Multinationals find quickly exiting Russia isn’t so easy
Hundreds of multinational companies are fleeing Russia following the nation’s violent invasion of Ukraine, but for some, fully exiting the country will be a complicated and lengthy process.
Restaurant brands have to resolve contracts with local franchisees before they can cut ties with Russia.
Banks must first find other financial institutions to take on their loans and bank accounts.
Manufacturers, oil producers and others can’t find buyers for their Russian facilities due to severe Western sanctions.
Some executives are wary of Russian President Vladimir Putin’s threat to seize the assets of companies that flee the country, widely considered a desperate ploy to get foreign firms to stay.
Several leading U.S. brands said they are beginning the process of cutting ties with Russia but warned that doing so will take time.
Burger King says it cannot legally close its 800 restaurants in Russia because its Russian business partner refuses to do so. Restaurant Brands International, the fast food chain’s parent company, said last week that it is working to dispose of its 15 percent stake in the Russian Burger King franchise but warned that it cannot walk away from its contract.
“No serious investor in any industry in the world would agree to a long-term business relationship with flimsy termination clauses,” David Shear, the company’s president, wrote in a letter to employees. “This is exactly why we say it’s a complicated legal process when we are asked why we can’t just unilaterally shut down the business.”
Yum Brands, the company behind KFC and Pizza Hut, finds itself in a similar situation, where the majority of its Russian stores are run by Russian franchisees. Subway also said that it cannot prevent its 450 franchisees from staying open. McDonald’s successfully shut down the bulk of its Russian locations because unlike other chains, it directly owns and operates most of them.
“The only franchisor that matters right now in Russia is Vladimir Putin,” said Michael Seid, founder of international franchise advisory firm MSA Worldwide. “If he says to close, you’re going to close, if he says stay open, you stay open.”
Roughly 400 corporations have fully or partially withdrawn from Russia, according to a list compiled by researchers at Yale University’s Chief Executive Leadership Institute.
The corporate exodus is driven by widespread outrage over Putin’s violent invasion of Ukraine, along with Western sanctions that make it difficult to do business in Russia and supply chain issues stemming from shipping giants shutting down transport to the country.
American financial institutions have largely agreed to wind down their operations, including Citigroup, which has the largest Russian footprint with nearly $10 billion invested in the country. But leaving won’t be easy, as Russia has blocked firms from pulling their funds, and Citigroup has struggled to find buyers for its retail banking business.
The bank cannot sell the business to Russian buyers under Western sanctions without a government waiver, and it cannot wind down its operations without finding a new home for its existing customers, a complicated process that could take months, if not years.
Under normal circumstances, companies like Citigroup could use legal means to recover some of their assets, but experts don’t see Russia complying with international courts amid its invasion of Ukraine that has drawn global condemnation.
“If a country has become a real pariah, it’s not clear what its incentive would be to abide by international law,” said Michael Klein, professor of international economic affairs at the Fletcher School at Tufts University.
Putin has pledged to seize assets of companies that leave Russia and allow Russian companies to steal intellectual property from companies home to “unfriendly” nations, moves that have led firms to scramble to recover what assets they can from Russia.
Danish shipping giant Maersk, which announced that it will cease operations in Russia, said it is still making trips to Russian ports to pick up some 50,000 empty shipping containers currently stranded in the country.
ExxonMobil and BP are hoping to sell their multibillion-dollar projects in Russia, but experts say that they will likely have to eat a huge loss on those investments. Western airline leasing companies are expected to lose $10 billion worth of airplanes that Russia is refusing to give back.
“If Mr. Putin claims he’s going to expropriate those assets, you may as well act as though it’s going to happen,” said James O’Rourke, a professor at Notre Dame’s Mendoza College of Business. “Executives may find that they’ll have to just write those assets off.”
Some of the firms staying put in Russia have cited Putin’s threat. Yale’s list found that 54 companies are freezing new investments in Russia while continuing their operations, while 38 companies are refusing to reduce or end their Russian operations.
Koch Industries, an American company that operates two glass manufacturing plants in Russia, said in a statement last week that it would not “hand over these manufacturing facilities to the Russian government so it can operate and benefit from them.”
French automaker Renault, one of the few Western companies to keep its Russian operations going, has also reportedly heeded the Kremlin threat. Renault owns a majority stake in AvtoVAZ, the largest Russian car manufacturer, and employs roughly 40,000 Russian workers.
Ukrainian President Volodymyr Zelensky told French lawmakers on Wednesday that the carmaker and other French brands “must stop sponsoring the Russian war machine.”
Some of the other companies refusing to leave Russia are drugmakers and food processing companies that say that they cannot wind down their operations without harming the general Russian population that relies on their products.
Nestlé said Wednesday that it would suspend its production of its KitKat and Nesquik brands but continue to produce essential items like infant food and medical nutrition. The company said it would donate Russian profits to humanitarian relief organizations.
“This approach is in line with our purpose and values,” Nestlé said in a statement. “It upholds the principle of ensuring the basic right to food.”
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