Companies Are Finding It's Not So Simple To Leave Russia. Others Are Quietly Staying Put.
When Russia invaded Ukraine, global companies were quick to respond, some announcing they would get out of Russia immediately, others curtailing imports or new investment. Billions of dollars’ worth of factories, energy holdings and power plants were written off or put up for sale, accompanied by fierce condemnation of the war and expressions of solidarity with Ukraine.
More than a year later, it’s clear: Leaving Russia was not as simple as the first announcements might have made it seem.
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Increasingly, Russia has put hurdles in the way of companies that want out, requiring approval by a government commission and in some cases from President Vladimir Putin himself, while imposing painful discounts and taxes on sale prices.
Though companies’ stories vary, a common theme is having to thread an obstacle course between Western sanctions and outraged public opinion on one side and Russia’s efforts to discourage and penalize departures on the other. Some international brands such as Coke and Apple are trickling in informally through third countries despite a decision to exit.
When Russia invaded Ukraine, companies were quick to respond, some announcing they would get out of Russia immediately, others vowed to curtail sales and new investment. More than a year later, it’s clear: Leaving Russia isn't as easy as the first announcements might have made it seem. via Associated Press
Many companies are simply staying put, sometimes citing responsibility to shareholders or employees or legal obligations to local franchisees or partners. Others argue that they’re providing essentials like food, farm supplies or medicine. Some say nothing.
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One is Italian fashion chain Benetton, whose store at Moscow’s now ironically named Evropeisky Mall — meaning “European” in Russian — was busy on a recent weekday evening, with customers browsing and workers tidying piles of brightly colored clothing. At Italian lingerie retailer Calzedonia, shoppers looked through socks and swimwear. Neither company responded to emailed questions.
For consumers in Moscow, what they can buy hasn’t changed much. While baby products store Mothercare became Mother Bear under new local ownership, most of the items in the Evropeisky Mall shop still bear the Mothercare brand.
That’s also what student Alik Petrosyan saw as he shopped at Maag, which now owns Zara’s former flagship clothing store in Moscow.
A woman exits a newly opened Maag store, a former Zara flagship store, in Moscow, Russia. via Associated Press
“The quality hasn’t changed at all, everything has stayed the same,” he said. “The prices haven’t changed much, taking into account the inflation and the economic scenarios that happened last year.”
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“Overall Zara — Maag — had competitors,” Petrosyan said, correcting himself, “but I wouldn’t say that there are any now with whom they could compete equally. Because the competitors who stayed are in a higher price segment, but the quality doesn’t match up.”
The initial exodus from Russia was led by big automakers, oil, tech and professional services companies, with BP, Shell, ExxonMobil and Equinor ending joint ventures or writing off stakes worth billions. McDonald’s sold its 850 restaurants to a local franchisee, while France’s Renault took a symbolic single ruble for its majority stake in Avtovaz, Russia’s largest carmaker.
Since the initial wave of departures, new categories have emerged: companies that are biding their time, those struggling to shed assets and others attempting business as usual. Over 1,000 international companies have publicly said they are voluntary curtailing Russian business beyond what’s required by sanctions, according to a database by Yale University.
But the Kremlin keeps adding requirements, recently a “voluntary” 10% departure tax directly to the government, plus an understanding that companies would sell at a 50% discount.
Russian President Vladimir Putin recently announced that the government would take over the assets of Finnish energy company Fortum and Germany’s Uniper utility, barring a sale with an eye to offsetting any Western moves to seize more Russian assets abroad. Contributor via Getty Images
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Putin recently announced that the government would take over the assets of Finnish energy company Fortum and Germany’s Uniper utility, barring a sale with an eye to offsetting any Western moves to seize more Russian assets abroad.
Danish brewer Carlsberg announced its intention to divest its Russia business — one of Russia’s largest brewing operations — in March 2022 but faced complications clarifying the impact of sanctions and finding suitable buyers.
“This is a complex process, and it has taken longer than we originally hoped for” but now is “almost completed,” said Tanja Frederiksen, global head of external communications.
She called the Russia business a deeply integrated part of Carlsberg. Separating it has involved all parts of the company and more than 100 million Danish kroner ($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 forgone revenue from it.
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Companies are lost in “a Bermuda Triangle between EU sanctions, U.S. sanctions and Russia sanctions,” said Michael Harms, executive director of the German Eastern Business Association.
They must find a partner not sanctioned by the West. In Russia, major business figures are often people who are “well connected with the government,” Harms said. “For one thing, they have to sell at a large discount or almost give assets away, and then they go to people whom politically we don’t like — people who are close to the regime.”
The 10% exit tax mandated by Russia is particularly tricky. American companies would have to get permission from the Treasury Department to pay it or run afoul of U.S. sanctions, said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies in Berlin.
Hundreds of companies quietly decided not to leave.
In a rare, frank explanation, Steffen Greubel, CEO of German cash and carry firm Metro AG, said at this year’s shareholder meeting that the company condemns the war “without any ifs, ands or buts.”
