Western companies including Avon Products, Air Liquide and Reckitt have remained in Russia despite having said they planned to withdraw after the invasion of Ukraine, amid mounting bureaucratic hurdles and a recovery in consumer activity.
Hundreds of Western organisations remain in the country since the full-scale invasion of 2022, including Natura-affiliated cosmetics brands, a French industrial gas producer and a British consumer group that makes everything from painkillers to condoms.
“A lot of European companies are really caught in the middle,” said one executive who works with Western companies in the country. “They've said they're walking away. They've been presented with a choice of buyers that they can't accept.”
Overall, more than 2,100 multinational companies will remain in Russia after 2022, while around 1,600 international companies have either withdrawn from the market or downsized their operations, according to a study by the Kyiv University of Economics.
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Shortly after the 2022 invasion of Ukraine, many of these groups vowed to scale back their presence in Russia as Western countries sought to drain hard currency from the Russian economy and the Kremlin's war funds.
But the Russian government has been gradually raising the costs of exiting companies, imposing a mandatory 50% discount and a minimum 15% “exit tax” on assets in “unfriendly” countries sold to Russian buyers, and it is also becoming increasingly difficult to find local buyers that are acceptable to both sellers and Russia and do not run afoul of Western sanctions.
Air Liquide announced in September 2022 that it had signed a memorandum of understanding to sell its Russian operations to the local team of managers who had previously run them. However, the deal failed to receive Russian government approval, leaving the company in limbo.
Some companies no longer see the need to leave Russia: Avon began the process of selling its Russian operations and received offers but decided not to accept them.
“For more than 135 years, Avon has supported women around the world, regardless of ethnicity, nationality, age or religion,” the company said.
Reckitt announced in April 2022 that it had “initiated the process to transfer ownership of its Russian operations,” but new CEO Chris Licht is taking a more cautious approach.
“We continue to look at our options but the situation is more complicated – if anything, it's gotten more complicated,” he told the Financial Times last month. “The original discussion was about whether to stay in the EU or leave, and businesses pay tax. I think we're having a more nuanced discussion.”
Multinationals have been heartbroken by the plight of Western companies such as Carlsberg and Danone, which have had their assets seized after announcing plans to withdraw.
Danone was ultimately able to work out a deal to sell the assets at a steep discount, but Carlsberg is still engaged in a lengthy legal battle with Moscow and one of its former chief executives is serving time in a Russian prison.
Alexandra Prokopenko, an adjunct fellow at the Carnegie Russia and Eurasia Institute, said rising wages and a better-than-expected economic outlook were fuelling a consumption boom, making Russia a much more attractive country for multinational companies, especially in the consumer sector.
Prokopenko said the recent wave of nationalizations, targeting both foreign groups and domestic players, remains “the biggest risk for foreigners residing in Russia,” adding that “if you consider this risk manageable, why not stay?”
PepsiCo announced in March 2022 that it had halted sales and production of its flagship beverages in Russia, but continues to operate its dairy business in Russia, which directly employs 20,000 people and indirectly employs 40,000 agricultural workers.
“As a food and beverage company, we must stay true to the humanitarian side of our business more than ever, and that means we have a responsibility to continue offering our other products in Russia,” CEO Ramon Laguarta wrote in a September 2022 email to employees.
Rival Coca-Cola has stopped exporting soft drink syrups to Russia, but that role is being taken over by the beverage giant's regional bottler, Coca-Cola Hellenic, in which it holds a 21% stake. In August 2022, the bottler created an independent Russian company, Malton Partners, whose Russian Coca-Cola brands include Dobry Kola, which has dethroned the original Coca-Cola as the country's best-selling drink.
“Dobbly Cola is an extension of existing brands in the market, manufactured and distributed by Malton Partners. It is not associated in any way with The Coca-Cola Company or any of its brands,” the bottler said.
Among the more than 2,000 companies that have said they will remain in Russia – including consumer group Mondelez, Unilever, Nestle and Philip Morris – some have been more open about their plans: Mondelez's chief executive recently told the Financial Times that investors “morally don't care” whether the group pulls out of Russia.
But there is uncertainty about the divestitures some of the companies claim. U.S. short seller Hindenburg Research found in March that Polish fashion retailer LPP's goods were still being sold in Russia despite the company saying it would sell the business to an unidentified Chinese consortium in June 2022 and exit the market.
LPP denied any wrongdoing but acknowledged making a profit from sales to “transition agents” to cover the costs of the transition – a practice that is not due to be phased out until 2025.
Austria's Raiffeisen Bank International has also come under fire after the Financial Times reported that it had dozens of Russia-based job adverts suggesting ambitious growth plans in the country, despite promising to withdraw from the market.
A second executive who works 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 recognized they had a moral obligation to do so, “the current wave is a question of do we really have to leave, do we really want to leave? Some of these companies have spent 30 years building four or five factories. They're not going to sell it at a 90 percent discount,” he said.
Activist investor and Unilever director Nelson Peltz told the Financial Times earlier this year that he had pressured the consumer goods group not to exit as it was considering a sale option.
“If we pull out of Russia, they'll take our brand for themselves. I don't think that's a good deal,” Peltz said, noting that rivals such as P&G and Colgate-Palmolive have not pulled out of Russia. “Why should we pull out?”
Additional reporting by Sarah White in Paris and Max Seddon in Riga
