Dusseldorf, Berlin, Frankfurt Metro boss Steffen Greubel has to justify himself more and more. Despite the current situation, the wholesale group wants to hold on to business in Russia. The company bears “a responsibility for our Russian colleagues,” writes Greubel in a letter to his employees that is available to the Handelsblatt. He condemns the attack on Ukraine, but emphasizes: “We provide the population with food.”
Metro is one of the German companies whose business in Russia is particularly large: the group generates almost a tenth of its sales in 93 markets and is significantly more profitable there than in its home market. The cessation of business operations in Russia would have a “significant impact” on the jobs of 10,000 people and the business of 2.5 million companies, writes Greubel.
As with the Metro, the pressure on companies like Bayer, Henkel and Knauf, who want to hold on to their Russian business, is also increasing. After all, in the past few days, more and more Western companies have announced that they will stop all or part of their business in Russia because of the war in Ukraine.
Thomas Beschorner, Professor of Business Ethics at the University of St. Gallen, says: “After the illegal attack on Ukraine, German companies should withdraw from Russia for ethical reasons.” There are exceptions, such as in the area of pharmaceutical supply, but on a large and Overall, companies have a social responsibility to follow the path of politics.
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Even entrepreneurs are calling for people to stop doing business with Russia. Michael Wisser, head of the building service provider Wisag, said: “The more we stop business there, the more the pressure on Putin increases.”
Many employees and products for the population
However, most local companies that have significant business in Russia want to stick with it for the time being, according to a Handelsblatt survey. So does Henkel. The Persil manufacturer produces at eleven locations with 2,500 employees. A spokeswoman explained that they feel obliged to their colleagues. In addition, the cleaning and hygiene articles produced are important for the population.
The pharmaceutical and chemical group Bayer has confirmed that it does not want to withdraw from Russia. We see ourselves as having a responsibility to continue to provide patients with medication. “This senseless war is already claiming a great many lives. We must not increase the number further by depriving people of essential products. Bayer employs 1,800 people in Russia and accounts for two percent of sales there.
Foreign companies in Russia have three alternatives. First, they can continue their activities in Russia. Second, they can go out of business, i.e. shut down production and lay off the workforce. And thirdly, foreign owners have the opportunity to give up their shares to Russian trustees and come back later.
All three options have risks. Those who choose the first variant and stick to the deal can suffer from Western sanctions and Russia’s capital controls. Western companies in Russia are no longer allowed to work with customers and suppliers who are affected by the sanctions. In addition, companies based in Russia must convert 80 percent of their export earnings into rubles retrospectively from the beginning of the year.
The gypsum manufacturer Knauf, which employs 4,000 people at 14 locations in Russia, complains about restrictions. “The situation in our Russian factories is tense,” says Jörg Schanow from the management. There are bottlenecks in spare parts due to a lack of transport.
More on companies and their relations with Russia:
If companies choose the second option, i.e. the exit from Russia, the Russian Deputy Prime Minister Andrei Beloussow, who is responsible for the economy, now threatens with “an accelerated insolvency procedure”. This would be an expropriation, as a Russian liquidator is used for closed factories. In addition, dropouts face high losses. The British BP group, which was one of the first to announce its withdrawal, has to write off up to 25 billion euros.
However, many German companies that have turned their backs on Russia are only accepting minor losses. Siemens, for example, only stopped new business and makes less than one percent of its sales in Russia.
Under such conditions, an exit is easier to decide than with Bionorica, for example. The manufacturer of natural medicines generates a third of its sales in Russia – and intends to continue doing so. The company from Neumarkt near Nuremberg points to the importance of medicines and wants to keep jobs.
The pharmaceutical company Stada also justifies the continuation of its commitment in this way. With 2,000 employees, Stada generates 14 percent of its sales in Russia. The company is struggling with gaps in the supply chain, saying it’s difficult to find truck drivers to go to Russia.
“We will have to buy raw materials again,” says Stada boss Peter Goldschmidt, “and at some point we will certainly also have spare parts for our machines”. When this moment comes, the problem arises that the payment options are sanctioned. Suppliers could no longer be paid in euros or dollars.
The Russian government has decided to only pay financial obligations to “unfriendly countries”, which since Monday also include Germany, in rubles.
But chocolate manufacturer Ritter Sport, which operates its largest foreign sales team in Russia, wants to continue delivering for the time being. A delivery stop is not a suitable measure against the Russian government. “As long as Russia does not impose an import ban, we will deliver.”
Big investments
Companies continue to operate in Russia also because of large investments. For example, agricultural machinery manufacturer Claas has quadrupled production with combine harvesters at its southern Russian site in Krasnodar over the past five years. In 2021, Claas invested again in the plant and increased the number of employees to 800.
Despite the current situation, the company apparently does not want to give up the investments totaling almost 150 million euros. But they could be at risk because “foreign companies in Russia are at risk of being expropriated in the worst case,” says Andreas Knaul from the law firm Rödl & Partner.
For the companies, the third variant, namely handing over shares to Russian trustees, also seems to be a dangerous solution. After all, nobody can guarantee that the deal will be reversed later and that control will actually be returned to the companies. That depends on the course of the war and the goodwill of Russian President Vladimir Putin.
Only one thing seems clear at the moment: doing business with Russia is complicated.
More: More and more companies are giving up business in Russia