There was a pause in the “exit from Russia”

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(Updates with the latest from Philip Morris International.)

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 halting production in some way.

It was never going to be easy. It went quickly, at first. Companies moved, ending years-long partnerships and freezing some operations. Pepsi doesn’t even produce soda there anymore.

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

Now it has come to a halt even as Russia pushes further into Ukraine and Kyiv is now asking for billions of dollars more than the $42 billion it has already been granted in terms of military aid, equipment and other forms of support.

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


MORE FORBESFor some companies, leaving Russia is not so easy

Cling to Russia, so barely

Google
GOOG
suspended all advertising in Russia in March. And in May, Russian residents did not receive new features and security patches for apps they purchased from Google Play. But most Google services are still available to Russians. They have a staff of around 200 employees, some of whom have dispersed to other countries.

Colgate-Palmolive
CL
and Procter&Gamble have suspended some sales in Russia and halted all investment, 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 the bare necessities would be cynical.

Microsoft
MSFT
suspended new sales of its products and services in Russia. In June, the company said it was “significantly” reducing operations and laying off 400 Russian employees.

Bloomberg reported that Microsoft intends to disconnect Russia from updates to its software, which will initially only affect enterprise customers. In the future, Microsoft may extend the new restriction to retail users, but so far it is giving everyday Russians time to find alternatives.

Profits always matter

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

Late February, Uber
UBER
said the company was accelerating work to unravel its joint venture with its Russian partner, Yandex, as a political statement. Yandex is not subject to sanctions.

Yet, according to the company’s statement in the first quarter of this year, Uber has a 29% stake in Yandex Taxi, Russia’s largest ride-sharing platform which also operates under the Uber Russia brand.

In the winter, Uber got caught up in the hype of anti-Russian sentiment. They have remained steadfast in the country ever since. Uber tries to make the most of the partnership. While globally reports losses, its JV with Yandex is profitable, so it’s no surprise that Uber is quietly hanging on in Russia.

In March, Philip Morris International
PM
investments suspended and plans stepped up to reduce manufacturing footprints in Russia. They have two factories – Philip Morris Izhora in the Leningrad region and its branch Philip Morris Kuban in Krasnodar. Philip Morris Sales & Marketing offices are located in around 100 cities. The multinational tobacco company employs around 3,200 people there and relies mainly on the domestic market for its tobacco products.

In 2021, Russia accounted for nearly 10% of the total market for cigarettes and tobacco heater products. No matter how controversial it is to stay, Philip Morris International will find it difficult to abandon this market as much of its core business in Russia is tied to local communities. The company said leaving Russia would be “not an easy task”.

In April’s first-quarter earnings report, the company said it was “working on options to exit the Russian market in an orderly fashion amid a complex and rapidly changing regulatory and operating environment.” This is not an easy task given the complex legislation recently introduced, but we are committed to finding a viable path out of the market while supporting our employees in Russia during this time, including continuing to pay their salaries.

KKR, the Manhattan-based investment giant
KKR
is an indirect investor. It is also a sin for some. On May 9, the Swedish newspaper Dagens Industri published an article by writer Pontus Herin attacking KRR for its assets in Russia in light of the war in Ukraine.

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

Askona accounts for a significant portion of the Swedish company’s revenue – more than 52%, it seems. The argument is that KKR is invested in this Russian company, even though the Russian company only makes mattresses, not tanks, rockets and semiconductors for soldiers in combat.

KKR has not invested directly in Russia for decades.

Hilding is heavily in debt and Askona has been a good buy for them. But the Russian economic slowdown has sent shares of Hilding down about 50% since March.

KKR’s investment is not in any sanctioned entity. Hilding is also not invested in any unauthorized entity. But they stand as a testimonial for any American or European company doing business in Russia today – it’s become bad optics. And the Russians will return the favor. It’s a complete reversal of fortune for the business class that has moved from London to Moscow, from New York to Moscow, since the fall of the Soviet Union.

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

Despite rising oil prices – once called Putin’s price hike – and a stronger rouble, US investors are unable to capitalize on Russia. But a handful, a shrinking handful, of multinational corporations still have at least one foot in Russia. The big question is, are they serving their investors well by staying there?

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