Hiltzik: Companies that choose not to leave Russia

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Hiltzik: Companies that choose not to leave Russia

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Hundreds of Western businesses and corporations have garnered praise for withdrawing from Russia, even if it comes as a major blow to their sales and profits.

Now let’s take a look at the other side of the corner. We are talking about companies that have decided to continue operating in Russia.

The “hall of shame”, as Yale economics professor Jeffrey Sonnenfeld and his colleague Steven Tian have defined the list of corporate responses to the Russian invasion of Ukraine they are maintaining, includes 34 companies that “are digging,” challenging requests for exit or reduction of activity “.

These brands … thought they represented Western values ​​and a spirit of global freedom and harmony. They were blind to signals due to the ideology of perestroika and the religion of the free market.

Jeffrey Sonnenfeld, Yale School of Management

The list also includes 74 companies that are downsizing some, but not all, businesses or postponing new investments.

Among the consumer companies identified as “digging” are the Subway fast food chain; Reebok; Bacardi (producers of its eponymous rum, Dewar scotch and Gray Goose vodka, among other brands); electronics companies LG and Asus; and Natura, owner of Avon cosmetics.

Some of these companies and others that have downsized operations have claimed to remain in place to avoid harming their innocent Russian employees.

This is the argument of Dave Robertson, president and chief operating officer of Koch Industries, known for his support for far-right politicians in the United States.

Robertson said the Koch Guardian Industries subsidiary employs 600 people in two glass factories in Russia, which will continue to operate.

“We will not distance ourselves from our employees or hand over these manufacturing facilities to the Russian government so that it can operate and take advantage of them,” he said in a statement Wednesday. “Doing so would only put our employees at greater risk and would do more harm than good.”

Others argue that business models involving licensing or franchise agreements prevent them from being promptly or completely closed.

This is the story told by Subway, which claims to have some 450 restaurants in Russia, “all independently owned and operated by local franchisees”. says the subway. “We do not directly control these independent franchisees and their restaurants and have limited insight into their day-to-day operations.”

Sonnenfeld does not accept this apology. The allusions to the well-being of their employees are “a cover for cowardice,” he told me. “It’s not a real humanitarian impulse, it’s just rephrased this way. These are empty and cynical messages about giving refugees from Ukraine a couple of cents and saying that their hearts and minds are with them. “

As for franchised companies, Sonnenfeld argues that they could take over their affiliates or licensees and exit Russia in this way.

The change in the political atmosphere in Russia under Putin appears to have taken Western corporate executives by surprise. It shouldn’t have happened. It was always clear that the economic and political landscape of post-Soviet Russia was unstable at best. Mikhail Gorbachev’s perestroika, or restructuring, yielded to financial illegality and the rise of a privileged class of oligarchs who resembled the leaders of organized crime.

Corporate management did not know how to react when Putin’s behavior began to inject even worse instability into the Russian environment. “Putin was pouting and tantrums, but they thought they might just slip through them, that they weren’t going to be a serious threat,” Sonnenfeld says.

“The spirit of perestroika was extremely optimistic,” he says. “These brands – Levi Strauss and Pepsi and McDonald’s – thought they represented Western values ​​and a spirit of global freedom and harmony. They were blind to signals because of the ideology of perestroika and the religion of the free market. ”

The fundraising was a sudden rush to exit that could mean the loss of billions of dollars in long-term investments.

It is unclear how the sanctions will affect Putin’s policies. In Wednesday a video speechPutin acknowledged that the sanctions have caused difficulties for the Russians.

He described them as a foreign effort to weaken Russia: “The collective West is trying to fracture our society, speculating on the socio-economic consequences of sanctions, provoking a civil confrontation with the aim of annihilating Russia.” Experience, he said, “will only strengthen our country”.

Some Western companies haven’t been very specific about the future of their Russian operations. Giant food company Mondelez, which makes Oreo cookies and owns Cadbury chocolate, said it is “cutting back on all non-essential activities in Russia while helping to maintain continuity of food supply during the difficult times ahead.”

Mondelez has landed in Sonnenfeld’s “downsizing” category, but doesn’t quite accept their words. “Oreo cookies and Cadbury chocolates are important elements in my family, but they are not necessary to sustain life in Russia,” he says. “Even if they were, they should be reduced – none of this is about a soft landing for the Russians.”

The status of some Western company operations in Russia is also unclear. Reebok’s Russian-language webpage has stopped receiving orders since March 9, although customers can still view its product offerings. The individual retail stores, however, will remain open until further notice, the site says.

The most notable companies Sonnenfeld identified as “excavated” are three major oilfield service companies, all headquartered in Houston: Halliburton, Baker Hughes and Schlumberger.

The Russian oil and gas industry is not currently subject to the whole panoply of international sanctions, but it depends on those companies for drilling and production. The United States has banned imports of Russian petroleum products and prohibited US companies from making new investments in Russian industry; the European Union has also banned new capital investments.

Neither the US nor the EU have ordered oil companies to withdraw, but little would stop them from disrupting their operations in Russia or from suspending their partnerships with Russian oil companies.

Of the three, only Halliburton has publicly commented on the sanctions. The comments came during a meeting with securities analysts last January. 20, when CEO Jeffrey Allen Miller was asked whether the prospect of sanctions would affect “the business trajectory in Russia”.

Miller replied: “These are things we have seen and done before. Always unfortunate in so many ways for so many people. But from a business standpoint, we’ve been running this sort of thing up and down for, I hate to say, nearly 100 years. So these are the kinds of things we would like to handle.

More than 400 companies have taken concrete steps to withdraw from the Russian market.

Among them are 150 who have made a clean break, suggesting they may not return. These include law firms, consulting and accounting firms that have not routinely held capital in Russia and therefore could easily leave. But they also include BP and Exxon Mobil, which have severed relations with Russian oil partners and may find it difficult to restore broken relations.

Another 178 companies have suspended their activity. They include the European aircraft manufacturer Airbus; financial companies such as American Express, MasterCard, Visa and DeutscheBank; car manufacturers Ford, GM, Nissan, Mazda, Toyota and Hyundai; and entertainment company Walt Disney, Warner Media and YouTube.

Implicitly or explicitly, they have left open the possibility of a return, but a re-entry point will be elusive as long as the Russian attack on Ukraine continues and possibly as long as Putin remains the Russian leader.

Among the companies that are abandoning or suspending Russian activities, there are some closely identified with the opening of the Russian consumer market in the West in the 1990s: McDonald’s, which started the gold rush with the opening of its first restaurant in Moscow in 1990, it is closing its more than 840 stores per hour.

Pizza Hut, which soon followed, and even aired a commercial with Gorbachev, the former Soviet leader, in 1998 (shot in Moscow but not screened in Russia), is also suspending service in 50 stores. Pizza Hut is owned by Yum! Marche.

As Sonnenfeld and Tian noted in Fortune, continuing to operate in Russia seems increasingly indefensible.

“The leadership and constituencies of at least 400 global companies should be very proud of their exits from Russia,” they wrote. “Then there are those other 34.”

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