06.03 Review

Remain to Leave or Leave to Remain: Statistics on the outcome of foreign companies from Russia say little about real business processes


Immediately after Russia's invasion of Ukraine, the exodus of foreign firms from the Russian market became a powerful media campaign. However, only about 10% ultimately left the country completely. Those who had no expensive assets in Russia and whose sales constituted a small portion of their global turnover quickly fulfilled their promise to leave (e.g. McDonald's and Starbucks). Those with more at stake, like Mercedes-Benz and Hyundai, lingered longer. In the end, the exodus mainly occurred in two waves. The majority left in May-June 2022, and the rest departed in January-April 2023, according to experts from the Kyiv School of Economics. The losses of departing companies amounted to over $100 billion. Among those who stayed, a distinction should be made between those trying to coordinate their exit to save some assets and those actively continuing operations. Russian authorities are opposed to the former strategy, pressuring sellers to agree to large discounts and to remit a percentage of the transaction to the budget.Having agreements with potential buyers does not guarantee the deal will go through. Meanwhile, some companies formally leaving Russia have already returned to the market through a 'backdoor', arranging supplies of raw materials and components to buyers of their Russian assets, often managed by their former executives. Another important distinction lies between those companies that are present in the Russian market through imported finished products and those who continue to support joint technological chains or even transfer unique technologies. The latter appear to be the main 'strikebreakers'. Nonetheless, analysing the business processes behind the departure or non-departure of companies is far more important than formal 'outcome' statistics. Reality may turn out to be directly opposite to expectations.

The voluntary withdrawal of foreign companies and brands from the Russian market has nearly come to a halt and has turned out to be less extensive than expected. Such conclusions can be drawn from the overall outcome statistics. Since the early months of the war in Ukraine, experts from the Kyiv School of Economics have been keeping a registry called 'Leave Russia', which currently includes over 3700 foreign companies. As of the end of February, only 365 of them, or less than 10%, have completely ceased operations in Russia and disposed of their assets. A year ago, this was 7% of such companies. 505 companies are preparing to leave, 701 have ceased operations but have not left the Russian market (legal entities are not liquidated, assets are not sold), 397 have limited some operations, and 145 have stopped investing in development. 1647 companies have neither left nor have any intentions to leave.

A similar registry maintained by a group of economists from the Yale School of Management paints a more optimistic picture but with a much smaller sample size. It includes almost 1400 companies, of which 538 have left completely, 503 have suspended operations, and another 154 have limited some operations. However, this last group includes both software companies that have completely stopped sales while partially maintaining support or access to free services (Adobe, Alphabet, and others), as well as FMCG manufacturers who have continued business as usual but with changes to their product lines (Coca-Cola, PepsiCo, and others). Another 174 companies are 'buying time', these are mostly those that have ceased investing in business development. However, there are questions regarding the positions of many within this group: Airbus severed all ties with Russian airlines but continues to purchase titanium in Russia, and one of the largest producers of alcoholic beverages, Bacardi, despite promises, remains in the market, maintaining marketing activity and hiring new employees, are both included in this group.

According to research by the Kyiv School of Economics, the majority of companies that left the Russian market did so either in May-June 2022 or in January-April 2023. All of them made the decision to leave immediately after the invasion. However, for some, it was easy to do so because sales in Russia constituted a small part of their global turnover, and the assets were not too expensive (for example, McDonald's or Starbucks), while others were forced to delay to sell assets at the highest possible price (for example, most automakers). The total losses of companies that left Russia by the end of 2023, according to calculations by The New York Times, amounted to $103 billion.

The logic of those who chose not to leave is understandable. They want to minimise losses, but Russian authorities actively obstruct this.To sell a Russian business, it is not enough to find a buyer—you need to coordinate conditions, including the price, with the government commission for foreign investment control, which meets only three times a month (→ Re: Russia: Schrödinger's Boycott). At the end of the year, authorities decided to raise the 'voluntary contribution' for companies leaving Russia from 10% to 15% of the asset's value.

