Swense Tech

Best Solution For You

There’s Been A Pause In The ‘Russia Exit’

Four months ago, leaving Russia was all the rage. If you were a multinational, you signaled to the world that you were against the war in Ukraine by closing your offices in Moscow, or pausing production somehow.

This was never going to be easy. It happened quickly, at first. Companies moved out, ending years-long partnerships, and froze certain operations. Pepsi doesn’t even produce soda there anymore.

With the war in full heat, new exits have slowed to a trickle.

Now it has stopped even as Russia advances more into Ukraine and Kyiv is now asking for billions of dollars more than the $42 billion already given to them in terms of military aid, equipment and other support.

Ukraine is in dire straits. Russia is not so hot. Its economy is in a deep recession. Inflation was 17.1% as of May. But companies that didn’t bail in the spring are holding on. Some can somehow justify their presence, while the decision of others to stay is somewhat questionable.

Hanging Onto Russia, if Barely

suspended all advertising in Russia in March. And in May, Russian residents have not received new features and security fixes for applications they bought in Google Play. But, most of Google’s services are still available to Russians. They have a staff of approximately 200 employees, some of whom have dispersed to other countries.

and Procter&Gamble suspended some sales in Russia and stopped all investments, media advertising and promotional activities but both companies continue to sell essential goods for health and hygiene in Russia. In times of crisis, depriving them of bare necessities would be cynical.

suspended new sales of its products and services in Russia. In June, the company said it was “significantly” scaling down its business and laying off 400 Russian employees.

Bloomberg reported that Microsoft intends to disconnect Russia from updates of its software, which at first will affect only corporate clients of companies. In the future, Microsoft may extend the new restriction to retail users, but so far is giving everyday Russians time to find alternatives.

Profits Still Matter

There are companies whose presence on the Russian market raises some questions, and can be explained simply by pure, old-school, profit motives – or an inability to find a buyer to get them out of the market.

In late February, Uber
said the company was accelerating its work on disentangling itself from its joint-venture ride-hailing with its Russian partner, Yandex, as a political statement. Yandex is not subject to sanctions.

Still, according to the company’s statement in the first quarter of this year, Uber maintains a 29% stake in Yandex Taxi, the largest Russian ride-hailing platform which also works under the Uber Russia brand.

In the winter, Uber got caught up in the hype of anti-Russia sentiment. They have remained steadfast in the country since. Uber is trying to make the most of the partnership. While it globally reports losses, its JV with Yandex is profitable, so it’s not surprising that Uber is quietly hanging on in Russia.

In March, Philip Morris suspended investments and stepped-up plans to reduce manufacturing footprints in Russia. They have two factories — Philip Morris Izhora in the Leningrad region and its branch office Philip Morris Kuban in Krasnodar. Philip Morris Sales & Marketing offices are spread out through some 100 cities. The tobacco multinational has staff there of roughly 3,200 and relies primarily on the domestic market for its tobacco products.

In 2021, Russia accounted for almost 10% of the total market of cigarettes and products for tobacco heating devices. No matter how controversial it is to remain, Philip Morris will have difficulty giving up on this market because much of its core Russian business is tied to local communities.

Manhattan-based investing giant KKR
is an indirect investor. That’s a sin, too, for some. On May 9, the Swedish newspaper Dagens Industri published an article by writer Pontus Herin attacking KRR for its Russia holdings in light of the war in Ukraine.

The company, also known as Kohlberg Kravis Roberts, has about $600 billion under management, including physical real estate and private equity. Their Russia investment is through a controlling stake in a Swedish company called Hilding Anders. Hilding Anders is a majority owner (73%) of a Russian mattress manufacturer known as Askona.

Askona accounts for a large share of the Swedish company’s revenues – reportedly over 52%. The argument is that KKR is invested in this Russian company, even though the Russian company is just making mattresses, not tanks, rockets, and semiconductors for soldiers in combat.

KKR has not invested directly in Russia for decades.

Hilding is heavily leveraged and Askona has been a good buy for them. But the Russian economic downturn has sent Hilding’s shares about 50% lower since March.

KKR’s investment is not in any sanctioned entity. Nor is Hilding invested in an unauthorized entity. But they stand as a testimony to any U.S. or European company conducting business in Russia today – it’s become bad optics. And the Russians are going to return the favor. This is a total reversal of fortunes for the business class that’s gone from London to Moscow, New York to Moscow, since the fall of the Soviet Union.

The situation in the Russian economy, through crushing sanctions and the high geopolitical risk surrounding anything Russia-related, has taken its toll on investors.

Despite the oil price rise – once called the Putin Price Hike – and a stronger ruble, American investors are not able to capitalize on Russia. But a handful, an increasingly smaller handful, of multinational corporations still have at least one foot in Russia. The big question is, do they serve their investors well by staying there?