In this age of hyper-sensitivity that some customers and even employees have about the positions companies take on social and moral issues, those who still do business with – or in – Russia are putting their reputations on the line.
A dwindling number of well-known companies are still doing business in Russia, even as hundreds have announced plans to cut ties.
Burger King restaurants are open, Eli Lilly is supplying medicine, and PepsiCo is selling milk and baby food, but no more soda.
The pace of corporate exits from Russia has accelerated over the past week as the deadly violence and humanitarian crisis in Ukraine worsened and Western governments increased economic sanctions to punish Russia for its age-old invasion. two weeks. The major oil companies BP and Shell have given up multi-billion dollar investments. McDonald’s and Starbucks stopped serving customers.
Companies still operating in Russia say they have franchise owners or employees to consider; they don’t want to punish the Russians by taking food or medicine away from them; or they provide software or financial services to Western companies that are not easy to replace.
“It’s a commercial calculation. On the living side: how much do they earn in Russia? Do they provide an essential service?” said Mary Lovely, senior fellow at the Peterson Institute for International Economics in Washington. “With each passing day, however, the calculations change. Sanctions against Russia are likely to last a long time, accompanied by growing revulsion.”
Some companies in less high-profile sectors like agriculture were able to fly under the radar and avoid the kind of social media pressure that had been directed at brands such as McDonald’s, Uniqlo and Starbucks, before deciding to cut ties this week. if only temporarily.
But in this age of hyper-awareness that some customers and even employees have about the positions companies take on social and moral issues, those who still do business with — or in — Russia are putting their reputations on the line.
Take Japanese clothing chain Uniqlo, which caught the eye after its parent company’s CEO told the Nikkei newspaper in an article on Tuesday that the reason for keeping nearly 50 Russian stores open was that “clothes are a necessity of life”. On Thursday, Uniqlo announced it would close stores.
“There’s potentially a big downside for companies to be on the wrong side,” Lovely said.
Many large multinationals did not flee Russia at the start of the war. But that changed when the invasion led to escalating violence – and more than 2 million refugees fleeing Ukraine.
There are now more than 300 companies that have reduced their operations in Russia, according to a list kept by a Yale team. Apple has stopped shipments. Google suspended ad sales. Automakers have stopped production. Hollywood studios stopped releasing movies and Netflix stopped streaming.
Some of these decisions were motivated by the need to comply with the sanctions Western governments imposed on Russia; others came because of supply chain issues or fear of reputational damage. The sanctions have already weighed on the Russian economy and world trade.
Some companies considering severing ties with Russia say it’s not that simple.
Citigroup said Wednesday that selling its 11 Russian bank branches will be difficult as the country’s economy has been cut off from the global financial system. Until then, Citi said it was “operating the business on a more limited basis” and helping its US and other corporate clients suspend operations in Russia.
Similarly, Amazon says its biggest cloud computing customers in Russia are headquartered elsewhere. The company said on Tuesday it had stopped accepting new cloud computing customers in Russia and planned to suspend e-commerce shipments to Russia.
Fast food companies often have franchise agreements that make it difficult to exit because they don’t own these locations.
This helps explain why Restaurant Brands International, owner of Burger King, is keeping its 800 restaurants open in Russia. And why Yum Brands, parent company of KFC and Pizza Hut, announced the closure of 70 company-owned KFCs across Russia, but not the nearly 1,000 franchise-owned KFCs, nor its 50 Pizza Hut locations.
This sometimes applies to hotels as well: Marriott says its Russian hotels are owned by third parties and is evaluating their ability to stay open.
“I think a lot of these companies expect a backlash if they stay,” said Susanne Wengle, political science professor and Russia scholar at Notre Dame.
McDonald’s action in Russia has been easier: it owns most of the 850 restaurants in Russia that it will temporarily close.
But there are companies that stay in Russia – whether in whole or in part – and say it’s because they see their products as essential.
Pharmaceutical company Eli Lilly is one of them. “We continue to distribute drugs in Russia because patients with cancer, diabetes and autoimmune diseases everywhere are counting on us to support them,” spokesman Tarsis Lopez said, noting that EU sanctions and the United States do not apply to drugs.
PepsiCo said it would stop selling sodas, but would continue to supply milk, formula and baby food in Russia. And Unilever said it would continue to sell “everyday essential” food and hygiene products to Russians, but would stop exporting and advertising these products.
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Tech companies have their own balancing act. Internet service providers such as Google, Twitter and Facebook have been mostly reluctant to take action that could deprive Russian citizens of access to information other than what they get from state media. (Russia, however, blocked Facebook and Twitter, then TikTok largely suspended service in the country.)
The response from industrial food producers has been complicated by Russia’s role as a major exporter of wheat and other commodities.
Bunge, which has assets of $121 million in Russia, said Thursday its Russian oilseed plant will operate and serve the domestic market, but suspended “all new export activity.” Farm equipment maker John Deere says it has halted machine shipments to Russia; he oversees a Russian plant that manufactures seeding equipment and its network of dealers in the country “on a day-to-day basis”. Cargill and ADM, other agricultural companies, did not respond to questions.
These companies don’t want the Russian government to seize their assets if they go out of business, said Vincent Smith, an economics professor at Montana State University.
Other companies are emphasizing the livelihoods of their employees by streamlining decisions to stay or not sever ties altogether.
Starbucks first expressed concern for its 2,000 Russian employees before backtracking on Tuesday. The Kuwaiti company which franchises its 130 Russian stores is closing them, but continues to pay its employees.
British American Tobacco said on Wednesday it would continue to manufacture and sell cigarettes in Russia, where it has 2,500 employees, citing a “duty of care” for employees.
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