Former CEO of Gulf Oil Joe Petrovsky estimates the prices of raw materials, which are rising with the growing crisis between Russia and Ukraine.
Car factories were idle, beer stopped flowing, furniture and fashion orders stopped, and energy companies fled oil and gas projects.
Russia’s invasion of Ukraine has thrown business plans into disarray and forced a growing number of the world’s most famous brands – from Apple to Mercedes-Benz and BP – to withdraw from a country in global exile as companies seek to maintain their reputation and meet the standards of corporate responsibility.
A truck passes by beer crates at the Budeovicky Budvar brewery in České Budějovice, Czech Republic (AP Photo / Petr David Josek, File / AP Newsroom)
Investors were drawn to Russia in search of lucrative profits that they thought were worth the geopolitical risks. That calculation changed after Russia’s war sparked a wave of global sanctions and export restrictions that shook its economy and disrupted the operations of multinational corporations there.
Russian President Vladimir Putin, left, meets with Royal Dutch Shell CEO Ben van Beurden in Moscow, Russia, June 21, 2017 (Sergei Karpukhin / Pool Photo via AP, File / AP Newsroom)
“In principle, Russia is becoming a trading pariah,” said economist Mary Lovely, a senior fellow at the Peterson Institute for International Economics in Washington. “Almost no company, no multinational company, wants to be caught on the wrong side of US and Western sanctions.
They are also concerned about the plight of Ukrainians, showing how they want to be seen to get on the right side of history.
Complicating companies’ pressure to flee is an order from Moscow that temporarily restricts foreign investors from selling Russian assets. Prime Minister Mikhail Mishustin said on Tuesday that it would help investors make an “informed decision” instead of succumbing to political pressure from sanctions. It is unclear how this could affect corporate efforts to leave Russia.
Oil and gas companies, which are already feeling the heat of climate activists investing in renewable energy, were among the companies to announce the fastest and most dramatic departures.
Energy company BP said on Sunday it would drop its $ 14 billion stake in Russia’s state oil and gas company Rosneft. The next day, Shell said it was leaving its joint venture with state-owned Gazprom and its involvement in the discontinued Nord Stream 2 pipeline, built to transport natural gas to Western Europe.
ExxonMobil has said it will withdraw from a key oil and gas project and halt any new investment in Russia. All of their chief executives said they were shocked and saddened by the escalating conflict. Smaller energy companies followed suit.
Companies in other industries, including carmakers, have signaled they remain outside the Russian market either out of concern for Ukraine or to comply with Western sanctions.
Toyota has halted production at its St. Petersburg plant, which produces RAV4 and Camry models, starting on Friday due to supply chain disruptions, saying it was watching the events “with great concern for the safety of the people of Ukraine”.
Mercedes-Benz has stopped car exports to Russia and production there. The Volkswagen Group, which also owns Porsche and Audi, did the same, saying it believed “a lasting solution to the conflict can only be found on the basis of international law”.
Volvo Cars said it was suspending supplies due to “potential risks associated with trade in materials with Russia”, citing Western sanctions. Ford has ceased operations.
Volvo XC 90 is shown in the Volvo Cars showroom in Stockholm (Jonas Ekstromer / TT via AP, file / AP Newsroom)
Harley-Davidson has stopped delivering motorcycles to Russia, saying “thoughts continue for the safety of the people of Ukraine.” Putin is known for his three-wheeled Harley visiting Ukraine in 2010.
Russian Prime Minister Vladimir Putin rides a Harley-Davidson Lehman Trike in the foreground as he arrives for a meeting with Russian and Ukrainian motorcyclists. (Sergey Karpukhin / Photo of the pool via AP, file / AP Newsroom)
Others who have more stakes in Russia may find it more difficult to navigate the crisis.
French carmaker Renault, whose second-largest market is Russia, said only that it was temporarily suspending production at its plant in Moscow until Saturday “due to some logistical problems”, without being specific.
The Danish brewing group Carlsberg has stopped production at its three breweries in Ukraine, but said operations in Russia, where it owns the St. Petersburg-based Baltika Breweries and employs 8,400 people, will continue.
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“Millions of lives have been affected and we strongly condemn the acts of violence and aggression we are witnessing,” said Christian Wolfe Sondergaard, vice president of corporate affairs. Carlsberg has a duty to “protect the livelihoods of all our employees” in Russia as the economy is increasingly pressured by sanctions, he said.
The Czech brewery Budvar, which considers Russia one of its five main markets, has suspended beer supplies to the country, saying business is not a top priority and is looking for ways to help, including finding accommodation for Ukrainian refugees.
“It’s really difficult to do business in Russia under the best conditions. Now it’s just crazy. So going out is a smart business proposition, “said James O’Rourke, a professor at Mendoza College of Business at the University of Notre Dame who specializes in reputation management.
Companies will have to account for all losses as costs of doing business.
“It’s like getting into business with the Manson family,” O’Rourke said, referring to followers of cult leader Charles Manson. “Honestly, you don’t want your name to be associated with these people, and it probably won’t cost you that much to invest.”
Ikea stopped operations in its 17 Russian stores and stopped exports and imports. The Swedish furniture giant said: “The war had a huge human impact” and led to “serious disruptions in the supply chain and trade conditions.”
The fast-paced fashion brand H&M has stopped sales in Russian stores, expressing concern about the “tragic development”. Nike said on its Russian website that it could not guarantee deliveries.
Aircraft manufacturers Boeing and Airbus have stopped supplying parts and service support to Russian carriers.
Even Hollywood studios are postponing the release of new films in Russia, which is not a leading film market, but usually ranks in the top ten countries in terms of box office revenue. Warner Bros., Walt Disney Co. and Sony Pictures cite the “humanitarian crisis”.
The Walt Disney Co. logo appears on screen above the New York Stock Exchange (AP Photo / Richard Drew, File / AP Newsroom)
Netflix pauses all future projects and acquisitions from Russia. It is reported that the streaming service has four Russian projects in preparation.
Technology companies are also heading for the door.
The Apple logo is illuminated in a store in the city center of Munich, Germany. (AP Photo / Matthias Schrader, file / AP Newsroom)
Apple stopped selling iPhones and other devices in Russia, while computer maker Dell Technologies stopped selling in Ukraine and Russia.
Google and TikTok have blocked Russian state media channels from their platforms at the request of the European Union. Apple has blocked downloads of RT News and Sputnik News from its App Store outside of Russia.
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Companies need to respond not only to sanctions, but also to public sentiment as the human cost of war increases.
The company’s commitment to environmental, social and corporate governance, known as ESG, is being tested. ESG has become a lively acronym that is increasingly seen as an important way for corporations to promote responsible business credentials.
The exterior of the new Warner Bros. building. Hollywood Studio Tour (AP Photo / Chris Pizzello, File / AP Newsroom)
“But there may be an element of greenwashing when companies say things that make them appear to have certain values or are on the right side of ESG issues, while their practices and behaviors suggest otherwise,” said Columbia Business School’s associate professor. Vanessa Burbano.
“Stakeholders as employees and consumers will want to see if the actions and behavior of companies are in line with the communicated support that companies are expressing for Ukrainians,” she said.
Some companies go beyond stopping deliveries or operations.
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Lego, Ford and the Volkswagen Group have said they will make millions of dollars in charitable donations in support of Ukrainian refugees.