Sunday

2nd Apr 2023

Opinion

Western multinationals and Russia: to stay, or to go?

  • The owner of Burger King, Restaurant Brand International, withdrew support from its franchisees, but they continued to stand by their staff and refused to close (Photo: steven_n_maher)
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Since the Russian invasion of Ukraine, some 500 companies, primarily European and American, have announced measures against Russia. Corporations rushed to condemn Putin's declaration of war on Ukraine in the strongest terms — a race ensued to link disapproval to all kinds of concrete measures and sanctions.

As a result, western firms shut down their production facilities in Russia, froze their investments, closed their shops or refused to export products to the Russian Federation.

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  • For a company like Coca-Cola the consequences of shutting down its operations in Russia are relatively limited, since Russia represents only two percent of global revenues (Photo: Giuliano Belli)

In Moscow alone, as a result of Western restrictions, about 1,000 shops had to close their doors, and thousands of jobs disappeared in a short time.

Social pressure for radical economic sanctions steadily increased. Corporations put aside their financial interests and profits for moral principles. Along with the sanctions, the competition for winning the moral high ground in front of the outside world began.

The invasion changed the political scene and the economic one at the global level. McDonald's, Coca-Cola, Starbucks and Heineken are the latest companies to announce halting business in Russia because of the war. Coca-Cola stated that "Our hearts are with the people enduring unconscionable effects from these tragic events in Ukraine".

Even if sanctions are in some cases symbolic and have little or no impact on the regime, strong positions are essential in securing corporate reputations.

It is paramount to avoid a possible domestic boycott in the West, leading to more significant economic and financial consequences. From a moral point of view, an embargo and a complete withdrawal from the Russian market sounds obvious and even obligatory.

Some more 'stringent' than others

Nevertheless, when we look at the flood of press releases and statements, it quickly becomes clear that the announced actions are not equally stringent.

Many companies report an unconditional and final withdrawal from Russia (e.g. American Airlines, Deloitte, Exxon) or are temporarily suspending their operations in anticipation of a possible return (e.g. 3M, Amazon).

Some other firms have seemingly half-heartedly scaled back some of their activities without completely stopping them (e.g. Carlsberg, Goldman Sachs, Kellog Company), while some such as Philip Morris have added to scaling back an orderly exit announcement. Some seem to be gaining time mainly by postponing investments (e.g. Bayer, Unilever, Henkel) and others that have ignored the pressure to stop activities (e.g. Credit Suisse, Huawei).

There is a strong tendency to link these actions and measures to a moral-ethical sliding scale and to maximise social pressure, including from human rights organisations and pressure groups, on companies to at least force withdrawal and radical boycotts.

However tempting this view may be, it ignores the enormous complexity underlying the decisions that companies must or can take in the given circumstances.

For a company like Coca-Cola, for example, the consequences of shutting down its operations in Russia are relatively limited since Russia represents only two percent of global revenues. This makes it easier to make quick and hard decisions.

However, on 9 March, the Coca-Cola Beverage Plant Ukraine, located near the village of Bolshaya Dymerka in the Kyiv Region, came under enemy fire and was damaged.‎ This was the only Coca-Cola plant in Ukraine, it was opened in 1998.

Another consideration is whether a population that is bombarded daily with a massive amount of propaganda should pay the price for the actions of an intransigent autocratic regime.

After all, economic sanctions primarily affect the population, whereas the regime and its representatives are usually not affected by such measures. Moreover, the average Russian does not have the same escape routes as the oligarchs.

Putin wrenched a generation of Russian and Ukrainian youngsters from Instagram and conducted them back to the Middle Ages. He denied them any future and has brought death, hate and destruction in their lives and those of their parents and grandparents.

Moreover, the economic sanctions levied upon Russia due to its invasion of Ukraine target the Russian economy and Russian president's closest personal and business associates.

The goal of the sanctions against Moscow is to alter domestic politics within the country, ultimately stopping Putin's aggression.

However, research by professor Joseph Wright of Pennsylvania State University and professor Abel Escriba-Folch from the University of Pompeu Fabra, in Spain, into how economic sanctions affect the behaviour of dictators indicates the sanctions are likely to increase political repression in Russia and hurt average Russians' economic security — without stopping Putin from pulverising Ukraine.

Their research demonstrates that sanctions targeting personalist dictatorships of the Putin kind take more food out of citizens' mouths than those targeting other types of regimes.

Economic sanctions hurt ordinary citizens in personalist dictatorships because these leaders tend to shield elites from the financial pain of sanctions by pushing costs onto regular people.

Medical exemption?

Moscow's isolation has led to severe shortages since February. The current sanctions will bring further hardship and discomfort to the Russian people in the coming period. In addition to food shortages, primary healthcare and medicines will become unattainable for many as the conflict continues.

This is why Western pharmaceutical companies, such as Bayer and Pfizer, are not suspending the country's supply of essential drugs and medicines.

For many international corporations, the protection and safety of their employees is an absolute priority. That remains a legitimate reason for companies not to cease all activities hastily. In some cases, a departure is not always possible and may meet with internal resistance.

For example, the owner of Burger King, Restaurant Brand International, withdrew support from its franchisees, but they continued to stand by their staff and refused to close. In short, today's Mac Donald's nostalgics can still go to Burger King in Russia.

Many other elements can stand in the way of a departure or a complete embargo. The fact that such decisions cannot be taken lightly is often due to legal obstacles, which do not always allow companies to decide on their own to withdraw without running the risk of being prosecuted.

Moreover, Putin has already threatened to seize certain companies that cease operations in the country.

And indeed, a few days ago Russian agents seized millions of dollars worth of Audemars Piguet watches in Moscow in an apparent retaliation for Swiss sanctions banning luxury goods exports.

Therefore, it is not clear if a complete Western boycott could hasten the autocratic regime's implosion through swelling protests by the people. Yet, there is a chance that the already strong nationalistic sentiment will increase further, and anti-Western feelings will progressively prevail.

In this way, the economic sanctions against Moscow could ultimately turn against the West. Nevertheless, companies who continue doing business in Russia face the dilemma of whether the risk is worthy and count the cost of this exposure.

Author bio

Stavros Papagianneas, author of Rebranding Europe & Embracing Chaos and managing director of StP Communications.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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