Breaking up with Russia is hard for many Western firms, despite war
Only a small percentage of the hundreds of companies that promised to leave Russia after its invasion of Ukraine have exited, according to several groups keeping a scorecard — and for those that dawdled, departing has only become more expensive and complicated.
The Western companies that stayed are often heavily reliant on Russian business, with the losses of an exit perhaps outweighing possible damage to their brands of staying in the country as it wages a brutal war against Ukraine. Some businesses even grabbed a bigger market share as their competitors departed.
Many others announced they would pause or scale back operations but continue to trade. Others said they would sell their Russian assets but still are seeking buyers or trying to reduce the cost of leaving.
News of the departures last year briefly threatened the Kremlin’s efforts to muffle the impact of the war on Russians. But the continuing presence of so many companies has undermined the Washington-led effort to crush Russia’s economy, contributing taxes that help keep Russia’s war machine running and allowing Russians to maintain their prewar comforts and quality of life, even as Russian missiles destroy Ukrainian lives.
“Russian consumers want to be able to buy the brands that they are used to, Western brands, and the majority do not show any consumer patriotism,” said Ivan Fedyakov, of INFOLine, a market research consultancy. “People know that nothing will replace a BMW or Mercedes or Apple.”
Although the two German carmakers and the American tech giant announced that they would stop or suspend sales and operations, their products and those of other Western luxury brands are widely available, in some cases as a result of gray-market imports.
Ukraine’s National Agency on Prevention of Corruption has designated 19 foreign firms still operating in Russia as war sponsors, including the French supermarket chain Auchan, the U.S. multinational Procter & Gamble, the German wholesaler Metro and the French cosmetics firm Yves Rocher.
Others have done less than promised. One example is Coca-Cola, the company whose famous TV commercial once professed a wish “to teach the world to sing in perfect harmony.” Coca-Cola said it was stopping operations, but its part-owned Swiss bottler, Coca-Cola HBC, continues to produce cola as well as other drinks under another name in Russia.
The Coke rival PepsiCo announced it would produce only essential items in Russia, but these include potato chips, and Unilever, employing the same justification, sells Magnum ice cream products in Russia.
Ikea, the Swedish furniture giant, is leaving, but Mega shopping malls owned by the same company are still operating.
In damage-control mode, President Vladimir Putin did all he could to block the exits, forcing foreign companies to get state permission to sell assets, seizing assets and barring foreign banks and energy firms from selling stakes without a presidential waiver. The Finance Ministry in December announced measures against investors from “unfriendly countries” who sold assets, including a 50 percent discount on the sale price and a 10 percent tax.
The Kyiv School of Economics (KSE), which follows 3,141 foreign companies through its Leave Russia project, reports that only 211 companies have exited — fewer than 7 percent — while 468 have announced plans to leave.
But 1,228 are staying, and more than 1,200, despite pausing or scaling back, are still doing business or keeping their options open, according to the project director, Andrii Onopriienko.
Onopriienko said the public companies his group is tracking paid taxes of $24 billion to Russia in 2020 and generated revenue of more than $300 billion that year. But he acknowledged that for many, “there is no possibility to exit in a normal way.”
“There are a lot of companies that did nothing or still continue to wait,” Onopriienko said. “And after one year of war, many companies will lose the opportunity to sell their businesses and will continue to lose because, finally, those assets could be nationalized or bought at a very cheap price.”
A study by the University of St. Gallen in Switzerland found that fewer than 9 percent of European Union and Group of Seven companies with subsidiaries in Russia had left the country by November.
A count by the Yale School of Management of nearly 1,600 foreign companies and organizations in Russia found that 1,022 were withdrawing or suspending operations, with 234 digging in and others buying time or scaling back. The studies use different methodologies, with KSE and St. Gallen focusing on completed exits.
“There’s plenty of companies that people think are out because they made an announcement that they would leave Russia,” said Mark Dixon, who runs a London mergers and acquisitions consultancy, the1, and founded the Moral Rating Agency, a nongovernmental organization that focuses on top companies still doing business in Russia. Instead, many companies halted only a part of their business, while others had not fulfilled their promises to leave, he said.
Shortly after the invasion, Atlanta-based Coca-Cola said it was “suspending its business in Russia.” Coca-Cola HBC, a Swiss-based bottler (23.2 percent owned by the Coca-Cola Company) stopped making Coca-Cola in Russia and “transitioned” one Russian subsidiary, Coca-Cola HBC Eurasia, into another, Multon Partners, in August.
But Coca-Cola HBC’s Russian firm still operates 10 factories producing Dobry Cola and other profitable brands, Rich and Moya Semya. “Our primary objective over there is focused on protection of our assets and focused on our people,” said Coca-Cola HBC chief executive Zoran Bogdanovic in an earnings call this year.
“It’s hiding the real situation,” Onopriienko said. “And we see quite a significant proportion of revenue was generated in Russia.”
In fact, the two most popular cola brands on Russian shelves in January and February were Dobry Cola, with more than 33 percent, and Coca-Cola (imported from neighboring countries), 14 percent, according to the analysis firm Prodazhi.rf as cited by RBC, a Russian newspaper.
Multon Partners and the Coca-Cola Company did not respond to questions. Coca-Cola HBC in a brief statement said that it was still operating Multon Partners to protect its assets and people and “fulfill legal obligations,” and it cited “an incredibly complex situation.”
While making it difficult for companies to leave, Putin also boasts that the departures are a boon for Russian businesses.
“We see that Kremlin-linked oligarchs like using the opportunity to buy the most interesting assets at a cheap price,” Onopriienko said.
Dixon acknowledged that leaving Russia was “mighty difficult,” especially for companies with factories. “You can’t just send out a press release. You have to actually sell. You can’t just walk away or take the bricks down. You have to find a willing buyer,” he said. But some companies, he said, “are dragging their heels intentionally.”
Ikea, an iconic brand for middle-class Russians, run by the Ingka Group of Sweden, stopped production and sales days after the invasion. But Ingka’s other company in Russia, Mega, still operates 14 shopping malls. In a statement, the company said its shopping centers, “remain open to ensure that people have access to the things they need.”
Ikea only recently won Russian government approval to sell its four furniture factories to Russian companies after a long process. “These asset sloths create a self-fulfilling prophecy,” Dixon said. “Ikea dragged out the divestment of its factories until Russian regulations made selling more complicated.”
But leaving can be complex. Four days after the invasion, Shell announced it was leaving Russia and later wrote off its nearly 27.5 percent stake in the Sakhalin-2 LNG facility in the Far East at $1.6 billion. This month, an unconfirmed Russian newspaper report suddenly surfaced that Putin had given permission for the company to repatriate $1.2 billion from the sale of its stake in Russia’s Novatek. Shell had no comment.
PepsiCo suspended production of Pepsi-Cola, Mirinda and 7-Up but continued to manufacture “daily essentials” such as dairy products for “humanitarian” reasons. “It failed to mention it still had two plants in Russia making potato crisps,” Dixon said. “If crisps are essential, what food isn’t?”
Unilever, which said it stayed only to produce essential food and hygiene products, derived 2 percent of its 2022 net profit from Russia; its business there included ice cream sales. In a statement in February, it said its assets would be seized by the state if it left.
“And even if they do sell, they cannot get the money out of the country,” INFOLine’s Fedyakov said. “The Russian government has basically taken them hostages.”
By Robyn Dixon, Francesca Ebel in London and Natalia Abbakumova in Riga, Latvia, contributed to this report / The Washington Post