International companies have faced moral and financial dilemmas regarding their operations in Russia, and multiple companies have decided to suspend or halt their operations in the country. We have profiled five global companies that had actively invested in greenfield projects in Russia in 2021, assessing how they have responded to the Ukraine invasion.
PepsiCo: suspending drinks operations in Russia
PepsiCo first signed an agreement in 1972 with the Soviet government, which would see the company establish ten production facilities in the Soviet Union, including sites in Kazakhstan and Ukraine. PepsiCo had immediate success in Russia, which culminated in the company’s former CEO, Donald Kendall, being awarded the Order of Friendship by Vladimir Putin in 2004.
PepsiCo has continued to make significant investments in Russia over the years, with a further two greenfield investments being made in 2021. First, Wimm Bill Dann OJSC, a dairy production company and subsidiary of PepsiCo, announced plans to establish a new manufacturing plant in Moscow. The company had planned to invest $18.76m in the new factory, in the city’s Lianozovo district. Second, Frito-Lay, a snack product company and another subsidiary of PepsiCo, announced it would invest $20.48m to expand production capacities and increase floor space at its existing site in Kashira in eastern Russia.
Despite employing 20,000 staff across 27 Russian facilities, PepsiCo was quick to put forward its stance regarding the war with Ukraine. The company’s chief executive officer, Ramon Laguata, released a statement saying: “Pepsi-Cola entered the market at the height of the Cold War and helped create common ground between the US and the Soviet Union. However, given the horrific events occurring in Ukraine we are announcing the suspension of the sale of Pepsi-Cola, and our global beverage brands in Russia, including 7Up and Mirinda. We will also be suspending capital investments and all advertising and promotional activities in Russia.”
PepsiCo is still selling ‘essential foods’, such as baby formula, in Russia, however.
Enel: renewable energy investment status hits a wall of silence
Russia is a major exporter and producer of energy. The company has historically focused on fossil fuels due to its abundance of natural resources; Russia currently has the world’s largest natural gas reserves and the second-largest reserves of thermal coal. Nevertheless, in recent years the country has been keen to move towards renewable energy sources, an area where it has significant potential.
Several international companies have taken advantage of the country’s vast renewable energy resources, which are in part thanks to its size and variation in climate.
Enel, an Italian multinational manufacturer and distributor of electricity and gas, established its subsidiary, Enel Russia, in Yekaterinburg in 2004 to better support its local operations. Since then, the company has made a number of significant investments in Russia, with four renewable wind energy projects recorded by GlobalData in 2021.
Enel currently produces electricity from three thermal power plants in different regions of Russia and plans to expand into green hydrogen production. In July 2021, the company’s head of Europe, Simone Mori, explained in an interview that Enel aims to develop a green hydrogen project in Russia as part of plans to expand its renewable energy business. The company is said to be considering its wind farm location in the Murmansk region as a potential site for hydrogen production.
Enel has not released a statement regarding the company’s upcoming plans for its Russian operations, nor has its subsidiary Enel Russia. It therefore remains to be seen what impact the current situation will have on Enel’s plans to ramp up its renewable energy investments across Russia.
Deutsche Bank: winding down in Russia (eventually)
In June 2021, Deutsche Bank announced major plans to expand its technology centres in India, the US, Romania and Russia. The company stated it was in the midst of a digital transformation and planned to streamline its business processes to make an annual saving of more than $164m by the end of 2022. To achieve its ambitious goals, Deutsche Bank planned to hire an additional 1,000 new staff in India and split the remaining 2,000 roles between its technology centres in the US, Romania and Russia.
Following the Russian invasion of Ukraine, Deutsche Bank released a press statement in early March explaining: “We support the decisions of the German government and its allies and will promptly and fully implement the sanctions and other measures imposed. Within this framework, we continue to support our clients globally, including with respect to their Russia and Russia-related activities.”
The company addressed any unease surrounding financial security issues put forth by clients, adding: “Russia is just one of multiple tech centres that we have around the world. Clearly the Ukraine invasion will have an impact on the bank, as it will on many companies. But we have rigorously tested our operational resiliency and are confident that the day-to-day running of our trading business will not be affected. We have no code and no data housed in the Russia tech centre.”
On 9 March, following an interview with CNBC in which James von Moltke, Deutsche Bank’s chief financial officer, stated it was not “practical” to close its Russia business, the company released a further press release. The company stressed that it “has reduced its Russian exposure and local footprint significantly since 2014, with further reductions in the past two weeks”, adding: “Credit exposures to Russia and Ukraine account for a very small portion of the bank’s overall loan portfolio and are protected by a number of risk mitigants.”
Deutsche Bank appears keen to distance itself from any potential security risks associated with maintaining operations in Russia. Following a backlash for refusing to cease its Russian operations, the company reversed its initial decision, confirming on 11 March that it would wind down local operations.
Deutsche Bank follows a string of other financial giants that have announced their exit from Russia, including Goldman Sachs, Morgan Stanley and CitiGroup.
Huawei Technologies: staying put and reaping the rewards?
China-based Huawei Technologies, a multinational technology corporation, has yet to make a comment on the Russian invasion of Ukraine. In contrast, US-based Apple and Sweden-based Ericsson have halted sales and ceased deliveries to the country.
Huawei is the biggest network equipment supplier in Russia and recently deployed a 5G network in Moscow for MTS, Russia’s largest mobile operator. In 2021, the company made several significant investment announcements in the country. Huawei announced it planned to open a further 50 retail stores (up from 18), hire for additional AI research and computer architecture positions, and opened a new data centre at its existing location in Moscow.
Huawei has historically had difficulties operating in the US, yet has been welcomed in Russia. It was the location of Huawei’s first international office outside of China and Hong Kong, and the company has seen its brand popularity increase in Russia over the years. Huawei may use this opportunity to capitalise on the departure of its rivals and continue to invest in its Russian operations to gain an advantage over its US and European competitors.
Tesla: ‘supports’ Ukraine but staying put in Russia
Tesla currently does not operate in Ukraine and has no staff permanently based there. This, however, has not stopped the company putting forth initiatives to help support the Ukrainian government. Tesla will offer at least three months’ pay to any Ukrainian employees who are conscripted to defend their country and has offered free supercharging for all electric vehicles in areas affected by the Ukraine invasion, including parts of Poland, Hungry and Slovakia. Most significantly, the company has delivered Starlink terminals to Ukraine, allowing access to SpaceX’s satellite internet.
Thus far, Tesla CEO Elon Musk has ignored countless Twitter requests to deactivate his company’s electric vehicles in Russia. Moreover, the company has made no comment concerning its plans for future investments in the country. In 2021 alone, Tesla announced plans to open five new charging stations in Russia as well as a new manufacturing facility in Moscow.
The mass exit of foreign companies from Russia increases in size by the day. Several companies have completely ceased operations from the first day of the invasion, while others have needed more time. Others still have seemingly reacted to the actions of their peers, or feared backlashes on social media. As Russia becomes increasingly cut off from Western culture, the quality of life for its population will inevitably decline, particularly as unemployment levels rise. The decisions made by these multinational companies are necessary, but it will be the Russian people who are left to face the repercussions.