Monday, August 8, 2022
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Russia Faces A Corporate Exodus, Exposing Business Risks

Automobile factories suspended production, beer production ceased, furniture and fashion orders dropped, and energy businesses backed out of oil and gas projects.

As companies seek to maintain their reputations and live up to corporate responsibility standards, Russia’s invasion of Ukraine has thrown business plans into disarray and forced a growing number of the world’s most well-known brands — from Apple to Mercedes-Benz and BP — to pull out of a country that has become a global outcast.

Investors were enticed to Russia by the promise of huge earnings, which they believed was worth the geopolitical dangers. After Russia’s conflict generated a wave of global sanctions and export restrictions, the country’s economy has been thrown into disarray, and international firms’ activities have been interrupted.

“You’ve effectively turned Russia into a commercial pariah,” said Mary Lovely, a senior scholar at the Peterson Institute for International Economics in Washington. “Almost no corporation, no multinational, wants to be on the receiving end of US and Western sanctions.”

They’re also concerned about the situation of Ukrainians, demonstrating their desire to be viewed as being on the right side of history.

An decree from Moscow temporarily prohibiting foreign investors from selling Russian assets is complicating firms’ efforts to depart. Prime Minister Mikhail Mishustin said on Tuesday that it would assist investors in making a “thoughtful decision” rather than succumbing to political pressure from sanctions. It’s unclear how this will effect business efforts to leave Russia.

Oil and gas firms, who were already under pressure from climate campaigners to invest in renewable energy, were among the first to announce their withdrawals.

BP said on Sunday that it will sell its $14 billion share in Rosneft, the Russian state-owned oil and gas corporation. Shell said the next day that it was exiting its joint venture with state-owned Gazprom as well as its participation in the now-suspended Nord Stream 2 pipeline, which was planned to transport natural gas to Western Europe.

ExxonMobil has announced that it will exit a significant oil and gas project in Russia and will not make any further investments in the country. The increasingly violent war has startled and saddened all of their main executives. Smaller energy companies have started to follow suit.

Other businesses, notably automakers, have said that they will avoid the Russian market due to concerns about Ukraine or to comply with Western sanctions.

Because to supply chain interruptions, Toyota is pausing production at its St. Petersburg facility, which produces the RAV4 and Camry models, beginning Friday. The company said it was observing events “with great concern for the safety of the people of Ukraine.”

Mercedes-Benz has halted car exports and production in Russia. The Volkswagen Group, which owns Porsche and Audi, followed suit, stating that a “sustainable solution to the crisis can only be found on the basis of international law.”

Volvo Cars has halted delivery due to “possible risks linked with selling material with Russia,” according to the company, citing Western sanctions. Ford’s activities were halted.

Harley-Davidson has stopped shipping motorcycles to Russia, adding that their thoughts are “continuing for the safety of the people of Ukraine.” During a visit to Ukraine in 2010, Putin famously rode a three-wheeled Harley.

Others who have more invested in Russia may find it more difficult to handle the issue.

Renault, whose second-largest market is Russia, stated simply that production at its Moscow facility will be temporarily halted through Saturday “due to certain logistics challenges,” without providing any details.

Carlsberg, a Danish beer business, has halted production at three of its breweries in Ukraine, but has stated that operations in Russia, where it owns and employs 8,400 people at Baltika Breweries in St. Petersburg, would continue.

By email, Vice President of Corporate Affairs Christian Wulff Sondergaard said, “Millions of lives are being touched, and we strongly condemn the acts of violence and hostility we are witnessing.” Carlsberg is compelled to “defend the livelihood of all our employees” in Russia, he added, since the country’s economy is under escalating sanctions.

Budvar, a Czech brewer with Russia as one of its five biggest markets, has paused beer deliveries, claiming that business is not its first concern and that it is exploring for ways to help, including finding housing for Ukrainian refugees.

“In the best of circumstances, doing business in Russia is extremely difficult. It’s gotten out of hand now. So getting out is a good business idea,” said James O’Rourke, a reputation management professor at the University of Notre Dame’s Mendoza College of Business.

Any losses will have to be written off as a cost of doing business.

“It’s like doing business with the Manson family,” O’Rourke added, alluding to cult leader Charles Manson’s followers. “You don’t want your name linked with such people, and disinvesting isn’t going to cost you a lot of money.”

Ikea has shut down 17 of its Russian outlets and halted exports and imports. “The conflict has had a major human impact,” the Swedish furniture manufacturer stated, adding that it has caused “severe interruptions to supply chain and business circumstances.”

H&M, a fast fashion retailer, has halted sales at Russian outlets, citing “tragic occurrences.” On its Russian website, Nike stated that it cannot guarantee delivery.

Boeing and Airbus have ceased shipping components and providing service assistance to Russian airlines.

Even Hollywood studios are postponing the release of new films in Russia, which isn’t a major film market but consistently ranks among the top dozen for box office receipts. The “humanitarian catastrophe” was mentioned by Warner Bros., Walt Disney Co., and Sony Pictures.

Netflix has put a halt to any future Russian ventures and acquisitions. According to reports, the streaming service has four Russian projects in the works.

Companies in the IT sector were also on their way out.

Apple has ceased selling iPhones and other products in Russia, while Dell Technologies has stopped selling computers in Ukraine and Russia.

Following a request from the European Union, Google and TikTok removed Russian official media stations from their platforms. Outside of Russia, Apple has barred downloads of RT News and Sputnik News from its App Store.

As the war’s human costs rise, firms must respond not just to penalties, but also to public sentiment.

The environmental, social, and corporate governance (ESG) pledges of companies are being put to the test. ESG has become a trendy acronym that’s becoming more widely recognized as a valuable approach for businesses to demonstrate their commitment to social responsibility.

“However, there may be an element of greenwashing,” according to Columbia Business School assistant professor Vanessa Burbano, when corporations say things that make it look like they have certain values or are on the right side of ESG concerns while their actions and conduct imply otherwise.

“Stakeholders such as workers and customers will be looking to see if firms’ actions and attitudes are in line with their stated support for Ukrainians,” she added.

Some businesses went over and above by suspending supplies or activities.

Lego, Ford, and Volkswagen Group have said that companies will donate millions of dollars to help Ukrainian migrants.

Brian Cooper
Brian Cooper
Brian Cooper is a global reporter for TheOptic, focusing on bringing insights and developments for global breaking news daily. With almost seven years of experience covering topics from all over the world, Brian strives to make sure you stay up-to-date with what's going on in the world.
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