What happened to foreign companies operating in Russia before war: first-time study

The Kyiv School of Economics (KSE) has conducted a new study examining the situation surrounding foreign companies in Russia both before and after the war, including their earnings, resources, properties, and net income. This is the first time KSE has undertaken such an analysis.

As per a recent study, by June 2023, 7.3% of foreign businesses had fully retreated from Russia following the beginning of their massive invasion of Ukraine. Additionally, around 36.4% of foreign companies declared their exit from the Russian market or halted their operations altogether. Meanwhile, 15.6% of companies decided to wait it out. Finally, 40.7% of foreign companies are still operational in Russia.

In terms of numbers, this image appears like this:

A total of 241 international companies have successfully concluded their exit from Russia.

More than 1,700 foreign businesses have reduced, halted, or ended their activities in Russia. The majority of them, around 1,200 companies, have decreased their presence in the country, while approximately 500 firms are adopting a wait-and-see approach. They have paused their current operations and are not engaging in new ventures.

As of now, there are around 1,336 international firms that are still functioning within the boundaries of Russia.

Ever since Russia began invading Ukraine, there has been a significant increase in the number of companies shutting down their operations in Russia. However, this trend only lasted until the middle of April 2022. In the last nine months, the proportion of companies that have chosen to leave or stay in Russia has barely changed.

This year, businesses that have completely exited Russia have a total of 409,500 workers, generate $59.8 billion profit annually, have $27.4 billion in capital, and possess assets amounting to $51.3 billion.

256,000 workers were employed by the companies that declared they were pulling out of Russia. These firms had an annual income of $46.7 billion, a capital of $18.2 billion, and assets worth $19.5 billion.

Those businesses that halted their activities in the Russian economy employed over one hundred thousand individuals and generated an annual income of $34.5 billion. Their overall capital amounted to $39.6 billion, and their total assets were valued at $100.9 billion.

It's important not to overlook the impact that 241 companies leaving the Russian market has had on the economy. These companies made up a significant portion of the workforce employed by foreign companies - 28.7% to be exact. They also owned a substantial amount of assets and capital invested in the country. In terms of revenue, these companies contributed almost 20% of the total generated in 2021 and paid a significant chunk of taxes. Overall, their departure has had a notable effect on the economy.

Meanwhile, things are quite distinct for the companies that choose to stay. A total of 45% of these companies contribute to 32.5% of the revenue, and another 16% of companies are in a state of anticipation but still account for 21% of the generated revenue in Russia.

It can be inferred that small businesses with less money coming in tend to stick around while larger companies with higher profits choose to hold off on making new investments. They use this as a reason to limit their spending, but still make money and reinvest it locally.

Additional information: The companies that decided to exit Russia saw a decline of 2.6% in their income in the year 2022. This accounts for 17.1% of their total earnings, while in the previous year (2021), it was 19.7%. It's not surprising as many of these companies left the country before the year ended.

Businesses that are categorized as "waiting" received a revenue share of 18.5% in 2022, which is nearly identical to the 21.1% they received in 2021, but with a slight decrease of 2.6%.

Companies that had to exit experienced a considerable decrease in revenue of 7.7% in 2022, which made up 19.0% of the total revenue. This is significantly lower compared to 2021, where their total revenue accounted for 26.7% of the whole.

Furthermore, the cluster of corporations labeled as "exiting" achieved the dubious distinction of being the sole group to incur net losses in the year 2022, rendering them unprofitable.

Meanwhile, the companies that were left managed to bring in a considerably larger (+12.9%) amount of income in 2022 (accounting for 45.4% of the overall amount) compared to 2021 (when they only contributed to 32.5% of the total revenue).

The main point is that finances are important for companies that are still connected to their domestic market in Russia.

Ever since the beginning of the all-out conflict, Jeffrey Sonnenfeld, who is both a teacher and the founder of the Executive Leadership Institute at Yale University, has been keeping tabs on enterprises that have operated/are presently operating in Russia. He has been collaborating with a group of specialists and pupils on this endeavor. You can find out more details about their findings by clicking on this link.

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