What a business sticking with Russia ought to mean

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4 minute read

People enter a McDonald's restaurant in Moscow, Russia April 24, 2018. REUTERS/Tatyana Makeyeva

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NEW YORK, March 8 (Reuters Breakingviews) - Western companies active in Russia have been forced to move quickly. Some, like PayPal (PYPL.O), Exxon Mobil(XOM.N), and LVMH (LVMH.PA) have decided to pull out in the wake of President Vladimir Putin's read more invasion of Ukraine. Others, including Uniqlo, seem to be staying put, for now. There can be reasons to stay in Russia, but they need to be good.

Companies that benefit Moscow's coffers or play to the elite class have the most explicit moral reasons to leave. Exxon and LVMH read more fall into that category, as does Shell (SHEL.L), which issued an apology on Tuesday for buying Russian oil last week. Companies that facilitate transactions, like, Visa (V.N), Mastercard , American Express (AXP.N) and PayPal had little choice but to suspend their businesses.

For some, the latest financial incentives make that outcome easier to live with. A raft of sanctions imposed by Europe, the United States and others may mean directly affected activities grind to a near halt anyway. Longer term, the impact of excluding Russia from big parts of the global economy is surely a blow to the outlook for every Russian business.

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The trickier situations arise when ordinary Russians could suffer. Nissan Motor , which sold 53,000 cars in Russia last year, decided to stop exports to the country, per Reuters. So did General Motors (GM.N), though it sells far fewer cars. The Big Four accounting firms – Deloitte, EY, KPMG and PwC – said they would leave too. All these companies employ thousands of Russian citizens – KPMG’s decision, for example, will affect some 4,500 partners and staff in Russia and Belarus, Reuters says.

There’s a case for businesses that provide essential mass-market goods to stick around, lest they punish citizens who have no influence over Putin’s actions. Clothing retailer Uniqlo parent Fast Retailing (9983.T), for example, says it wants to continue to give Russian citizens access to cheap clothing.

Yogurt maker Danone's (DANO.PA) products will still be available, too, though the company will not make new investments. Japan Tobacco (2914.T) read more also plans to keep stocking the shelves in Russia. Its tax payments accounted for 1.4% of the Kremlin's budget in 2020, according to Reuters. JT also employs 4,500 people there. McDonald’s, however, said on Tuesday that it will temporarily close restaurants and pause operations in Russia despite having 62,000 employees in the country.

There are few black-and-white cases, and many foreign businesses choosing to remain can make a reasonable argument for their choice. They need to keep updating their thinking, though, or they may find their decision looks less ideal as time goes on.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Shell stopped buying Russian crude oil on March 8 and said it would phase out its involvement in all Russian hydrocarbons, becoming one of the first major Western oil companies to abandon Russia entirely. Shell also apologized for buying Russian crude last week after it had said it would pull out of the country.

- Exxon Mobil said on March 1 it would exit Russian oil and gas operations and make no new investments in the country as a result of Russia’s invasion of Ukraine.

- On March 4 luxury group LVMH said it would temporarily close 124 stores in Russia given the current circumstances.

- Uniqlo owner Fast Retailing said on March 7 that it would keep stores open. "Clothing is a necessity of life. The people of Russia have the same right to live as we do," said Chief Executive Tadashi Yanai in remarks first reported by Nikkei, according to Reuters.

- Levi Strauss and Zara owner Inditex both said they would temporarily close stores.

- French yoghurt maker Danone and Belgian chemicals group Solvay suspended operations or investment in the country.

- Nissan Motor said last week it was suspending vehicle exports to Russia, joining peers including General Motors.

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Editing by Richard Beales and Sharon Lam

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