However, the decision to stay was motivated by a responsibility for 10,000 local employees and is “also in the interest of preserving the value of this company for its shareholders,” he said.
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Metro gets around 10% of its annual sales from Russia — more than 2.9 billion euros ($3.1 billion).
Meanwhile, shelves are just as full as 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 vanished, and many cosmetic brands have jumped in price by some 50% to 70%. There are more vegetables from Russia and Belarus, which cost less. Procter & Gamble products are still abundant — despite the company’s withdrawal from Russia.
Globus says it has “drastically” cut new investment but kept its stores open to ensure food supply for people, noting that food has not been sanctioned and citing “the threat of confiscation of considerable asset value through a forced nationalization as well as severe consequences in criminal law for our local management.”
Similarly, Germany’s Bayer AG, which supplies medicine, agricultural chemicals and seeds, argues that doing some business in Russia is the right move.
“Withholding essential healthcare and agriculture products from the civilian populations — like cancer or cardiovascular treatments, health products for pregnant women and children as well as seeds to grow food — would only multiply the war’s ongoing toll on human life,” the company said in a statement.
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Jeffrey Sonnenfeld, head of the Yale database, said leaving was the only valid business decision, citing research showing company share prices rising afterward.
“The companies that have pulled out have been rewarded for pulling out,” he said. “It is not good for shareholders to be associated with Putin’s war machine.”
Marianna Fotaki, professor of business ethics at Warwick Business School, says business is “not just about the bottom line. ... You don’t want to be an accomplice to what is a criminal regime.”
Even if competitors stay, she said, “following the race to the bottom” is not the answer.
Which companies are leaving Russia and which are staying? Here’s a look:
FRANKFURT, Germany (AP) — More than 500 companies have suspended their business in Russia, and a similar number have withdrawn completely.
An additional 151 are “scaling back,” 175 are “buying time” and 230 are “digging in,” according to the database kept by Yale University. Chinese companies figure prominently in the last category.
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Here’s a look at some of the Western companies that have chosen to stay or exit Russia:
LEAVE
— Volkswagen on Friday closed a deal to sell its Russian business, including its plant in the western city of Kaluga with 4,000 employees, to an entity supported by Russian dealer Avilon.
The agreement had been delayed for months by a lawsuit from Russian automaker GAZ. It made cars under contract for VW until the partnership was ended by what the Germany company calls a mutual agreement in May 2022.
Though VW has disposed of its Russia business, it still must contend with the lawsuits.
— KFC owner Yum! Brands withdrew from Russia in March 2022 and some of the restaurants have rebranded as Rostic’s, a former post-Soviet brand.
“The workers are welcoming, just as before,” 33-year-old teacher Timofey Sosnovsky said at a newly reopened Moscow location, where people dug into familiar red- and white-striped buckets of chicken and boxes of nuggets. “I actually didn’t feel any difference between KFC and Rostic’s.”
— Austrian forest products company Mondi is still waiting for approval after reaching a deal in August to sell its assets, including a large mill in the northern city of Syktyvkar, for 95 billion rubles ($1.5 billion) to billionaire Viktor Kharitonin’s Augment Investments Group.
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It also still hasn’t gotten approval after Gotek Group agreed in December to buy three smaller Mondi packaging operations.
— Another forest products company, Stora Enso, divested its packaging plants to local management but is still waiting for approval to shed two smaller Russian logging companies.
— Italian power generating company Enel agreed to sell its power plant holdings partly to Russian oil company Lukoil, which has been under U.S. sanctions since 2014, when Russia seized Ukraine’s Crimea peninsula.
STAY
— Burger King, owned by Restaurant Brands International, and Carl’s Jr., which belongs to CKE Restaurents, are both still open in Moscow. Neither company responded to emailed questions.
Last year, RBI International President David Shear said in a letter to employees that franchise agreements made it impossible to force the local operator to shut down while the company tries to sell its 15% share in the joint Russia venture. Its partners included the investment arm of state-owned VTB Bank.
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“There are no legal clauses that allow us to unilaterally change the contract,” he said. “This is also why you may see other brands in Russia with similar structures continue to operate in the market.”
Any profits are being donated to the U.N.’s refugee agency.
— Products from Italian drinks company Campari Group, which makes the popular Aperol liquor, are still available in Russia.
The company has said it would halt advertising and reduce business to just enough to pay its 118 workers in Russia. It didn’t respond to an emailed request for comment.
— Quincy, Illinois-based Titan International, maker of tires for farm tractors, has kept its majority stake in its factory in the southwestern city of Volgograd.
The Russia plant “serves a critical need of the global supply chain of food and agriculture,” CEO Paul Reitz said in a conference call with analysts. “We do continue to operate and follow all sanctions that are in place” and there is “no cash going in, no cash going out.”
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The company doesn’t supply the Russian government or the military, he said.
Source: HuffPost
