Renault, McDonald’s, Shell, Dr. Oetker, Nike, Starbucks – they and many more quit last year in response to the Russian invasion of the Ukraine their withdrawal Russia on. “There is no going back,” said Tengelmann owner Christian Straub (58). shortly after the beginning of the war to manager magazin
– and a little later gave away his 27 branches to a Russian investor. This gave the impression that the majority of Western companies severed business ties with war criminal Russia over the course of the year. But apart from a few often prominent exceptions, this assumption is wrong, as it is now a study
indicates.
In fact, less than a tenth of Western companies actually left Russia, researchers from the Swiss University of St. Gallen (HSG) and the business school IMD have found. “Our analysis shows that by the end of November 2022, 8.5 percent of EU and G7companies had sold at least one of their Russian subsidiaries,” write the authors of the study, Simon Evenett and Niccolò Pisani. So there can be no question of a large-scale withdrawal.
For their analysis, the two professors – Evenett is a trade expert at the HSG, Pisani focuses on globalization issues – collected extensive data on capital investments by foreign companies headquartered in the European Union (EU) and the G7 countries and checked whether disposals of their Russian subsidiaries confirmed after the outbreak of the Ukraine war. They even classified the companies as “withdrawn” if they had sold one or more – but not necessarily all – subsidiaries in Russia.
Only 120 companies have left Russia
The result: Of the 1,404 companies based in the EU or G7 countries that had a total of 2,405 subsidiaries or active equity interests in Russia before the Russian invasion, just 120 had withdrawn nine months into the war. Out Germany According to the study, a total of 14 companies withdrew, including those mentioned above, for example Deutsche Bank, Deutsche Telekom, Siemens, Vaillant or Tonnies.
The low rate of withdrawal of Western firms goes hand in hand with previous research from the Kyiv School of Economics (KSE), which found that only 5 percent of all foreign-based firms left Russia. In their current study, Evenett and Pisanie write that the pressure to break off business relationships is particularly high for companies from EU or G7 countries. It is therefore not surprising that the proportion in their study is somewhat higher.
In particular, “underperformers”, i.e. companies with low profitability, and companies with large employees have withdrawn from Russia. After all, the confirmed divestitures account for just 6.5 percent of total pre-tax profits of all EU and G7 firms with active operations in Russia, but 15.3 percent of total employees. The authors of the study suspect that the size of the workforce in particular could have contributed to the fact that the companies are better perceived by the public.
More US companies are pulling out
Basically, according to the study, more US companies left Russia than those based in the EU, Japan, Canada, Great Britain, Italy or France. A total of 30 US-based companies withdrew, 15 from Finland, 14 from Germany and 13 from the UK. It is also striking that the profitability of European and Japanese companies that withdrew was often very low.
In total, according to the professors’ count, 1284 of the EU or G7 companies are still active in Russia. Most of them: from Germany, namely around 250. The second most active companies are based in Cyprus, although according to the study it is often likely that Russian owners are actually behind them.
Above all, companies from the areas of agriculture and raw materials extraction have remained in Russia, while companies from the manufacturing and service sectors have tended to withdraw. For example, the agricultural machinery manufacturer stops Claas from Harsewinkel in Westphalia
still stuck to Russia, as well as candy manufacturer Storck or medical companies like Braun or Fresenius, as Yale University recently listed.
For some, withdrawal is delayed
Evenett and Pisani explain that there are many reasons for companies that are still active in Russia to stay there. In some cases, for example, companies do not want to abandon their Russian customers, who are neither involved in the decision to invade Ukraine nor in the war themselves. In other cases, companies may not want to lose long-term relationships with their employees or suppliers; or they decide not to discontinue their activities in Russia due to the social relevance of their products and services, such as medicines.
The authors also see the hurdles in withdrawing as another possible reason why so few companies have left Russia so far. Even if a Western company has decided and publicly committed to pull out, it can eventually fail. For example, some cannot find a buyer for the subsidiary who is willing to pay the required sum. For others, obstacles imposed by the Russian government, preventing the proceeds from being transferred abroad, complicate or delay the sale.
more on the subject
Due to these sometimes complex and lengthy processes, the authors of the study expect an increasing number of sales in the future. At the same time, they warn that many Western companies have left the buyback option open in their contracts such as Nissan or McDonald’s. A completed retreat does not always mean the end.