The few recent deals that have taken place were being prepared as early as 2022. Among the most significant recent transactions were the sale of a stake in KAMAZ to the German Daimler Truck and the completion of the sale of Russian assets by Hyundai. The new owner of Mercedes-Benz's stake in KAMAZ and the amount earned by the German company are unknown. The new owner of Hyundai's Russian plants is the former head of the Avilon dealership, Andrey Pavlovich. According to Korean media, the deal amount is symbolic at 10,000 rubles. It allows the company to buy back within two years, but at a different price. Hyundai valued its Russian assets at 58.5 billion rubles. Previously, Pavlovich purchased Russian assets from Volkswagen for €125 million, with an estimated value of €1.5 billion. It was recently revealed that the Finnish manufacturer of lifting equipment, one of the world's largest, Konecranes is permanently leaving Russia.No buyer has been found, and the Russian company will be liquidated with compensation payments to customers who can no longer service equipment under warranty.

Having agreements with potential buyers does not mean the deal will go through. Danish company Carlsberg was waiting for permission from the government commission to sell the Baltika brewery, when Vladimir Putin unexpectedly signed a decree to nationalise it. This same decree nationalised the Russian assets of Danone. It was recently announced that Danone will be allowed to sell its business with a 56% discount to the market valuation. The buyer is entrepreneur Mintimer Mingazov, who joined the company's board of directors after it was headed by Chechnya's Minister of Agriculture Yakub Zakriev.

Against the backdrop of waning emotions over the Russian invasion and exit difficulties, there are increasing reports of companies promising to leave but failing to do so. In addition to Bacardi, this includes the confectionery manufacturer Mondelez. Just six months ago, the company stated that it was gradually winding down operations, not investing in development, cutting advertising expenses, resulting in a significant decrease in sales. However, according to Bloomberg, the company's Russian business earned a record profit in 2023. The promise not to invest in development was also not fulfilled: Mondelez hired Nielsen and Ipsos to develop new strategies for the Russian market. Both of them, notably, had previously announced that they were ceasing operations in Russia.

In their research, experts from the Kyiv School of Economics also provide examples of companies that formally left Russia but immediately returned through a 'backdoor'. For instance, the French cosmetics manufacturer L’Occitane, after selling its Russian business to former managers, continued supplying its products to them through a company specifically registered for this purpose in the UAE. Similar actions were taken by, for example, the American elevator manufacturer Otis and the Japanese tire manufacturer Yokohama. By examining customs statistics, experts from the Kyiv School of Economics discovered that after a company declared its departure from the Russian market, its direct shipments to the country decreased, while indirect shipments increased synchronously. They do not assert, however, that the management of departing companies is involved in setting up alternative channels in all cases, but they assume that this practice is widespread.

However, it is important to distinguish between two different situations: the increase in imports of finished products through countries that have not joined the sanctions coalition and the maintenance of established technological production localisation chains in Russia. The most significant long-term damage to the economy is caused by the disruption of technological chains that previously ensured the involvement of Russian manufacturers in international production processes and the creation of high-quality jobs within the country. In other words, simple statistics of 'left — remained' do little to understand the situation and the real business processes hidden behind the departure or non-departure of companies. Companies that continue manufacturing cooperation are considered the main ‘strikebreakers’ of the exodus, especially if this cooperation continues in sensitive industries. For instance, Re:Russia has previously noted that participants in the 'big four' oilfield services — American SLB and Weatherford — have not ceased operations in Russia. The first announced in July 2023 that it would stop exporting equipment and technologies to Russia, but by September it could not clarify what steps it had taken to achieve this. The latter stated only at the very beginning of the military conflict that its operations would comply with sanction requirements. As a result, in February 2024, Ukrainian authorities included Weatherford in the list of war sponsors.