War for Ukraine and the AV Business
War is an ugly thing at any time. However, on the heels of a divisive pandemic and as the most significant conflict since World War II, the war in Ukraine throws a monstrous shadow across the European continent — one that scares, yet unites, Europeans.
Europeans who aren’t Ukrainian, who don’t have Ukrainian relatives and don’t expect ever to visit the Ukraine — even these Europeans still expressed incredulity at the news of the invasion, giving way to frustration and anger — usually in that order. Few are left alive who directly remember WWII but the scars and the stories from parents and grandparents are still here. Echoes of the devastation, the loss of life, the deprivation and the displacement (yes, the loss of a chance for a normal life for an entire generation) are almost too much to bear. People more than 2,000 km from Kiev cried, shouted, prayed and posted about the insanity of war in Europe. Yet, it came.
Rallies over the past week extended far beyond the continent with pro-Ukrainian demonstrations held from Sydney to Tokyo.
It’s the first livestreamed war, a war that all fear could end up drawing the world into full conflict.
And it has a direct impact on the AV business as well as other industries. While the impact needs to be in perspective to the plight of Ukraine, we still need to take stock and consider its impact on our businesses.
First, we’ve lost Ukraine and Russia as AV markets. The first (and a far, far worse case) to destruction and war and the second to war and international sanctions. People (and — I stress — people) that we know, that we see at every ISE, are caught up in a conflict where they will be lost to us for some time. Business partners, members of our extended AV business family, will be suffering, and on top of the pandemic, may have to call it quits or look for other ways to survive. Some of the people we know may even die, in battle, in accidents of war, in the health crises that inevitably follow war or in service to their country. Slava, Ukraini.
With the survival of their nation at stake, you can understand the prospects for most AV business in Ukraine are not on the horizon and, by the time I write this, may even be in pieces, broken and shattered by war and scattered on that horizon. Suddenly the “acts of war” exclusion in insurance policies will stand out as buildings and properties are bombed and knocked down.
With Russia under a growing net of economic sanctions — the sanctions that many first scoffed at as a deterrent — will bring the Russian economy down for years to come. Many products will no longer be allowed to ship to Russia and their means to pay for these goods has been strangled. The ruble has crumbled (and will fall further) and everything in Russia will cost more. Exports will dwindle to a trickle and imports will return to be the magic trick they were for Russian distributors in earlier days.
If you are familiar with SWIFT, that bank transfer number they ask you for when you make an international transfer, then you’ll know why SWIFT is called “the nuclear option of Russian financial sanctions.” Cutting Russia off from the world’s largest financial messaging network would be perhaps the strongest sanction yet in response to Russia’s invasion of Ukraine. When Iran was banned from Swift in 2012, as part of sanctions over its nuclear program, it lost almost half of its oil export revenues and 30% of foreign trade. In this case, the West will start by only cutting off certain Russian banks from SWIFT.
That all being said, while the world recognizes this as an invasion, a violation of our expectations in a world that we thought had moved past colonization by brute force, we need to understand that our Russian AV business colleagues are not personally or directly responsible. Or at least no more than we are for the international actions of our governments. There are protests by citizens in Russia, but we all know how that ends. While our sympathy belongs to the victims, we need big enough hearts and minds to hold on to this clear fact: A business owner that is not an oligarch in Russia has no real way to impact the strategy of a national leader. Those Russians that actively protest the injustice of invasion should be heralded but unless one profits directly from supporting the war effort, I suggest our industry brethren are not perpetrators nor victims but are collateral damage of their own government. We all know that feeling.
Following the path of least resistance, Russian AV will out of necessity, for the near future, become the bailiwick of Chinese exporters.
While we mourn the impact on Ukraine and Russia, the rest of the world will not walk away undamaged. That’s the nasty aftermath of war: With the world’s interconnected networks of trade and finance, anybody who even knows about the war is sucked into paying a price for it.
While the West will punish Russia by cutting off the import of Intel and other computer chips, the war for the Ukraine will hurt high-tech industries by extending the chip shortage initiated by the pandemic. This is no small thing: Russia is a significant source of neon gas (produced in the process of steel manufacturing). The gas is then purified by a Ukrainian-based company. The supply of refined neon gas (as well as palladium) will be impacted by the invasion and resulting economic sanctions, especially hurting the U.S. semiconductor industry.
And that will hurt the AV manufacturers and their ecosystems of distribution partners.
The EU now realizes the price of Russian energy included its acceptance of Russian political ambition and will wean itself from the source at a cost to all citizens. Neighboring countries to Russia will now embrace some concern and heighten their military and security which can only heighten Russia’s insecurity and create new tensions.
There are so many knock-on effects to consider — and ones which we won’t even think of until we are knee-deep …
While we don’t know the outcome of this war yet, we all hope it won’t spill over into a larger conflict that engulfs us all. No matter how it ends, the effects of this war are already sweeping the AV industry and the world. No one will come out a winner. And that’s the real cost of war.