As Russia’s war on Ukraine continues to accelerate a humanitarian crisis, brands have rightly focused on human tragedy, taking action to support staff and offering civilians aid via donations, products and services. Around 500 advertisers have also cut business ties with Russia in various guises. However, by choice or not, others remain and untangling the impact of this is becoming increasingly complex.
Western brands operating in Russia as franchises, including Burger King, Marks & Spencer and Papa John’s, remain operational under local management. This means despite cutting ties at a corporate level, their doors are still open across hundreds of high streets and shopping malls; and there’s not much brand owners can do about it but take the flack.
“Would we like to suspend all Burger King operations immediately in Russia? Yes. Are we able to enforce a suspension of operations today? No,” said David Shear, president of Burger King’s parent firm Restaurant Business International, in a statement.
Though headlines would suggest hundreds of brands have completely cut ties with Russia, the widely circulated list from the Yale Chief Executive Leadership Institute of companies departing itself underlines how the corporate exodus isn’t that simple.
“We acknowledge that our list smoothed over some of the complexities related to these companies’ exits from Russia,” wrote the professors behind the list, Jeffrey Sonnenfeld and Steven Tian.
As such, the register has been refined from an “initial dichotomous ‘naughty and nice’ list” into one that reflects the ins and outs of the situation, splitting brands into different categories based on the severity of their sanctions. The list now details which brands are scaling back, buying time, suspending operations and exiting entirely.
Consumer expectations versus reality
In the U.K. alone, 60% of people said they want brands to stop doing business with Russia. In the U.S., Gartner found an almost identical response.
While consumer expectations are likely to shift as the war continues to unfold, now is when marketers can assess the actions their companies are taking. However, from a legal and business perspective, there are challenges for those unknotting themselves from Russia, and consumers may need to be reminded of that.
“It’s easy [for brands]to indulge in gesture politics around Ukraine, but there are some who are committed and those who are taking a significant financial hit for doing the right thing,” observed crisis PR consultant and author Mark Borkowski.
“The issue is, though, beyond the commercial world, many don’t understand just how complicated the situation is for some big brands. It’s an unwieldy process [to exit Russia]. This situation will test leadership within brands who lack communicator figures at the top of the food chain who can explain [their position to consumers].”
Borkowski points to utilities and fast-moving consumer goods firms as being in a particularly perilous situation because of the inability to stop the import and sale of essential services like water and products such as birth control and other medicines—“Are they going to stop and punish the populous?” he asked.
Beyond the commercial world, many don’t understand just how complicated the situation is for some big brands.
—Mark Borkowski, crisis PR consultant and author
Russian authorities have drawn up plans to seize the assets of Western companies leaving the country against a curtain of global economic sanctions and businesses closing up shop.
Dmitry Medvedev, the former Russian president, said in February that the Kremlin would respond “fundamentally and harshly” to such departures: “Whatever the reasons for the exodus, foreign companies must understand that it will not be easy to return to our market,” he stated.
The cost of staying in Russia
Six weeks into Russia’s assault on Ukraine, the Office of the United Nations High Commissioner for Human Rights has now reported over 3,455 civilian casualties and 4.2 million displaced refugees. Among this horror, some brands have stepped up to help.
Airbnb was among the first to offer free, temporary housing to 100,000 refugees, while Unilever has donated around $5.5 million in food and hygiene products to those impacted by war. There are many other examples of corporate aid, but despite a quick response from some, other multinationals have flipped and flopped over their ties with Russia.
Among these were French brands Renault and Association Familiale Mulliez-owned sportswear giant Decathlon. The latter suspended operations and said it would continue to support its 2,500 staff in the country after posts on social media called for a boycott of the brand for failure to close 60 stores in the market.
For Renault, things have been slightly more complicated. The car marque initially paused manufacturing in the country in February citing logistical problems. It then resumed production again at the end of March. However, two days later, the business (of which the French government is the main shareholder) U-turned following pressure from consumers and politicians.
The automaker is now carefully considering its 67% stake in Russian car maker Avtovaz and, for now, will take the hit on the 10% revenues it gleans from the country. Its reaction, however, stood in stark contrast with rivals Volkswagen and BMW, which were quick to suspend activities.
Some Western consumer brands still operating in Russia without any immediate plans to leave include Avis Budget Group, Hertz, Red Bull and German chocolate-maker Ritter Sport.
Be honest, be open and plan for what’s to come.
—Kevin Chesters, strategy partner, Harbour Collective
For these names, the business cost of choosing to remain in Russia, and whether consumers will vote with their wallets and boycott them, remains to be seen.
Kevin Chesters, co-founder and strategy partner at marketing consultancy Harbour Collective, believes it all boils down to choice and consequence for these brands.
“Brands that choose to stay doing business with bad regimes are making a choice. Just like brands who choose to make bad choices in their supply chain,” he said. “If [they]get found out and called out, [they]must live with the consequences of those bad choices.”
Planning ahead
Chesters added that brands that have “no choice” due to franchising or factors beyond their control will have to have a reputation management strategy in place. “Be honest, be open and plan for what’s to come,” he advised.
Borkowski believes that brands like Renualt are ultimately too big to fail, simply because of their refusal to cancel their Russian operations. “However,” he added, “mass consumer action against them could hurt both revenue and share prices, and also necessitate a shift in resources from proactive, positive promotion to firefighting.”
In these cases, the financial and reputational cost of remaining in Russia may far outweigh that of leaving.
Ultimately, in the coming weeks and months, leaders across the C-suite will be making decisions that will be etched in history books. And for the brands staying in Russia by choice, there will be questions to answer internally and externally for the long term.
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This article first appeared in www.adweek.com
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