Corporate Exodus: Russia’s War Exposes Trade Risks | News, Sports, Jobs
LONDON — Car factories shut down, beer stopped flowing, orders for furniture and fashion stopped and energy companies shunned oil and gas projects.
Russia’s invasion of Ukraine has upended business plans and forced a growing number of the world’s best-known brands – from Apple to Mercedes-Benz and BP – to pull out of a country that has become a global pariah as companies seek to uphold their reputations and live up to corporate responsibility standards.
Investors were drawn to Russia in search of lucrative profits that they believed were worth the geopolitical risks. That calculus changed after Russia’s war triggered a wave of global sanctions and export restrictions that threw its economy into turmoil and disrupted the operations of multinational corporations there.
“Basically, Russia is becoming a commercial pariah”, said economist Mary Lovely, senior fellow at the Peterson Institute for International Economics in Washington. “Hardly any company, any multinational wants to be caught on the wrong side of US and Western sanctions.”
They also express concern about the fate of Ukrainians, showing how they want to be seen on the right side of history.
To complicate the corporate flight, an order from Moscow is temporarily preventing foreign investors from selling Russian assets. Prime Minister Mikhail Mishustin said on Tuesday it would help investors make “a well-considered decision” rather than succumb to the political pressure of sanctions. It is unclear how this may affect the companies’ efforts to leave Russia.
Oil and gas companies, which are already feeling the heat from climate activists to invest in renewable energy, were among the companies that announced the fastest and most dramatic exits.
Energy company BP said on Sunday it would exit its $14 billion stake in Russian oil and gas company Rosneft. The next day, Shell announced it was quitting its joint venture with state-owned Gazprom and its involvement in the now-suspended Nord Stream 2 gas pipeline, built to transport natural gas to Western Europe.
ExxonMobil said it would pull out of a key oil and gas project and stop all new investment in Russia. All of their chief executives said they were shocked and saddened by the increasingly bloody conflict. Smaller energy companies have followed suit.
Companies in other sectors, including automakers, have indicated they are staying out of the Russian market, either out of concern for Ukraine or to comply with Western sanctions.
Toyota is halting production at its St Petersburg plant which makes RAV4 and Camry models from Friday due to supply chain disruptions, saying it was monitoring events “with great concern for the safety of the Ukrainian people.”
Mercedes-Benz has suspended vehicle exports to Russia and manufacturing there. The Volkswagen Group, which also owns Porsche and Audi, followed suit, saying it believes a “A lasting solution to the conflict can only be found on the basis of international law.”
Volvo Cars said it halted deliveries due to “potential risks associated with trade in materials with Russia”, invoking Western sanctions. Ford has suspended operations.
Harley-Davidson halted motorcycle shipments to Russia, sharing thoughts “continue for the safety of the Ukrainian people.” Putin rode a three-wheeled Harley during a visit to Ukraine in 2010.
Others with more at stake in Russia may have a harder time weathering the crisis.
French carmaker Renault, whose second largest market is Russia, said only that it was temporarily suspending production at its Moscow plant until Saturday. “due to logistical problems” without being more specific.
Danish brewing group Carlsberg has suspended production at its three breweries in Ukraine, but said its operations in Russia, where it owns St Petersburg-based Baltika breweries and employs 8,400 people, would continue.
“Millions of lives are being affected and we strongly condemn the acts of violence and aggression we are witnessing,” Vice President for Corporate Affairs Christian Wulff Sondergaard said via email. Carlsberg is obliged to “protect the livelihoods of all our employees” in Russia as the economy comes under increasing pressure from sanctions, he said.
Czech brewer Budvar, which counts Russia as one of its top five markets, halted beer deliveries to the country, saying business was not the top priority and it was looking for ways to help , including finding accommodation for Ukrainian refugees.
“It is really difficult to do business in Russia in the best conditions. Now it just got crazy. Going out is therefore a smart business proposition,” said James O’Rourke, a professor at the University of Notre Dame’s Mendoza College of Business who specializes in reputation management.
Businesses will have to account for all losses as the cost of doing business.
“It’s like going into business with the Manson family,” O’Rourke said, referring to supporters of cult leader Charles Manson. “Honestly, you don’t want your name associated with these people, and it probably won’t cost you that much to divest.”
Ikea suspended operations in its 17 Russian stores and suspended exports and imports. The Swedish furniture giant said: “The war had a huge human impact” and succeeded “serious disruptions to the supply chain and trading conditions.”
Fast fashion brand H&M has suspended sales in Russian stores, expressing concern over the “tragic developments”. Nike said on its Russian website that it could not guarantee deliveries.
Aircraft makers Boeing and Airbus have stopped supplying parts and support services to Russian carriers.
Even Hollywood studios are delaying the release of new films in Russia, which is not a top film market but generally ranks in the top twelve countries for box office receipts. Warner Bros., Walt Disney Co. and Sony Pictures cited the “humanitarian crisis”.
Netflix is suspending all future projects and acquisitions from Russia. The streaming service is said to have four Russian projects in the works.
Tech companies have also headed for the door.
Apple has stopped selling iPhones and other devices in Russia, while computer maker Dell Technologies has suspended sales in Ukraine and Russia.
Google and TikTok have blocked Russian state media channels from their platforms after an appeal from the European Union. Apple has blocked downloads of RT News and Sputnik News from its App Store outside of Russia.
It is not just sanctions but public sentiment that corporations must respond to as the human costs of war mount.
Companies’ commitments to environmental, social and corporate governance, known as ESG, are being put to the test. ESG has become a buzzy acronym that is increasingly seen as an important way for companies to promote responsible business.
“But there can also be an element of greenwashing,” where companies say things that give the impression that they hold certain values or are on the right side of ESG issues when their practices and behavior suggest otherwise, said Vanessa Burbano, associate professor at Columbia Business School.
“Stakeholders such as employees and consumers will want to see if companies’ actions and behaviors are consistent with the communicated support companies are expressing to Ukrainians,” she says.
Some companies have gone beyond halting deliveries or operations.
Lego, Ford and Volkswagen Group said they would make millions of dollars in charitable donations to support Ukrainian refugees.