The escalating military and humanitarian crisis in Ukraine is having a far-reaching economic impact on multinational businesses and is a demonstration of how external factors can massively influence commercial strategy. The United States and the European Union have shown a united front to impart deep sanctions on the Putin government and affiliated oligarchs in an attempt to cripple the Russian war machine.
However, the sanctions haven’t only impacted the Russian Government, but also its people and foreign businesses. Perhaps this could have been foreseen, hindsight may always be 20/20 but it certainly reaffirms the requirement for a detailed PESTLE analysis on foreign markets, even when your business feels completely unrelated to the military-industrial complex.
As a result, companies from a variety of sectors are exiting Russia, including a range of media companies, blocked by the Kremlin in retaliatory sanctions against the West.
In this article, we will explore the impact of the Russo-Ukrainian war on international businesses.
A summary of sanctions against Russia
The sanctions against Russia have prompted a united front between the EU, UK and the US. Here is a summary of Russian businesses that have been affected.
- Sanctioned banks – Sherbank, The Black Sea Bank, IS Bank, GenBank, Promsvyazbank, Rossiya Bank, VEB.RF, Bank Otkritie, Sovcombank.
- Sanctioned companies – JSC Research, United Aircraft Corporation, Rostec, Tactical Missles Corporation, United Shipbuilding Corporation, UralVagonZavod
- Sanctioned private individuals – Denis Bortnikov, Petr Fradkov, Elena Georgieva, Vladimir Putin, Sergei Lavrov, Roman Abramovich and many more
Significantly, the US and its allies have removed several Russian banks from the SWIFT financial messaging system. This action prevents banks from trading outside Russia.
Just how damaging the collective sanctions will prove to Russia’s economy remains to be seen. However, Russia has hit back at the West with sanctions of their own which may prove damaging to foreign companies looking to do business in Russia.
Russia blocks Facebook and launches new fake news law
In early March, Reuters announced that Russia would be blocking Facebook in retaliation for the social media platform excluding Russian state media. The Russian Government also instituted a fake news law, which was created to punish so-called disinformation in Russia. CNN responded by announcing that it would cease broadcasting in Russia.
Russia followed their new fake news law by banning a variety of media companies, including Microsoft Corp and the video games publisher EA Sports. The BBC, Deutsche Welle and Voice of America were also banned for publishing what the Russian Government claimed was false information about the war in Ukraine. Twitter will also be blocked; a notable move after Twitter’s role in the Arab Spring.
The BBC responded to its ban in Russia by temporarily suspending its journalistic efforts in the country. Russia’s new fake news law has the power to imprison anyone found to be spreading “fake” news.
Meanwhile, Facebook is hoping to restore its services in Russia. Meta’s head of global affairs, Nick Clegg released a statement on Twitter: “Soon millions of ordinary Russians will find themselves cut off from reliable information, deprived of their everyday ways of connecting with family and friends and silenced from speaking out.”
Western businesses are abandoning Russia
Western brands from a huge variety of industries are exiting Russia en masse. Many brands have already exited the market while criticising the Russian Government for its war in Ukraine.
Luxury goods company LVHM announced it would temporarily shut 124 shops in Russia. US energy conglomerate Exxon Mobil is taking steps to leave Russia, its chief executive Darren Woods described the departure as a “complicated process”; the energy company’s ties in Russia amount to oil and gas investments, including partnerships with Rosneft and other partners worth £4 billion.
Other brands are unmoved. Pirelli the Italian tyre manufacturer has set up a crisis committee that will monitor developments.However, it plans to continue production in its two Russian plants.
Stay, leave or hand over to local managers?
So, what are the options for foreign businesses in Russia? Should they stay or should they go? Russian First Deputy Minister Andrei Belousov has presented three options for foreign businesses:
- Remain in Russia
- Cease all business operations entirely in the region
- Or hand over holdings to local managers in the interim before returning when the situation allows.
To stay could prove reputationally damaging. However, handing over control to Russian managers could be risky as businesses will have no guarantee of fair returns. Those that choose to leave the country out of a point of principle might fare the worst, either being forced to sell for nominal sums or face big losses.
Exiting Russia?
If your business decides to exit Russia, you’ll likely be looking for alternative markets to transition into to make up for any losses you suffer for your principled stand.
Bubbles can help with translation and localisation tasks in virtually any market throughout Europe, Asia and further afield. Our translation services are available in more than 280 languages.
If you are looking to pivot into new markets get in touch with Bubbles today and we’ll help you manage your translation and localisation challenges.
