teams are delivering in a parking garage in Kharkiv amidst heavy shelling and gunfire. Incredible people," Logan Bender, CFO of a San Francisco-based software licensing company, shared on Instagram on Tuesday via a post by venture capital meme account PrayingforExits.

In the long run, there is a considerable risk of a domino effect in technology and other areas.

According to Scott Berg, software analyst at Needham, Eastern European countries have emerged as hotspots for development. Across the companies he covers, a solid third, if not half, have resources in that area.

"Another analyst stated that these public companies, including EPAM, are merely a small portion of the larger market," said the analyst.

The dawn of digital geopolitics

The increasing presence of digital technology is influencing the political objectives of nations, as described by Gartner in their report on "digital geopolitics." This competition in the digital sphere between countries is considered one of the most significant trends, according to David Groombridge, Gartner Research VP and his colleagues.

According to Gartner, 43% of boards of directors expressed concern about deglobalization as a major issue even before the Russia-Ukraine War, with executives worried about their enterprise location strategy.

While it may not be necessary to withdraw from the region or abandon existing accounts with vendors, companies with significant talent pools in Eastern Europe face the risk of losing work if operations are disrupted. Analysts predict that clients will be hesitant to pull work as long as operations can continue, but may be less likely to assign new projects to companies with geographic risks, particularly when considering cybersecurity concerns. This could limit the growth potential of the Eastern Europe tech hub and companies that rely on it.

The ongoing conflict in Russia is causing tech firms in the region to worry about technology restrictions and their impact on new product development. They are also concerned about their ability to pay workers based in Russia due to financial restrictions imposed by the West, which may limit their payroll abilities. To address these issues, they are trying to understand basic operational problems, such as how long they will have access to funds and ensuring workers have internet access.

Groombridge advised CNBC via email that the current impacts on software development centers in Ukraine and surrounding countries have highlighted the need for organizations to quickly reconsider their sourcing of IT services and supply chains. However, instead of reactively onshoring capabilities, executives must navigate a complex balance of factors such as competitive advantage, geographic concentration risks, skills availability, legal and regulatory issues, and country risk factors to relocate their IT services.

The technology sector was already facing a severe shortage of skilled workers, with an average of 70 days required to fill open positions.

One Wall Street analyst who has traveled throughout Eastern Europe stated that while the best talent is in Silicon Valley and the U.S., the second-biggest hub is in Eastern Europe.

It is not straightforward to cultivate tech expertise, and it is not a straightforward issue to resolve by relocating a factory.

Developing these hubs takes a long time, according to the analyst, who referred to the people problem as a time-consuming issue.

Unlike economic hubs that have emerged worldwide based on natural resources, intellectual resource concentration is rare. Prior to Eastern Europe, it had been many years since a significant new software and technology talent pool had developed.

The companies most exposed are taking proactive measures to mitigate risks, such as building up cash reserves, using data centers outside the region, and implementing redundancies in processes. However, the prolonged conflict increases the risk of instability. While the worst fears about cybersecurity and technology access have not been realized on a large scale, there have been internet outages in Ukraine and Russian missiles targeting critical infrastructure. Russia's invasion is intensifying and is expected to target more population centers.

While other global tech hubs are growing, experts predict that Eastern European nations such as Poland, Romania, and Ukraine may see further investment and support in their economies in the future, even if Russia remains shunned by the global economy.

Recently, Volodarsky presented a unique business plan with an unconventional end date, which was not based on a typical quarter or year but rather, "until the end of the war."

• Keep the team running even if they are not available.• Support and pay the team.• Donate profits to the army.

The ongoing war has left many in a stunned state, but one tech lesson that has become clear is that the global economy cannot quickly build a talent pool as large as the one currently present in Eastern Europe. However, it is now hyper-real that events within a few weeks can significantly harm it.

—CNBC’s Natasha Turak contributed to this report