It is difficult for Western businesses to 'break up' the Russian market?

Immediately after the Russian-Ukrainian war broke out on February 24.2.2022, 1, a series of European and American businesses simultaneously announced to limit their operations or leave the Russian market in response to Moscow's military action against Russia. Kyiv, as well as to avoid sanctions. However, more than XNUMX year has passed, but only very few Western enterprises can do this. There are still a lot of European companies from mid-range to blue-chip companies (big companies) still in the Russian market.

Surprising reality

Research by the University of St. Gallen (Switzerland) announced in February showed that between February and November 2, less than 2% of businesses in the European Union (EU) and G11.2022 divested from at least one subsidiary. in Russia. The companies that leave are mainly those with low margins and a higher workforce than those that stay.

Recently, the Kyiv School of Economics (KSE) statistics show that out of 3.141 foreign enterprises in Russia monitored, only about 211 have left the Russian market (accounting for less than 7%) since the war. outbreak. Meanwhile, 468 companies have announced plans to withdraw, 1.228 companies have stayed and more than 1.200 companies have scaled back their operations or left their options open. Of those that stayed, 19,5% came from Germany, 12,4% from the US, 7% from Japan.

According to the sheet The Washington Post, as soon as the war broke out, Coca-Cola announced "suspending business activities in Russia". However, Coca-Cola HBC, a Swiss-based bottled water company with a 23,2% stake held by Coca-Cola, has converted its Russian subsidiary Coca-Cola HBC Eurasia became Multon Partners in August 8.2022. Multon Partners currently continues to operate 10 factories producing beverages under other names in Russia such as Dobry Cola, Rich and Moya Semya.

Meanwhile, PepsiCo, despite announcing that it will stop selling Pepsi-Cola, Mirinda and 7-Up products in Russia and only produce essential items such as dairy products for humanitarian reasons, has continued. sell french fries in this country. Similarly, Unilever is also selling Magnum ice cream in Russia. Although Swedish furniture giant Ikea announced it was leaving Russia, its owned Mega shopping malls continue to operate here. Pharmaceutical giant Pfizer has stopped investing in Russia but continues to sell a limited number of products and channel profits to Ukrainian humanitarian groups. Hotel chains Accor and Marriott also said they have suspended the opening of new locations in Russia, but existing locations managed by third parties are still operating.

Some other companies are even leaving the possibility of returning to the Russian market. Carlsberg aims to cease operations in Russia by mid-2023, but General Manager Cees 't Hart said the company is developing a clause to buy the plant to create an opportunity to return to the Russian market later.

Dilemma

The fact that many Western companies are hesitant or unable to leave the Russian market comes from many reasons, including both subjective and objective.

One is that the Russian government has done everything possible to stop the wave of Western businesses leaving the market. The process of leaving Russia was complicated and took a long time when the Kremlin issued a regulation that forced Western businesses to seek permission from the Russian state if they wanted to sell assets. Russia also confiscated assets and banned foreign banks and energy companies from selling shares without President Vladimir Putin's personal approval.

In December 12.2022, the Russian Ministry of Finance announced a number of measures against the sale of properties by investors from "unfriendly countries", including a 50% discount on the sale price and a 10% tax.

For example, just four days after hostilities broke out, Shell announced it was leaving Russia and selling its nearly 4% stake in Novatek's Sakhalin-27,5 liquefied natural gas (LNG) production facility. in the Far East for $2 billion. However, in early April, Russian media reported that President Putin only allowed Shell to receive back $ 1,6 billion from the sale of this stake. Moreover, it is not easy to move Shell's money out of Russia.

Andrii Onopriienko, Project Manager at KSE, said that a lot of foreign businesses cannot afford to leave Russia in the usual way. Pressure from Russia's policies makes these companies just "hold their breath and wait". However, once companies procrastinate, the longer it takes, the more complicated and costly the attempt to exit the Russian market becomes. Even more companies will lose the ability to sell their businesses, continue to lose money and may eventually be nationalized assets or be bought out at a low price.

Second, Western firms' divestment efforts are more complicated than expected. In addition to the "hand-binding" regulations of the Russian state as mentioned above, some Western businesses do not want to risk giving market share to companies from China, India, Turkey or other countries. Latin American region, which is "eyeing" on their assets and holdings in Russia. Lawyer Olivier Attias of August Debouzy Law Firm based in Paris (France), assessed that Russia is a big market for many companies, so the decision to "leave" is very difficult and the process of "getting out" is very difficult. go" is even more difficult.

Third, Western businesses are heavily dependent on doing business in Russia, and the loss in exiting is probably greater than staying in. The Russian economy is still performing more "actively" than forecast, shrinking only 2,1% in 2022 and the business opportunities for Western businesses in this market in the long term are considered to be very large.

Fourth, Russian consumer demand for Western brands remains huge. Although BMW, Mercedes and Apple have announced the cessation of sales in Russia, their products and other Western luxury brands are still very popular in Russia, including imports from the black market. Ivan Fedyakov, an expert at market research firm INFOLine, said that Russians know nothing can replace a BMW, Mercedes or an iPhone.

Challenge for those who stay

Leaving the Russian market is very complicated and not as easy as initially stated because it involves a lot of problems. However, staying in the Russian market also poses many challenges for Western businesses.

Many Western businesses that have not yet withdrawn are facing accusations of undermining US and Western efforts to increase pressure on the Russian economy through sanctions. Onopriienko said: “The tax money contributed by foreign companies is partly helping Moscow to maintain its military activities, while allowing Russians to enjoy amenities and a quality of life that is not much different from that of Moscow. with the former”.

Furthermore, companies that sell Western food or personal products are particularly vulnerable to war efforts, especially as Russia transitions to a "wartime economy." For example, French corn and bean producer Bonduelle in December 12.2022 had to deny allegations of supplying canned food to the Russian army, after images of Russian soldiers holding company products appeared on social networks. festival.

In addition, according to Bloomberg news, multinational companies are said to lose a lot of human resources because local employees join the army and migrate. Although Kremlin spokesman Dmitry Peskov denied that businesses would be forced to participate in the military operation, some reports suggested that during the local mobilization last fall, many announcements were made. sent to foreign companies where Russians work.

Experts predict that a more intense war situation in the near future will cause Western businesses to stay in the Russian market to continue to face more difficulties and challenges.