American Brands Leave Russia, But Not Always to Take a Stand

Apple turned heads earlier this week when it announced that it would be pulling out of Russia in the wake of that country’s invasion of Ukraine. In a statement, Apple expressed its “deep concern” over the conflict and pledged to “stand with all of the people who are suffering as a result of the violence.” The move was probably inevitable. After all, Apple is only the latest in the growing stampede of prominent American and major multinational brands in Russia already heading for the exits. General Motors has said it will halt exports to Russia. Harley-Davidson is no longer shipping over its hogs. And Ford has suspended all operations there. In a statement, the Detroit auto giant said it is “deeply concerned about the invasion of Ukraine and the resultant threats to peace and stability.” On the apparel front, Nike has halted online sales in Russia and, on Wednesday, Canada Goose clipped the wings on all of its wholesale and ecommerce shipments bound for Russian soil. Sony Pictures, meanwhile, has dropped the curtain on its Russian distribution. So has Paramount Pictures. Among other things, suffice it to say that Sonic the Hedgehog 2 won’t be playing at Moscow’s Khudozhestvenny Cinema. Accenture Discontinues Business in Russia Following Invasion of Ukraine To the degree that these brands are taking principled stands in the geopolitical arena, they are also voluntarily losing revenue. But aside from being on the right side of history, they can take comfort in one other thing: The shopping public will likely reward them, at least in terms of perception. According to a Reuters/Ipsos poll just released Wednesday, only 34% of Americans think that what's happening in Ukraine is "none of our business" and 77% support further economic sanctions beyond the ones imposed on Feb. 24. Even more germane is a Morning Consult survey released last week. It found a whopping three-quarters of Americans now support U.S. companies halting the sale of their goods and services in Russia. Decisive and principled as brands exiting Russia may be, the revenues they'll give up will vary. Consider, for example, that Apple derives less than 1% of its global revenue from Russia. And when it comes to motorcycles, brands including BMW and Indian-owned Bajaj are way more popular in Russia than Harley. Nonetheless, these companies are doing what, increasingly, their customers are signaling they want: taking a clear stand on social justice issues. Research from the Corporate Social Mind suggests that as much as 60% of the shopping public expects it. But the abandonment of the Russian market by American companies belies an even bigger story that would likely have overshadowed it anyway. Even if every domestic brand decided to keep stocking its goods on Russian shelves, it wouldn't be easy for Russian consumers to find them or pay for them. The Client: Ukraine. The Brief: Prevent World War III About that supply chain matter Overshadowing the decision by many American companies to stop selling many of their goods in Russia is the fact that the goods can no longer get there—at least not easily. Earlier this week, France’s CMA CGM, the Swiss company MSC and Danish container colossus Maersk—together the three biggest shipping lines in the world—said their vessels would no longer tie up at Russian ports. While Maersk clarified that it would “continue to accept and screen bookings for delivery of essential goods,” containers packed with consumer products are essentially no longer coming. Meanwhile, UPS and FedEx have stopped all shipments to Russia, too. “UPS continues to closely monitor the situation and will re-establish service as soon as it is practical and safe to do so,” the company said in a service alert. Aeroflot, the Russian Federation’s flagship carrier, does have a sizable cargo division, but President Biden has banned Russian carriers from American airspace and, over the weekend, 30 countries in Europe did the same. Pay up American brands cutting off their presence in Russia is also secondary compared to transaction problems. Both Russian merchants and customers are finding it extremely difficult—if not impossible—to settle credits and debits. On Saturday, the Biden administration—in step with Canada, the U.K., France, Germany and Italy—announced that selected Russian banks would be cut off from the Society for Worldwide Interbank Financial Communications, or Swift, which processes some 42 million transactions among its 11,000 member banks in 200 countries every day. In a joint statement, the countries said they would “hold Russia to account and collectively ensure that this war is a strategic failure for [President Vladimir] Putin.” Handcuffing Russia’s ability to move money might principally be a political maneuver designed to publicly flog the Russian president. But its effects are