Quietly staying put: Why some Western companies are finding it not so simple to quit Russia | Milwaukee Independent

Global corporations reacted swiftly to Russia's invasion of Ukraine. A few announced their immediate departure from Russia, while others restricted imports or new investments.

Factories, energy holdings, and power plants worth billions of dollars were lost or made available for purchase. This was accompanied by strong criticism of the war and demonstrations of support for Ukraine.

Over a year has passed and it's now evident that departing from Russia was far more complex than initial statements suggested.

More and more, businesses trying to leave Russia face obstacles. They must obtain permission from a government commission, and sometimes even from President Vladimir Putin. Additionally, they may be subject to significant reductions in the sale price and taxes.

Although the narratives of different companies may differ, one recurring issue is navigating through the challenges presented by Western sanctions and negative public sentiment on one hand, and Russia's deterrence and punishment of leaving businesses on the other. Certain global corporations, such as Coca-Cola and Apple, are attempting to re-enter the market through unofficial channels via third-party countries despite having made the decision to withdraw previously.

Numerous enterprises are choosing to remain in their current position. Some explain that they feel a responsibility to their shareholders, employees, or to their local franchisees and partners. On the other hand, various businesses are claiming that they offer critical goods such as food, medical supplies, or farming products. However, there are also companies that choose to stay silent on the matter.

An Italian clothing company called Benetton has a store located in the Evropeisky Mall in Moscow. The name of the mall is ironic because it means "European" in Russian, yet it is located in Russia. On a weekday evening, the store was quite busy with customers checking out the brightly colored clothes while workers were busy organizing the piles of clothes. Another Italian retailer called Calzedonia, which specializes in lingerie, had customers checking out the selection of socks and swimwear. Both companies were contacted through email, but there has been no response.

In Moscow, shoppers will find that their purchasing options have remained largely the same. Although Mothercare, a store that specializes in baby products, has been renamed Mother Bear following its acquisition by a local entity, the majority of products sold in the store located in Evropeisky Mall still bear the original Mothercare label.

Alik Petrosyan, a student, observed the same thing while browsing at Maag - the current owner of Zara's former main clothes store in Moscow.

He mentioned that the caliber of their products has remained constant. Additionally, he pointed out that their costs have not risen significantly, considering the impact of inflation and the economic circumstances experienced in the previous year.

In general, Zara - Maag used to have opponents," Petrosyan mentioned, then he corrected himself, "However, I do not believe that they have any current rivals who can compare with them. The opponents who remained are geared towards a more expensive market, but their quality does not measure up."

The first big migration out of Russia was spearheaded by large car manufacturers, petroleum companies, technology firms, and specialized service providers. BP, Shell, ExxonMobil, and Equinor all withdrew from joint ventures or wiped out their stakes which were worth billions. McDonald's sold all of its 850 eateries to a local franchisee, while Renault, a French car manufacturer, relinquished its majority share in Avtovaz, the most sizeable automobile producer in Russia, for a mere symbolic ruble.

After the first group of businesses left, different kinds of companies have become noticeable. Some are waiting for the right time, others are having difficulty selling their assets, and there are those who continue on with their everyday business. According to a collection by Yale University, more than a thousand global companies have announced that they are voluntarily decreasing their Russian operations, without the obligation of sanctions.

The Russian government has been imposing various conditions, including a new departure tax of 10% which is apparently "voluntary", and a mandate for companies to sell their products at a 50% lower price.

Recently, Putin declared that his administration would assume control of the properties owned by Fortum, an energy enterprise in Finland, and Uniper, a utility company in Germany. He did this to prevent the acquisition of these companies by outside investors as a countermeasure against Western nations who might confiscate Russian assets in other countries.

In March 2022, Carlsberg, a beer maker from Denmark, declared that it aims to sell off one of Russia's biggest brewing businesses; however, it faced issues related to explaining how sanctions might affect the divestiture and discovering appropriate potential purchasers.

According to Tanja Frederiksen, who is the global head of external communications, the process has been quite complicated and has taken more time than anticipated, but it is now nearing completion.

According to Frederiksen, the Russia division of Carlsberg is closely linked to the company. It required the involvement of all departments and a hefty investment of over 100 million Danish kroner ($14.8 million) in new brewing machinery and technological systems to detach it.

Anheuser-Busch InBev, a major beer company, is attempting to sell a portion of its Russian cooperative enterprise to its partner, Anadolu Efes, which is situated in Turkey. This move has resulted in Anheuser-Busch InBev losing potential profits from the venture.

Businesses are struggling to navigate the confusing and conflicting sanctions imposed by the EU, the US, and Russia. Michael Harms, who heads the German Eastern Business Association, described the situation as akin to a "Bermuda Triangle."

To establish a partnership, they need to look for someone that isn't endorsed by Western countries. In Russia, influential businessmen are frequently individuals who have strong connections with the government, according to Harms. These individuals often have to sell their assets at a significantly reduced price or even give them away for free. They then reach out to individuals who have political affiliations that we don't approve of, specifically those who are affiliated with the ruling regime.

The exit tax of 10% that Russia has put into effect can be quite complicated. Experts in sanctions, such as Maria Shagina from the International Institute for Strategic Studies located in Berlin, have mentioned that American businesses would need to ask the Treasury Department for permission to pay it. If they don't follow this process, they could potentially go against United States sanctions.

Numerous businesses made the choice to stay without making much noise about it.

Steffen Greubel, the CEO of German cash and carry company Metro AG, provided a straightforward and unusual statement during the shareholder meeting this year. He stated that the company denounces the war entirely, without any reservations or doubts.

But the choice to remain was driven by a sense of obligation towards the 10,000 employees in the locality and is "also advantageous in protecting the worth of this organization for its stockholders," he expressed.

Russia contributes over 2.9 billion euros ($3.1 billion) to Metro's yearly sales, which is approximately 10% of their total revenue.

At present, the shelves at Globus superstores, which has roughly 20 stores in Moscow and is headquartered in Germany, remain stocked to the same degree as they were prior to the commencement of the war.

Upon further examination, it is evident that numerous beer brands from the West are no longer available, and a considerable number of cosmetic brands have suffered inflation of up to 50% to 70%. However, an increase in the supply of vegetables from Russia and Belarus has resulted in their prices being lower. Despite Procter & Gamble's announcement of cutting back their product options to necessities, their goods remain in abundant supply.

Globus has decreased its new investments significantly, but still continued to operate its stores to provide food for the public. They have emphasized that food has not been banned and expressed concern over the possibility of losing valuable assets due to forced nationalization and the potential legal repercussions for their local management team.

Likewise, Bayer AG, a company that provides pharmaceuticals, agricultural products, and seeds, asserts that engaging in commerce with Russia is an appropriate decision.

According to a statement released by the company, stopping the distribution of crucial healthcare and agriculture items, such as medicines for cancer and heart disease, products to aid the health of pregnant women and children, and seeds for cultivating crops, would only add to the detrimental effects of the war on people's lives.

According to Jeffrey Sonnenfeld, who leads the database at Yale, departing was the sole reasonable call for businesses. His statement stems from evidence proving that a hike in company shares ensued post-exit.

According to him, the companies that chose to withdraw have received benefits for their decision. He added that it's unfavourable for shareholders to be connected with Putin's military actions.

According to Marianna Fotaki, who teaches about the ethics of business at Warwick Business School, the goal of business is not solely to make money. She emphasizes that people should avoid participating in actions that support a criminal regime.

She stated that resorting to a "race to the bottom" approach is not the solution, even if other competitors choose to do so.