Stay or leave? A week after the invasion of Ukraine by Russian troops, French companies established in Russia must decide whether or not to continue their operations despite war-induced supply problems, Western sanctions on Moscow and the risk to their image. A particularly difficult dilemma is when France is the first foreign employer in the country and the second source of foreign direct investment.
In fact, although many multinational corporations have announced their withdrawal from Russia, French companies still follow this movement little. Franceinfo summarizes the situation in four questions.
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1Why does the question of termination arise?
The Russian invasion of Ukraine first created logistical problems for businesses. Thus, the Swedish furniture group Ikea announced the suspension of all its activities in the country and with its Belarusian neighbor due to “serious disruptions in the production and trade chain.”
In some sectors, such as aviation and finance, economic sanctions against Russia are also forcing cuts in operations. Faced with a ban imposed by Canada and the European Union on the export of aircraft, parts and equipment for the aviation industry to Russia, Airbus was forced to suspend assistance to Russian airlines, as well as the supply of spare parts. In addition, the presence of sanctions creates the risk of not being able to “repatriate profits to (…) the headquarters, since the money is deposited in a Russian bank account, and this is gradually, [les banques] cut off from the international banking system,” says Estelle Braque, chief economist and founder of KiraliT, a strategic business consulting firm, in Ouest-France.
Finally, the continuation of activities in Russia also raises the question of the social responsibility of groups, some of which are taking the lead in maintaining their reputation. “Doing business with Russia will become less and less politically correct and reasonable. On the contrary, reputational risk is amplified beyond the geopolitical risk associated with the conflict and the economic risk associated with sanctions,” notes AFP’s Sylvie Matelli. , Deputy Director of the Institute of International and Strategic Relations (Iris). The Ukrainian government has not hesitated to directly challenge major Western companies such as Apple via social media, asking them to sever ties with Moscow.
2What difficulties do companies face when they want to leave Russia?
However, it is “very difficult” for a company founded there to terminate its activities in Russia, Guntram Wolf, director of the Brussels think tank Bruegel, sums up in an interview with AFP. “The Central Bank of Russia prohibits the sale of financial assets, and (…) even if these sales were sanctioned, the ruble depreciated so much that the losses would be huge,” he believes.
“For many companies, exit is not an issue, they are stuck because they have significant stakes and assets in Russia that are not “liquid” at all, such as production sites that they cannot close or resell “overnight,” adds Sebastien Jean, director of the Center for Advanced Study and International Information (Cepii). Foreign companies in Russia are also wondering “what will be the sanctions in return from the Russians. Many may fear that some of their assets will be confiscated or expropriated,” emphasizes Sebastien Jean. Finally, the exit would mean leaving room in the market for potential competitors less constrained by the moral dilemma caused by the Russian invasion, dampening activity in the long run.
3What does France advise French companies?
If Economics Minister Bruno Le Maire now sees a “fundamental problem” in companies working with people close to Russian power, he nevertheless did not call on French groups to leave the country. By comparison, British Enterprise Minister Kwasi Kwarteng estimated Twitter (in English) on Monday that “British business had a strong moral obligation to isolate Russia”.
The government is talking more about “support” for companies affected by the consequences of the conflict and the sanctions imposed on Russia, Frank Riester, Minister Delegate in charge of foreign trade, confirmed on March 1, at the end of a meeting with about sixty companies and professional federations. During that meeting, “the government did not ask the companies to stop their activities in Russia, but its representatives asked if some” actions were being considered, according to a participant quoted by AFP.
During a meeting on March 4 between Emmanuel Macron, some ministers and heads of large companies, “Bruno Le Maire indicated that it seemed more reasonable to suspend his activities during the crisis than to rush to leave the country, unilaterally and without warning,” the participant also said quoted by Le Figaro (article reserved for subscribers).
4What do French companies do?
A week after the start of the Russian invasion of Ukraine, many multinational corporations have distanced themselves from Russia, such as BP, Shell, Disney, Volvo, Microsoft or Meta. But few large French companies have announced their intention to temporarily stop their activities in Russia, and none forever.
As such, Air France announced at the end of February that it was suspending “service and [du] over Russia” until further notice, “given the situation in the region.” The shipowner CMA CGM also said that he was going to stop serving Russian ports, and even more “for the sake of security” than economic retribution.
A subsidiary of the Renault-Nissan group, AvtoVAZ, Russia’s leading car manufacturer that employs tens of thousands of people, has also announced the temporary closure of two of its factories due to a shortage of imported parts.
For its part, French luxury group Hermès said on Friday it was “very concerned about the current situation in Europe” and decided to “temporarily close” its stores in Russia. At the same time, the world leader in the luxury goods segment LVMH, its rival Kering and the house of Chanel made similar decisions. Michelin management, which awarded 69 tables in Moscow for the first time in October, also announced that it was suspending any recommendations in Russia due to the events.
But many other French companies with a presence in Russia have made no announcements or said they continue to operate. This is the case of Danone, which said on Sunday it was continuing its operations in the country “to meet the civilian population’s basic food needs.” The French agri-food group, which generates 5% of its income and employs 8,000 people in Russia, nevertheless clarified that it is suspending all investment in the country for the time being. Likewise, its competitor Lactalis said that “[ses] sites in Russia continue to produce and [ses] products to be sold” providing “respect[er] government regulations regarding the situation in the country,” reports France Bleu.
Société Générale, which has a presence in Russia through its subsidiary Rosbank, also announced in a press release that it will continue to operate “with the utmost care and selectivity”, while its domestic operations account for just under 3% of the group’s net income. in 2021. TotalEnergies, which generates between 3% and 5% of its total revenue in Russia, meanwhile indicated that it “will no longer invest in new projects” in the country, without mentioning an exit.