{"id":77625,"date":"2023-01-27T06:00:17","date_gmt":"2023-01-26T19:00:17","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=77625"},"modified":"2023-01-25T16:47:18","modified_gmt":"2023-01-25T05:47:18","slug":"why-are-so-many-western-companies-still-doing-business-in-russia","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/why-are-so-many-western-companies-still-doing-business-in-russia\/","title":{"rendered":"Why are so many Western companies still doing business in Russia?"},"content":{"rendered":"
<\/figure>\n

Fewer than one in 10 Western multinationals with subsidiaries in Russia has quit any of them in the year since the Ukraine invasion began.<\/p>\n

This\u00a0finding<\/a>\u00a0by two highly regarded academics, Simon Evenett from University of St Gallen and Niccolo Pisani from IMD Business School, contradicts earlier reports of a mass exodus by Western businesses and points to a lack of alignment between the geopolitical strategies of Western governments and the commercial realities of Western businesses.<\/p>\n

The study identified 1,404 companies headquartered in EU and G7 countries with a total of 2,405 subsidiaries in Russia before its February 2022 invasion of Ukraine. Only 120 of these companies, or 8.5% of the total, had \u2018exited\u2019 at least one of their subsidiaries by the end of November.<\/p>\n

Moreover, some of the companies that have trumpeted their withdrawal from Russia, such as McDonald\u2019s and Nissan, have buy-back options. Russia\u2019s anti-monopoly agency says McDonald\u2019s can repossess its Russian operations within 15 years, while Nissan, which sold its business to a Russian state-owned enterprise for \u20ac1, can buy back within six years.<\/p>\n

The study is at odds with earlier work by Yale University\u2019s\u00a0Jeffrey Sonnenfeld<\/a>, which said more than 1,000 companies had pulled out, threatening Russia with \u2018economic oblivion\u2019, but it is broadly consistent with research by the\u00a0Kyiv School of Economics<\/a>. The latest research double-checked the prior-data bases to see whether companies that said they were withdrawing had in fact done so.<\/p>\n

The researchers acknowledge that there are many sound reasons why companies might fail to withdraw. \u2018A Western firm operating in a sector excluded from official sanctions may decide that it is inappropriate to abandon its Russian customers, who may have played no part in the decision to invade Ukraine or in the prosecution of the armed conflict,\u2019 they wrote.<\/p>\n

\u2018In other cases, Western firms may not want to abandon long-term relationships with employees or suppliers or decide to cease operations because of the societal relevance of their products and services (for instance, the supply of lifesaving medicines).<\/p>\n

\u2018Even when a Western firm has decided to exit and committed to do so publicly, it may still ultimately fail to do so. For instance, it may not be able to find a buyer for its subsidiary that is prepared to pay a high enough price. And even when a buyer is found and the price agreed, the Russian government may have put in place obstacles that impede or anyway delay the sale, or ultimately prevent transfer of proceeds abroad.\u2019<\/p>\n

It can take time to conclude such sales in adverse circumstances so it is likely that the percentage quitting will rise, however the evidence shows the overwhelming majority of Western companies with operations in Russia are staying put.<\/p>\n

US Treasury Secretary Janet Yellen has repeatedly called on the US business sector to strengthen the resilience of its supply chains by \u2018friend-shoring\u2019, or redirecting investment to allies. In the context of the risk of conflict in the Taiwan Strait, she urged US businesses to pay greater heed to geopolitical realities. \u2018We are seeing a range of geopolitical risks rise to prominence, and it\u2019s appropriate for American businesses to be thinking about what those risks are.\u2019<\/p>\n

However, the latest study suggests that those pressures may not translate into meaningful changes in the international footprint of companies. It is reasonable to conclude that the high cost of exiting an operation that may have taken years and billions of dollars to establish has restrained companies from following their country\u2019s wishes, even if that means they are effectively \u2018trading with the enemy\u2019.<\/p>\n

The authors note that, if the immense geopolitical pressure on companies to decouple from Russia has been resisted, it\u2019s unlikely that the similar pressure for companies to pull out of China will gain traction. For every US$1 invested in Russia, Western multinationals have US$8 invested in China.<\/p>\n

They argue that the Russian economy is large enough to be a good test of the willingness of companies to respond to geopolitical pressure, while not being so large (as China\u2019s economy is) that Russia\u2019s future economic prospects are decisive for the global strategies of most companies.<\/p>\n

The study found wide variation in both national and sectoral responses to the geopolitical pressure to withdraw from Russia. About 16% of US firms have closed subsidiaries, compared with 15% of British firms, 7% of Japanese firms and 5% of German firms.<\/p>\n

Companies were more likely to close loss-making subsidiaries than those with healthy profits. The 120 companies that have shut subsidiaries in Russia represent 15.3% of the pre-invasion workforce of Western multinationals in the country but only 6.5% of the profits. The inclusion of large service firms like McDonald\u2019s and Starbucks among the exiting firms would help to explain this difference.<\/p>\n

In the manufacturing sector, the 50 subsidiaries that were sold or closed were responsible for 18.6% of the workforce of Western operations in the sector but only 2.2% of the profits.<\/p>\n

The study said its finding that 8.5% of Western multinationals had exited their Russian operations was almost certainly an overestimate. Companies were counted if they had withdrawn one or more subsidiaries but not necessarily all their operations in Russia. The presence of buy-back options casts doubt on the finality of exits.<\/p>\n

The study says greater attention should be given to the costs of decoupling and friend-shoring.<\/p>\n

\u2018If the write-offs announced by publicly traded Western companies are anything to go by, divestment, decoupling, and supply chain reconfiguration are likely to be costly to firms, their employees, and their shareholders.<\/p>\n

\u2018If those costs must be borne on geopolitical grounds, who should bear them? Answering this question is of the essence since to date Western corporate retreat from Russia has been limited.\u2019<\/p>\n","protected":false},"excerpt":{"rendered":"

Fewer than one in 10 Western multinationals with subsidiaries in Russia has quit any of them in the year since the Ukraine invasion began. This\u00a0finding\u00a0by two highly regarded academics, Simon Evenett from University of St …<\/p>\n","protected":false},"author":955,"featured_media":77627,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[1513,433,163,379,365,714],"class_list":["post-77625","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-business","tag-economics","tag-russia","tag-sanctions","tag-trade","tag-ukraine"],"acf":[],"yoast_head":"\nWhy are so many Western companies still doing business in Russia? | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/why-are-so-many-western-companies-still-doing-business-in-russia\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why are so many Western companies still doing business in Russia? | The Strategist\" \/>\n<meta property=\"og:description\" content=\"Fewer than one in 10 Western multinationals with subsidiaries in Russia has quit any of them in the year since the Ukraine invasion began. 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