Pressure is mounting for multinationals in Russia to leave

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Pressure is mounting for multinationals in Russia to leave

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As the war in Ukraine drags on, international companies still in Russia are under increasing pressure to leave.

Some seem determined to stay, others say they are reconsidering or trying to find an exit, and others don’t speak at all, testifying to the tense nature of the situation.

Ukrainian President Volodymyr Zelenskyy is stepping up the country’s demands to put pressure on companies to leave Russia. In a speech to Congress on Wednesday, he asked lawmakers to pressure US firms still operating in Russia to leave, saying the Russian market is “flooded with our blood.”

A woman walks past the Bayer AG logo at the Financial News Conference (Photo AP / Martin Meissner, File)

“Make sure the Russians don’t get a single penny they use to destroy our people in Ukraine,” Zelenskyy said.

In a separate speech on Tuesday, Zelenskyy called out food companies NestlĂ© and Mondelez, consumer goods manufacturers Unilever and Johnson & Johnson, European banks Raiffeisen and Societe General, electronics giants Samsung and LG, the product manufacturer. BASF chemists and pharmaceuticals Bayer and Sanofi, saying that and “dozens of other companies” have not left the Russian market.

The United States and its allies have already put in place a series of sanctions aimed at paralyzing the Russian economy. Hundreds of international companies have announced that they are reducing operations in Russia.

The Societe General bank logo is depicted in the La Defense business district (Photo AP / Michel Euler, File)

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Companies that have maintained operations in Russia claim to provide essential services, such as food or medicine, which are not affected by the sanctions. In some sectors, such as hotels or restaurants, it is difficult to close due to franchise agreements. They said they don’t want to punish their employees.

There is also a risk that the Russian government will expropriate Western assets such as factories if they are abandoned. Koch Industries, whose billionaire CEO Charles Koch is famous for funding conservative causes, dug into that location, saying Wednesday that it has two glass-making factories in Russia employing 600 people and that it won’t quit that business.

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

A Samsung Electronics logo can be seen in its Seocho building in Seoul, South Korea (AP Photo / Lee Jin-man, File / AP Press Office)

Major European and US consumer goods companies such as Unilever, PepsiCo and Nestlé say they are scaling down their business to focus on the essentials, but they have not exited Russia. For example, candy and pet food company Mars, which has been in Russia for decades and has nearly 6,000 employees and several factories there, said last week that it will suspend new investments in the country, as well as imports and exports in the country. Russia, and will suspend advertising and social media.

But Mars will continue to sell pet food and pet food, saying it plays an “essential role in feeding the Russian people and pets.” Profits from business with Russia will go to humanitarian causes. March did not answer questions on Thursday.

This strategy falls short, said Raj Bhala, a professor at the University of Kansas School of Law. “We want to do everything, apart from violence, to stop the war,” he said. “It is better, as President Zelenskyy suggests, to inflict pain on everyday Russian consumers in the hope that they can rally, or rally further, against their government and against the war.”

There are other companies who consider their operations essential. Eli Lilly, the drug manufacturer, said the sanctions do not apply to medicine and that he has a responsibility towards Russian patients. Sanofi said Thursday that it will suspend advertising in Russia and expenses unrelated to its medicines and vaccines. But he remains committed to providing medicines there and continuing clinical trials.

Major fast food companies like McDonald’s have closed their restaurants; Franchise agreements complicated the matter for some others. The parent companies do not control the affiliates and cannot order their closure, said Michael Seid, the founder of MSA Worldwide, a global franchised consulting firm. Affiliates run the business independently and are responsible for wages, food and other costs.

Even if Russian franchisees want to shut down, they are under pressure to keep them open under Russian President Vladimir Putin, Seid added.

The Johnson & Johnson logo appears above a trading station on the floor of the New York Stock Exchange (AP Photo / Richard Drew, File / AP Press Office)

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“The latest franchisor in Russia is Putin and I wouldn’t want to be sitting in Russia closing my doors if Putin doesn’t want me to close them,” he said.

However, those restaurants may have a hard time sourcing their usual food supplies, making it difficult to serve popular menu items, said Adam Werner, global co-leader of AlixPartners’ dining, hospitality and leisure practices.

Restaurant Brands International, the Toronto-based company that owns Burger King, said Thursday that it has begun the process of exiting its 15% stake in a joint venture that operates some 800 Burger King restaurants in Russia. Burger King said it contacted the Russian operator of its restaurants, Alexander Kolobov, asking him to suspend operations, but he refused. Meanwhile, Burger King said it has suspended corporate support for the Russian market.

“Would we like to immediately suspend all Burger King operations in Russia? Yes. Can we force a suspension of operations today? No,” said David Shear, Burger King’s international president, in a statement.

Some companies continue to review their position in Russia as the pressure builds. Austrian bank Raiffeisen said Thursday that it is “evaluating all strategic options for the future of Raiffeisenbank Russia, up to and including a carefully managed exit.”

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Corporations must weigh their desire to operate in Russia when, or if, the war is over with the potential damage to their reputation and damage to their business in the largest Western markets. In Poland, some consumers say they will not shop at stores owned by a French company that continues to operate in Russia, according to local media.

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