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Growing Number of Companies Pull Out of Russia

Growing Number of Companies Pull Out of Russia
Source: NPR

When communism fell apart in the Soviet Union thirty years ago, Western companies fought to be the first in the door.

Retailers, miners, attorneys, and consultants followed closely behind Coca-Cola and McDonald’s in heralding the dawn of a new age. And Russians became voracious buyers of Levi’s jeans and other high-end items.

Following President Putin’s military aggressiveness in Ukraine, numerous companies, including Apple, Jaguar Land Rover, H&M, and Burberry, have indicated that their operations in Russia will be paused.

So, which companies, in whose industries, are quitting the quickest, and why are others remaining silent?

When the war in Ukraine erupted, BP was immediately put under pressure. The corporation holds a major share in Rosneft, the Russian energy behemoth, but it said the enterprise will be split up within days.

Following that, Shell, ExxonMobil, and Equinor announced plans to reduce their Russian investments in response to criticism from shareholders, governments, and the general public.

Those energy stakes are significant. BP’s share in Rosneft was responsible for a quarter of the company’s recent profits. Shell might lose up to $3 billion (£2.2 billion) by abandoning its Gazprom joint ventures.

However, according to Russ Mould, investment director at AJ Bell, companies want to be regarded as doing the “right thing.”

Meanwhile, Total Energies, another major Russian participant, has stated that it would not fund new projects in the country, but will not divest current assets, unlike its rivals.

It’s yet unclear what will happen to such investments, whether they may be sold to regain part of their value or whether they would be written off entirely.

Fans in Russia who want to view Warner Bros.’ new movie The Batman will be unable to do so since the studio has halted new film distribution in the country.

Disney and Sony joined the US studio, and premieres of the animated film Turning Red and the Marvel adaption Morbius were also canceled.

Netflix has also halted any “future initiatives” in the nation as it considers “the implications of current events.”

All of the corporations stated that their choices were based on the “humanitarian catastrophe” in Ukraine, rather than restrictions imposed.

However, the outcome will convey a similar message. According to Susannah Streeter, senior financial and markets analyst at Hargreaves Lansdown, being left “in the cultural cold” would enhance Russia’s sense of isolation.

Apple has suspended all product sales in Russia, as well as limiting the use of other services including Apple Pay and Apple Maps. Its stores have also shuttered.

According to Chris Weafer, CEO of consultancy firm Macro-advisory Limited, “for a company like Apple selling imported things, that’s a reasonably simple option to take.” He has spent the previous 24 years in Moscow.

“Businesses don’t want to be connected with Russia’s regime and what’s going on in Ukraine,” he adds. Their Russian company may be successful, but when it comes to a reputational risk like this, “the rest of the world is more important.”

Furthermore, in response to the torrent of disinformation, several digital firms are preventing Kremlin-linked media outlets from publishing on their platforms.

In Russia, for example, Facebook was banned when it refused to stop fact-checking and labeling information from state-owned news outlets.

According to Maureen Hinton of retail consultant GlobalData, Swedish fashion giant H&M has become the latest shop to withdraw, and many more are sure to follow suit.

While H&M mentioned “tragic developments” in Ukraine, other brands, such as Nike, simply said that they cannot guarantee delivery of items to Russian clients at this time.

Burberry, which has a flagship store on Moscow’s Red Square, said it was halting all shipments because “fulfilling orders in Russia” had become “challenging.”

In 2021, Russia was the fifth largest European retail market, at £337.2 billion. If there’s a prospect of returning at a later point, some firms may not want to damage their ties.

According to Chris Weafer, this is why many companies just state they are “reconsidering” or “suspending” sales rather than canceling them entirely.

The business climate is “very hard,” he continues, with sanctions restricting payment methods, prohibitions on getting foreign cash out of the country, and significant uncertainty about future prices and customer appetite, making the choice to halt easy.

While the deluge of statements from companies withdrawing from Russia continues, there are demands for others to follow suit, particularly from some of the world’s most well-known consumer brands.

Even if pressure increases in the next days and weeks, some people will find it far more difficult to get out.

The Russian government has outlawed the sale of Russian assets in response for Western sanctions. As a result, companies that have been pushed to develop a presence in Russia in recent years, such as to manufacture breakfast cereals or detergents, have been “locked in” with local businesses, employees, and supply chains.

Mr. Weafer predicts that major consumer brands would undoubtedly voice their displeasure with the military war, but will try to “ride it out.”

He forecasts that they will leave the door open for an upgrade that will allow them to stay.