It has now been nearly three months since russia began its invasion of Ukraine, resuming its attempts to violently conquer neighboring countries following Georgia in 2008 and Crimea in 2014. As the shock of the latest military surge rippled through the rest of the world, governments began imposing sanctions. Businesses also responded – almost 1,000 have now either restricted or withdrawn operations, with tech giants Samsung and Apple halting shipments and product sales respectively, and fast-food giant McDonald’s announcing it will permanently leave Russia after more than 30 years.
However, after three months of aggression toward Ukraine, many companies are still continuing to operate in the country. European banks, for example, have a lot to lose – some generating as much as a third of their profits in russia – and many companies including Metro, Auchan-Retail, and Leroy Merlin are operating their businesses as usual. Since equity growth remains the primary goal for any business venture, the worst thing any CEO fears, understandably, is shareholder dissatisfaction due to lost investments, revenue, or reduced profitability, and there is no doubt that closing business in russia would affect financial performance.
But – and this is an important "but" – one cannot assess the economic cost of withdrawal based on figures from more stable times. Indeed, since russia pushed the whole world to the brink of a third World War, it also sealed its fate on its previously promising market.
With its wings clipped, the russian economy is in free fall and businesses still operating in the country should take a second to consider a number of sociocultural and financial factors.
Immediate, mid-, and long-term economic consequences
The unprecedented sanctions leveled against the russian state, while slow-working, will undoubtedly lead to economic decline. Assessments predict the economy will shrink by 15% this year and a further 3% in 2023; this would turn the clocks back on gross domestic product and general development by roughly 15 years.
Lowered domestic demand and exports, an expected “brain drain”, and self-sanctioning on behalf of foreign businesses all indicate prospective development in russia of any kind seems unlikely. And for those companies that do decide to stay, operations will be fraught with uncertainty as consequences related to the banking sector (and therefore banking transactions), logistics, and labor loom on the horizon.
The value of the ruble also plunged to new lows following a combination of tighter currency controls – banning foreign exchange transactions and driving the emergence of black markets – as well as restrictions by both the Russian and central banks. With the exchange rate hitting a new record low of 117 rubles to 1 US dollar – and this was the ‘official’ rate which was far from the reality – most countries simply decided they no longer wish to engage with russia at all.
Although the ruble has returned to near pre-invasion levels largely due to oil and gas exports, traders and analysts remain vigilant as any future changes could harm business endeavors. And while russia does benefit from this leading position, many other sectors, including machinery, equipment and transports, chemical products, and food or agricultural goods, rely on imports.
Unpredictable exchange rates and restrictions will do more than just fuel inflation – it will also inhibit paying dividends or legally distributing profits, while any repayments on loans acquired outside of russia would be blocked without a Central Bank license – severely impeding the accessibility of any major financial transactions and business decisions.
The cultural backlash
All these economic consequences aside, there is another side of the coin to consider.
For the last 26 years, I have worked in the digital advertising and media industry. During that time, I’ve heard many experts declare that the ease and speed of digitisation has led to a saturated market where the weight and influence of a company’s brand have been significantly diminished.
However I would argue that brand still matters – and we see this happen when both workers and consumers turn away from big brands who fall short of their expectations. So when it comes to reputation, how companies decide to act on the world’s stage definitely does matter. How we feel about brands – how much we trust them, and how much we buy into their products and services – matters. As Marty Neumeier, author, speaker, and overall brand authority points out: "a brand is a person's gut feeling about a product, service, or organization."
People will turn away from those that continue to ignore the actions of the russian state and draw profits from their business transactions; you are unlikely to buy a chocolate bar for your child from a brand that helps the occupants kill people in an independent country, financing the army of the aggressor with their tax deductions. The impact on a brand’s reputation, built and crafted over years, can quickly be decimated over political and ethical missteps, costing companies in consumers, advertising, sales, revenue, and even future business alliances.
Companies should be thinking twice about maintaining “business as usual”. The advent of digital media has led to an era of unprecedented transparency, with brands getting caught out – and called out – more easily than ever before. Sticking to our values and aligning these with how we act as brands is an important ethos for us all.