As the war in Ukraine drags on, international companies still in Russia are under increasing pressure to leave.
Some seem determined to stay, some say they are reconsidering or trying to find a way out and some are not talking at all – a testament to the tense nature of the situation.
Ukrainian President Volodymyr Zelenskyy is stepping up the country’s calls to pressure companies to leave Russia. In an address to Congress on Wednesday, he called on lawmakers to pressure U.S. companies still operating in Russia to leave, saying the Russian market is “flooded with our blood.”
“Make sure the Russians don’t get a penny that they use to destroy our people in Ukraine,” Zelenskyy said.
In a separate address on Tuesday, Zelenskyy called on food companies Nestle and Mondelez, consumer goods makers Unilever and Johnson & Johnson, European banks Raiffeisen and Societe Generale, electronics giants Samsung and LG, product maker BASF chemicals and pharmaceuticals Bayer and Sanofi, saying they and “dozens of other companies” have not left the Russian market.
The United States and its allies have already imposed a series of sanctions in place aimed at crippling the Russian economy. Hundreds of international companies announced that they were reducing their activities in Russia.
Companies that have maintained operations in Russia say they provide essential services, such as food or medicine, which are not affected by the sanctions. In some industries, such as hotels or restaurants, it is difficult to close because of franchise agreements. They said they didn’t want to punish their employees.
There is also a risk that the Russian government will expropriate Western assets like factories if they are abandoned. Koch Industrieswhose billionaire CEO Charles Koch is famous for funding conservative causes, dug into that stance, saying Wednesday that he owns two glass-making factories in Russia that employ 600 people, and that he won’t give up that business.
“We will not abandon our employees there or turn over these manufacturing facilities to the Russian government for them to operate and benefit from,” Koch Chairman Dave Robertson said in a statement. “It would only put our employees at risk and do more harm than good.”
Big European and American consumer goods companies like Unilever, PepsiCo and Nestlé say they are cutting back to focus on the essentials, but have not left Russia. For example, the confectionary and pet food company Mars, which has been in Russia for decades and has nearly 6,000 employees and several factories there, said last week that it would suspend new investments. in the country as well as imports and exports to Russia, and would take a break from advertisements and social networks.
But Mars will continue to sell food and pet food, saying it has an “essential role in feeding Russian people and pets.” Profits from the Russian company will go to humanitarian causes. Mars did not respond to questions Thursday.
This strategy is insufficient, said Raj Bhala, a professor at the University of Kansas Law School. “We want to do everything except violence to stop the war,” he said. “It is better, as President Zelenskyy suggests, to inflict pain on ordinary Russian consumers in the hope that they will rally, or rally more, against their government and against the war.”
There are other businesses that consider their operations essential. Eli Lilly, the drugmaker, said the sanctions did not apply to medicine and that it had a responsibility to Russian patients. Sanofi announced on Thursday that it would suspend advertising in Russia and spending unrelated to its drugs and vaccines. But he remains committed to supplying drugs there and pursuing clinical trials.
Big fast food companies like McDonald’s have closed restaurants they possessed; franchise agreements made it difficult for some others. Parent companies do not control franchisees and cannot order them to close, said Michael Seid, founder of MSA Worldwide, a global franchise consulting firm. Franchisees run the business independently and are responsible for salaries, food, and other costs.
Even though Russian franchisees wanted to close, they are under pressure to keep them open under Russian President Vladimir Putin, Seid added.
“The ultimate franchisor in Russia is Putin and I wouldn’t want to be sitting in Russia closing my doors if Mr. Putin doesn’t want me to close them,” he said.
Still, those restaurants can struggle to get their usual food supplies, making it difficult to serve popular menu items, said Adam Werner, global co-head of food, hospitality and leisure practices at AlixPartners.
International restaurant brands, the Toronto-based company that owns Burger King, said Thursday it had begun the process of exiting its 15% stake in a joint venture that operates about 800 Burger King restaurants in Russia. Burger King said it contacted the Russian operator of its restaurants, Alexander Kolobov, and asked him to suspend operations, but he refused. Meanwhile, Burger King said it has suspended corporate support for the Russian market.
“Would we want to immediately suspend all Burger King operations in Russia? Yes. Are we in a position to impose a suspension of operations today? No,” David Shear, international president of Burger King, said in a statement.
Some companies continue to review their position in Russia as pressure mounts. Austrian bank Raiffeisen said on Thursday that it is “evaluating all strategic options for the future of Raiffeisenbank Russia, up to and including a carefully managed exit.”
Multinational companies must weigh their desire to operate in Russia when, or if, the war is over with the potential risk of reputational damage and damage to their business in major Western markets. In Poland, some consumers say they will not shop at stores owned by a French company that continues to operate in Russia, according to local media.
Associated Press writers Anne D’Innocenzio in New York, Dee-Ann Durbin in Detroit and Vanessa Gera in Warsaw, Poland contributed to this report.