Western companies including Avon Products, Air Liquide and Reckitt remained in Russia despite saying they planned to leave after the invasion of Ukraine, as bureaucratic hurdles mount and consumer activity returns.
A cosmetics brand owned by Natura, a French industrial gas maker and a British consumer group that makes everything from painkillers to condoms are among hundreds of Western groups that have remained in the country since a full-scale invasion in 2022.
“Many European companies have really found themselves between a rock and a hard place,” said one executive working with Western companies in the country. “They said they would leave. They were presented with an offer from buyers that was unacceptable to them.”
Overall, more than 2,100 multinational companies remained in Russia as of 2022, the Kyiv School of Economics found, compared with about 1,600 international companies that either left the market or scaled back their operations.
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Shortly after the 2022 invasion of Ukraine, many such groups pledged to reduce their presence in Russia as the West sought to starve the country’s economy and the Kremlin’s war coffers of foreign cash.
However, Moscow has gradually increased the costs of exiting corporations and introduced a mandatory 50 percent discount on assets from “hostile” countries sold to Russian buyers and a minimum “exit tax” of 15 percent. It has also become increasingly difficult to find local buyers acceptable to both the seller and Moscow and whose involvement does not run afoul of Western sanctions.
Air Liquide announced in September 2022 that it had signed a memorandum of understanding to sell its Russian business to a team of local executives to run it. However, the deal never received approval from the Russian government, leaving the company in limbo.
Some companies no longer feel compelled to leave the country. Avon started a sale process for its Russian business and received offers but decided not to accept them.
“For more than 135 years, Avon has stood behind women wherever they are in the world, regardless of ethnicity, nationality, age or religion,” the company said.
While Reckitt announced in April 2022 that it had “initiated a process aimed at transferring ownership of its Russian business”, its new CEO Kris Licht took a more measured approach.
“We continue to look at options, but it has become more complex, not less complex,” he told the FT last month. “The initial conversation was, do you stay or do you leave, and do businesses pay taxes?” . . I think we’re having a little more subtle conversation.”
Multinationals were aware of the plight of Western companies such as Carlsberg and Danone, which had their assets seized after announcing plans to exit.
While Danone eventually managed to negotiate a deal to sell the assets at a significant discount, Carlsberg remains locked in a protracted legal battle with Moscow and one of the brewery’s former top executives is in a Russian prison.
Alexandra Prokopenko, a non-resident fellow at Carnegie Russia Eurasia, said rising wages and a rosier-than-expected economic picture had fueled a spending boom, making Russia much more attractive to multinationals, especially in the consumer sector.
Prokopenko said the recent wave of nationalizations, which targeted both foreign groups and local players, remained “the main risk for foreign nationals in Russia”, adding: “So if they consider this risk manageable, why don’t they stay?
PepsiCo announced in March 2022 that it had suspended sales and production of its flagship drink in Russia, but continues to operate a dairy business in the country that directly employs 20,000 people and indirectly employs 40,000 agricultural workers.
“As a food and beverage company, now more than ever we need to stay true to the humanitarian aspects of our business. This means we have a responsibility to continue to offer our other products in Russia,” CEO Ramon Laguarta wrote in an email to employees in September 2022.
Rival Coca-Cola has stopped sending its soft drink syrups to Russia, but the role has been filled by the region’s beverage giant’s bottler, Coca-Cola Hellenic, in which it holds a 21 percent stake. In August 2022, the bottler created a separate Russian company, Multon Partners, whose Russian versions of Coca-Cola brands include Dobry Cola, knocking the original Coke off the top spot as the country’s best-seller.
“Dobrý Cola is an extension of the existing brand on the market, produced and distributed by Multon Partners. It has no association with The Coca-Cola Company or its brands,” the bottler said.
Among the more than 2,000 companies that have said they will stay in Russia – which include consumer groups Mondelez, Unilever, Nestlé and Philip Morris – some have become more open about their plans. Mondelez’s chief executive recently told the FT that investors “don’t morally care” if the groups leave the country.
However, it is not clear how some companies report for divestments. American short seller Hindenburg Research revealed in March that goods from Polish fashion retailer LPP were still being sold in Russia, despite announcing in June 2022 that it had exited the market after selling its business to an unidentified Chinese consortium.
While LPP has denied wrongdoing, it has admitted it benefited from sales to “transfer agents” to help fund the cost of the transition, a practice that will not be phased out until 2025.
Austria’s Raiffeisen Bank International also came under fire after the FT reported that dozens of job adverts it posted in Russia hinted at ambitious growth plans in the country, despite its commitment to exit the market.
A second executive working with Western companies in Russia said there had been a noticeable change in sentiment.
While companies that left in the first weeks after the invasion saw a moral imperative to do so, he said: “The current wave is more about, do you really have to leave? Do you want to leave? Some of these companies have built four, five factories in 30 years. They won’t sell it at 90% off.”
Activist investor and Unilever board member Nelson Peltz told the FT this year that he had urged the consumer goods group, which had explored sale options, not to leave.
“If we withdraw from Russia, they will take our brands for themselves. I don’t think it’s a good deal,” Peltz said, noting that rivals like P&G and Colgate-Palmolive haven’t left the country. “Why the hell should we?”
Additional reporting from Sarah White in Paris and Max Seddon in Riga