A dwindling number of established companies are still doing business in Russia, even as hundreds have announced plans to cut ties.
Burger King restaurants are open, Eli Lilly supplies medicines, and PepsiCo sells milk and baby food, but no more soda.
The pace of business exits from Russia has accelerated over the past week as the deadly violence and humanitarian crisis in Ukraine escalated, and as Western governments tightened economic sanctions to punish Russia for its two-week-long invasion. Major oil companies BP and Shell have abandoned multi-billion dollar investments. McDonald’s and Starbucks stopped serving customers.
Companies that still have a presence in Russia say they need to think about franchise owners or employees; they don’t want to punish the Russians by taking away food or medicine; or they provide software or financial services for Western businesses that are not easy to replace.
“This is a business calculation. As for the stay: how much do they earn in Russia? Do they provide vital services?” said Mary Lovely, senior fellow at the Peterson Institute for International Economics in Washington. “However, every day the calculations change. Sanctions against Russia are likely to last, along with growing revulsion.”
Some companies in less important industries like agriculture were able to go unnoticed and escape the social media pressure that was directed at brands like McDonald’s, Uniqlo and Starbucks before they decided to cut ties this week, if only temporarily. .
But in this era of hyper-awareness by some customers and even employees about the position of companies on social and moral issues, those who still do business with or in Russia are risking their reputation.
Take Japanese clothing chain Uniqlo, which garnered negative attention after the CEO of its parent company told the Nikkei newspaper in an article published Tuesday that the reason nearly 50 Russian stores remain open was because: it’s a vital necessity.” By Thursday, Uniqlo said it would close stores.
“Potentially companies have a big disadvantage if they get it wrong,” Lovely said.
Many large multinational corporations did not flee Russia at the start of the war. But that all changed when the invasion led to more violence and more than 2 million refugees fleeing Ukraine.
Currently, more than 300 companies have curtailed their activities in Russia, according to a list compiled by a group from Yale University. Apple has stopped deliveries. Google has stopped selling ads. Automakers have stopped production. Hollywood studios stopped releasing movies and Netflix stopped streaming.
Some of these decisions were dictated by the need to comply with the sanctions imposed by Western governments against Russia; others came because of supply chain problems or fear of having their reputations hurt. The sanctions have already hurt the Russian economy and global trade.
Some companies planning to cut ties with Russia say it’s not easy.
On Wednesday, Citigroup said it would be difficult to sell 11 Russian banking branches as the country’s economy is cut off from the global financial system. Until then, Citi said it was “doing business on a more limited basis” and helping its US and other corporate clients suspend their business in Russia.
Similarly, Amazon claims that its largest cloud computing customers in Russia are headquartered elsewhere. The company said on Tuesday that it has stopped accepting new cloud computing customers in Russia and plans to suspend e-commerce shipments to Russia.
Fast food companies often enter into franchise agreements that make it harder to get out because they don’t own those outlets.
This helps explain why Burger King’s Restaurant Brands International keeps its 800 restaurants open in Russia. And why Yum Brands, the parent company of KFC and Pizza Hut, announced the closure of 70 KFC-owned across Russia, but not the closure of nearly 1,000 franchisee-owned KFCs or 50 Pizza Hut locations.
This sometimes applies to hotels: Marriott says its Russian hotels are owned by third parties and evaluates their ability to stay open.
“I think a lot of these companies are expecting a backlash if they stay,” said Suzanne Wengl, a political science professor and Russia expert at Notre Dame.
McDonald’s operations in Russia have been simpler: it owns most of the 850 restaurants in Russia that it will temporarily close.
But there are companies that stay in Russia – in whole or in part – and say that this is because they consider their products necessary.
Pharmaceutical company Eli Lilly is one of them. “We continue to distribute medicines in Russia as cancer, diabetes and autoimmune patients everywhere count on our support,” spokesman Tarsis Lopez said, noting that EU and US sanctions do not apply to medicine.
PepsiCo said it will stop selling carbonated drinks but will continue to supply milk, infant formula and baby food to Russia. And Unilever said it would continue to sell Russian-made “everyday essentials” food and hygiene products to Russians, but it would stop exporting and advertising these products.
Technology companies have their own balance sheet. Internet service providers such as Google, Twitter and Facebook are generally reluctant to take actions that could deprive Russian citizens of access to information other than what they receive from state media. (However, Russia blocked Facebook and Twitter, and then TikTok largely suspended its operations in the country.)
The reaction of industrial food producers is complicated by Russia’s role as a major exporter of wheat and other commodities.
Bunge, which has $121 million in assets in Russia, said on Thursday that its oilseed plant in Russia would remain operational and serve the domestic market, but suspended “any new export operations.” Agricultural equipment manufacturer John Deere said it had stopped deliveries of equipment to Russia; she monitors the Russian seeding equipment plant and its dealer network in the country “day by day”. Cargill and ADM, other agricultural companies, did not respond to questions.
These companies don’t want the Russian government to confiscate their assets if they close their business, said Vincent Smith, an economics professor at Montana State University.
Other companies point to the livelihoods of their employees, rationalizing decisions to stay or not completely break off relationships.
Starbucks initially expressed concern about its 2,000 Russian employees, but reversed course Tuesday. A Kuwaiti company that franchises its 130 stores in Russia is closing them but continuing to pay employees.
On Wednesday, British American Tobacco said it would continue to make and sell cigarettes in Russia, where it has 2,500 employees, citing a “duty to care” for employees.
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Associated Press contributors Dee-Ann Durbin, Ann D’Innocenzio, Haleluya Hadero, and Barbara Ortutay contributed to this report.