broadly economic. And the price will ultimately trickle down to the level of consumer goods. Swift facilitates business transactions between buyers and sellers (both businesses and individuals), even if they bank with different institutions. Cutting Russian banks off from Swift, European Commission president Ursula von der Leyen said last week, “will stop them from conducting most of their financial transactions worldwide and effectively block Russian exports and imports.” In Ukraine, We as Creatives Now Have One Assignment: Defend Our Land and Stop the War Credit-unworthy Meanwhile, Visa and Mastercard—which account for 72% of spending that Russians put on plastic, according to American Banker—have stopped processing transactions from Russia, too. The two financial services giants didn’t have much of a choice but to pull the plug on Russia. After all, U.S. government sanctions announced last week prohibit American companies from conducting business with Russian banks. Citing his company’s obligation to comply, Mastercard CEO Michael Miebach, in a statement issued Monday, confirmed that “we have blocked multiple financial institutions from the Mastercard payment network. We will continue to work with regulators in the days ahead to abide fully by our compliance obligations as they evolve.” What about sending money via PayPal? Too late, sorry. The electronic payment service abandoned domestic transactions with Russia in 2020, but earlier this week shut the door on international transactions involving Russia as well. In connection with its decision to stop selling its wares in Russia, Apple is also limiting its Apple Pay service. If you have to ask how much... Even assuming all of these obstacles were not in place, there’s one final impediment to Russian consumers buying American brands: Increasingly, they can’t afford to. As of Wednesday morning, the value of the ruble fell to 110 to the American dollar—a new low for a currency that’s already down 28% for the year. The freefall signals not just an alarming erosion of Russians’ spending power but, for many, a severe reordering of spending priorities. On Monday, long lines began snaking down the sidewalks from the front doors and ATM windows of Russian banks as depositors rushed to withdraw their money. In a desperate bid to stabilize the ruble, the Russian Central Bank doubled its key interest rate to 20% earlier this week. As the salaries and savings of everyday Russian citizens continues to shrink, concerns will turn toward paying for essentials like food and housing. It’s unlikely there’d be much demand for a pair of Air Jordans—much less a new Harley—anyway. The NBA, With Michael B. Jordan at the Wheel, Just Made One of the Best Sports Ads Ever Is it goodbye forever? A final unanswered question lurks at the end of however the crisis in Ukraine is resolved: How easy—and how likely—will it be for American firms to re-establish ties in a country that was already hampered by European Union sanctions that pre-dated the current conflict? While many companies salivated over the prospects of doing business in Russia when the Soviet Union collapsed in 1991, the country has frustrated many Western investors in the three decades since. McDonald's famously opened a restaurant on Pushkin Square in 1990, shortly after the Berlin Wall came down. But when Russia's 2014 annexation of Crimea unleashed a wave of U.S. and E.U. sanctions, Russian officials shuttered that highly symbolic restaurant, inexplicably citing "sanitary violations." As recently as 2018 the European Parliament noted that corruption was still "a major scourge for business" in Russia, which was also characterized by "a low level of competitiveness," a "reliance on natural-resource exports" and other endemic challenges. In recent years, Russia has continued to disappoint numerous American suitors. Uber had high hopes for Russia when it inked a deal in 2017 with ride-sharing service Yandex. But Uber began selling off its stake last year, and now says it wants to "accelerate" its divestment completely. As recently as 2002, Ford's Focus was the bestselling foreign nameplate made in Russia. But the decline of the ruble in 2014 doomed much of that business. Save for a single factory, Ford ended all of its production in Russia in 2019. At the start of 2020, Ford Russia sales totaled just 368 vehicles. Now that Ukraine has prompted a new cluster of brands to walk away from a country that failed to produce great returns in the first place, it's an open question whether, when the guns fall silent, they'll be in a big hurry to go back. Crisis in Ukraine: How Brands Are Stepping Up to Help

Branding

America's Biggest Brands Are Pulling Out of Russia, But It's Not All About Taking a Stand

Supply chain and currency woes already eclipse the brand exodus

Robert Klara

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Robert Klara