To Leave Or Not To Leave Russia? Western Firms Grapple With Dilemma Amid Rising Costs And Bureaucratic Hurdles

As the corporate exodus from Russia faces increasing complications, multinational companies are finding themselves caught between a rock and a hard place. With the geopolitical situation intensifying, the business landscape for firms like Avon Products, Air Liquide AIQUY, and Reckitt remains precarious and fraught with challenges.

What Happened: Companies including the Natura-owned cosmetics brand, the French industrial gas producer, and the UK consumer group have struggled to divest their Russian operations amidst a resurgence in consumer activity, the Financial Times reported on Tuesday that over 2,100 multinational firms are still operating in Russia since the invasion of Ukraine in 2022.

While around 1,600 international companies have either left or reduced their presence, many remain due to the hurdles of finding suitable buyers that meet both the sellers’ criteria and Moscow’s approval, all while navigating Western sanctions. Moscow’s increased exit costs, including a 50% discount on assets sold to Russian entities and a 15% exit tax, have compounded the issue.

Air Liquide faced government obstacles in selling its Russian business, and Avon opted against proceeding with offers for its Russian division, prioritizing its global commitment to women. Reckitt‘s CEO Kris Licht has highlighted the complexities, suggesting a shift from a binary approach to a nuanced one.

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Other companies, like Carlsberg and Danone, have encountered asset seizures and legal issues after announcing their exits. Conversely, PepsiCo PEP maintains a robust dairy operation in Russia, and Coca-Cola Hellenic has seen success with Dobry Cola. Companies such as Mondelez, Unilever, Nestlé, and Philip Morris have been forthright about their decision to stay, in contrast to others like Polish retailer LPP, which has been criticized for its continued sales in Russia.

Why It Matters: The ongoing presence of Western firms in Russia is underpinned by a series of escalating measures by the Russian government. In May, President Vladimir Putin announced steps to seize properties owned by U.S. citizens and companies, a move seen as retaliation against potential seizures of Russian assets abroad.

Earlier, Russia had prepared to confiscate U.S. assets in response to the potential seizure of its frozen assets, signaling a tit-for-tat approach to Western sanctions. These developments follow the March analysis that U.S. sanctions, while impactful, had fallen short in ending the Ukraine war, suggesting that more could be done to pressure Russia.

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Photo by Egor Filin on Unsplash

This story was generated using Benzinga Neuro and edited by Pooja Rajkumari