Thirty years ago, when communism collapsed in the Soviet Union, Western companies rushed to be the first through the gates of the new Russian Federation.
The arrival of brands such as Coca-Cola and McDonald’s symbolized the beginning of a new era, and retail companies, miners, lawyers and consultants soon followed.
And the Russians became avid consumers of Levi’s jeans and luxury goods.
Now, following President Putin’s military aggression in Ukraine, some companies, including Apple, Jaguar Land Rover, H&M and Burberry, have announced that they will suspend their activities in Russia.
The Spanish Inditex, owner of brands such as Zara, Bershka or Pull & Bear , joined this Saturday the list of firms that suspend their business in Russian territory.
We explain which companies, and in which sectors, are rapidly exiting Russia and why others have remained silent.
oil and gas
When the conflict broke out in Ukraine, the energy company BP came under immediate pressure.
The company owns a large stake in Russian energy giant Rosneft, but announced a few days later that it would withdraw from operations.
This was closely followed by promises by Shell, ExxonMobil and Equinor to cut their Russian investments following pressure from shareholders as well as governments and the public.
Those energy bets are valuable. BP’s stake in Rosneft accounted for a fifth of the company’s most recent earnings.
Shell could be sacrificing up to $3 billion by exiting its Gazprom business.
Companies want to be seen as “doing the right thing,” says Russ Mould, chief investment officer at AJ Bell.
Meanwhile, Total Energies, another big presence in Russia, has said it will not finance new projects in the country, but unlike its peers it does not plan to sell its existing investments.
It is not yet known what will happen to these investments, if they can eventually be sold, recovering part of their value, or if they will simply be cancelled.
Entertainment
Movie fans in Russia who wanted to go see Warner Bros’ new blockbuster “The Batman” will not be able to do so after the company suspended releases of new films in the country.
The American film company was joined by Disney and Sony, which also withdrew the releases of the animated film “Turning Red” and the Marvel adaptation “Morbius.”
Netflix will also suspend all “future projects” in the country while it assesses “the impact of current events.”
All the companies said that their decisions were based on the “humanitarian crisis” in Ukraine, and not as a result of the sanctions that have been imposed.
But the move will send a similar message. Leaving Russia “culturally excluded” will increase its sense of isolation, says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Technology
Apple has stopped all sales of its products in Russia and limited other services such as Apple Pay and Apple Maps. Its stores also closed.
For a company like Apple, which sells imported goods, that’s a relatively easy decision, says Chris Weafer, chief executive of consultancy Macro-advisory Limited, who has worked in Moscow for the past 24 years.
“Companies don’t want to be associated with the Russian regime and what’s going on in Ukraine ,” he says.
He points out that Apple’s business in Russia may be profitable, but “the rest of the world is more important” when your reputation is at risk as in this case.
Samsung, the main seller of smartphones in Russia, announced for its part that it was suspending shipments of its products to the country.
“We continue to actively monitor this complex situation to determine our next steps,” the company said in a statement.
Microsoft also announced that it will no longer sell its products in Russia. “Like the rest of the world, we are horrified, outraged and saddened by the images and information reaching us from the war in Ukraine and we condemn this unjustified, unprovoked and illegal invasion of Russia,” said its president, Brad Smith.
Additionally, some tech companies, awash with misinformation, are restricting Kremlin-linked media outlets from posting on their platforms.
Facebook, for example, was blocked in Russia after it said it had refused to stop fact-checking and labeling content from state news organizations. Twitter also began to suffer restrictions, according to Russian media.
Retail sale
Swedish fashion giant H&M has become the latest retailer to pull out of Russia, with many more likely to follow suit, according to Maureen Hinton of retail consultancy GlobalData.
But while H&M cited “tragic developments” in Ukraine, other brands, including Nike, have simply said they cannot currently guarantee product delivery to customers in Russia.
The Spanish companies Inditex -owner of brands such as Zara, Bershka or Pull&Bear- and Tendam -from Cortefiel- joined this Saturday the list of large multinationals that suspend their activity in Russian territory.
For Inditex, the Russian market is especially important since it is the second country with the largest number of stores ( 502, according to the latest records updated by the company ), only behind Spain and ahead of Mexico, Italy and China.
However, since 2019 the firm founded by Amancio Ortega has been reducing its presence in the country and has reduced its network of establishments by 10%.
Burberry, which has its flagship store on Moscow’s Red Square, said it was pausing all shipments because it had become “difficult to fulfill orders in Russia.”
Russia was the fifth largest European retail market in 2021 , valued at US$450 billion.
Some brands may not want to burn their bridges, in case the possibility of returning at a later date arises.
That’s why many companies simply say they’re “reconsidering” or “suspending” sales rather than pulling out altogether, says Chris Weafer.
And with sanctions limiting forms of payment, restrictions on moving foreign currency out of the country, and great uncertainty about future prices and consumer appetite, the business climate is “extremely challenging,” he adds, making it easy to make a decision. pause.
automobiles
Jaguar Land Rover (JLR), General Motors, Aston Martin and Rolls-Royce are among the automakers that have halted vehicle deliveries to Russia due to the conflict.
And construction equipment manufacturer JCB has halted all operations.
Cars are the UK’s biggest export to Russia, yet only 1% of British cars were shipped to Russia last year.
So any decision to stop exporting won’t be particularly costly and will be made easier by lingering concerns about whether or not payments will come through, investment analyst Russ Mould explains.
However, transporting cars to Russia could prove difficult as the world’s two largest cargo carriers, MSC and Maersk, have suspended routes to and from Russia, except for deliveries of food, medical and humanitarian supplies.
Some automakers, such as Volkswagen and BMW, have had to halt production at some European plants due to a lack of parts from Ukraine.
consulting companies
Large law and consulting firms were some of the first to establish a presence in Russia after the fall of communism, but they mostly operate out of the spotlight.
So far, following the Russian invasion of Ukraine, most have kept quiet about their plans, but Jonathan Holt, the head of KPMG in the UK, said he was reviewing his clients in line with the sanctions.
He added that that would mean ending some relationships both in the UK and around the world.
EY (Ernst & Young Global Limited), indicated that it would comply with the sanctions, but has not confirmed whether or not it intends to sever ties with any client.
Some legal and consulting firms also say they are reviewing their client base and links to Russia.
A senior executive at consulting firm McKinsey, for example, wrote in a social media post that the company “would no longer provide services to any government entity in Russia.”
But according to reports in the Wall Street Journal, McKinsey did not comment on whether that ban would apply to state-controlled companies like Rosneft.
According to the McKinsey website, the firm provides its services to 21 of the 30 largest Russian companies.
Who’s left?
Although the avalanche of announcements of companies pulling out of Russia continues, there are calls for more to join, especially some of the biggest consumer brands.
But some companies will find it much harder to disengage, even if the pressure mounts in the coming days and weeks.
In retaliation against Western sanctions, the Russian government banned the sale of Russian assets.
Thus, companies that have, in recent years, been encouraged to establish a presence in Russia to make breakfast cereals or detergents are “locked in” with local firms, employees and supply chains.
Weafer believes that the big consumer brands are likely to express concern about the military conflict, but try to “cope with it”.
And he predicts that “they will leave the door open to an improvement that allows them to stay.”
Link: https://www.bbc.com/mundo/noticias-internacional-60605193
Author:
- Michael Race and Lucy Hooker
- Business Reporters, BBC
