When Russia invaded the Ukraine, global companies responded quickly, with some announcing that they leave Russia immediately, others restricting imports or new investments. Billions of dollars worth of factories, energy companies and power plants were canceled or put up for sale, accompanied by fierce condemnation of the war and expressions of solidarity with Ukraine.
More than a year later, it is clear: Leaving Russia was not so easy as early announcements might have made it seem.
Increasingly, Russia has put obstacles in the way of companies that want to exit, requiring the approval of a government commission and, in some cases, President Vladimir Putin himself, while imposing painful discounts and taxes on the prices of goods. sale.
While company stories vary, a common theme is having to navigate an obstacle course between Western sanctions and outraged public opinion on the one hand, and Russia’s efforts to discourage and penalize exits on the other. Some international brands such as Coca-Cola and Apple are filtering informally through third countries despite the decision to leave.
Many companies simply stand still, sometimes citing the liability of shareholders or employees or the legal obligations of franchisees or local partners. Others argue that they are providing essential items like food, farm supplies, or medicine. Some say nothing.
One is Italian fashion chain Benetton, whose store in Moscow’s now ironically named Evropeisky Mall, which means “European” in Russian, was busy on a recent weekday night, with customers watching and workers sorting out piles of brightly colored clothing. At Italian lingerie retailer Calzedonia, shoppers checked out socks and swimwear. Neither company responded to emailed questions.
For consumers in Moscow, what they can buy hasn’t changed much. While the Mothercare baby products store became Mother Bear under the new local ownership, most items in the Evropeisky Mall store still carry the Mothercare brand.
That’s also what student Alik Petrosyan saw while shopping at Maag, which now owns the former Zara flagship clothing store in Moscow.
“The quality hasn’t changed at all, everything has stayed the same,” he said. “The prices haven’t changed muchtaking into account inflation and the economic scenarios that occurred last year”.
“In general, Zara, Maag, they had competitors,” Petrosyan said, correcting himself, “but I wouldn’t say that there are now none with whom they can compete equally. Because the competitors that stayed are in a higher price segment, but the quality is not up to par.”
The initial exodus from Russia was led by major automakers, oil, technology and professional services companies, with PA, ShellExxonMobil and Equinor end joint ventures or cancel billions worth of stakes. McDonald’s sold its 850 restaurants still local franchiseewhile France’s Renault took a token ruble for its majority stake in Avtovaz, Russia’s biggest automaker.
Since the initial wave of exits, new categories have emerged: companies biding their time, those struggling to shed assets, and others. try to do business as usual. More than 1,000 international companies have publicly said they are voluntarily restricting Russian business beyond what the sanctions require, according to a Yale University database.
But the Kremlin keeps adding requirements, most recently a 10% “voluntary” exit tax directly to the government, plus an understanding that companies would sell at a 50% discount.
Putin recently announced that the government take over assets of the Finnish energy company Fortum and the German utility Uniper, except for a sale with a view to offsetting any Western moves to seize more Russian assets abroad.
Danish brewer Carlsberg announced its intention to sell its Russian business, one of Russia’s largest brewing operations, in March 2022, but faced complications in clarifying the impact of the sanctions and finding suitable buyers.
“This is a complex process and it has taken longer than we originally expected,” but it is now “almost done,” said Tanja Frederiksen, global head of external communications.
He called the Russia business a deeply integrated part of Carlsberg. The separation involved all parts of the company and more than 100 million Danish crowns ($14.8 million) in investment in new brewing equipment and IT infrastructure, Frederiksen said.
Another beer giant, Anheuser-Busch InBev, is trying to sell a stake in a Russian joint venture to Turkey-based partner Anadolu Efes and has given up revenue from it.
Companies are lost in “a Bermuda Triangle between EU sanctions, US sanctions and Russian sanctions,” said Michael Harms, executive director of the German Eastern Business Association.
They must find a partner not sanctioned by the West. In Russia, top business figures tend to be people who are “well connected to the government,” Harms said. I don’t like the people who are close to the regime”.
The 10% departure tax required by Russia is particularly tricky. American companies would have to get permission from the Treasury Department to pay it or run afoul of US sanctions, said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies in Berlin.
Hundreds of companies quietly decided not to go.
In a rare and frank explanation, Steffen Greubel, CEO of German cash and transportation firm Metro AG, told this year’s shareholder meeting that the company condemns the war “without any ifs or buts.”
However, the decision to stay was motivated by a liability of 10,000 local employees and is “also in the interest of preserving the value of this company for its shareholders,” he said.
Metro gets about 10% of its annual sales from Russia: more than 2.9 billion euros (3.1 billion dollars).
Meanwhile, the shelves are as packed as they were before the war at Globus superstores, a Germany-based chain with some 20 locations operating in Moscow.
A closer look reveals that most Western beer brands have disappeared, and many cosmetic brands have gone up in price by 50-70%. There are more vegetables from Russia and Belarus, which cost less. Procter & Gamble products remain plentiful, despite the company’s withdrawal from Russia.
Globus says it has “slashed” new investment but kept its stores open to ensure food supplies for people, noting that food has not been sanctioned and citing “the threat of forfeiture of considerable value of assets through of a forced nationalization, as well as serious consequences in criminal law for our local management.”
Similarly, Germany’s Bayer AG, which supplies medicines, agricultural chemicals and seeds, argues that doing business in Russia is the right move.
“Withholding essential health and agricultural products from civilian populations, such as cancer or cardiovascular treatments, health products for pregnant women and children, as well as seeds to grow food, would only multiply the ongoing cost of war on the lives of human,” the company said in a statement. statement.
Jeffrey Sonnenberger, head of the Yale database, said leaving was the only valid business decision, citing research showing the company’s share prices rose afterwards.
“Companies that have pulled out have been rewarded for pulling out,” he said. “It’s not good for shareholders to be associated with Putin’s war machine.”
Marianna Fotaki, professor of business ethics at Warwick Business School, says that business “is not just about results. … You don’t want to be complicit in what is a criminal regime.”
Even if competitors stay, he said, “running the race to the bottom” is not the answer.