German companies are still active in Russia and are facing increasing problems. On the one hand, Russian brands are replacing Western products, on the other hand, there is a risk of losing employees due to the announced partial mobilization. The exact consequences are still uncertain.
At the beginning of the war of aggression against Ukraine, Yale University published a “list of disgrace” that names and evaluates all companies operating in Russia and their activities. The American university regularly updates its list. It is striking that more than half a year after the beginning of the war, some German companies are still producing and selling in Russia.
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Ulf Schneider, managing director of a management consultancy in Russia, estimates in an interview with the “WirtschaftsWoche” that around half of the international corporations and around 80 percent of medium-sized companies are still active in Russia. Many German companies argue that their products and services are necessary for the basic needs of the Russian population. In fact, the EU has exempted basic necessities, such as food or medicines, from sanctions.
In some food offerings, Russian entrepreneurs are trying to fill the gap left by Western companies. Instead of McDonalds, the new Russian fast food chain “Vkusno i Totschka” (translated: delicious and period) is now selling burgers in the fast food restaurants. After the Coca-Cola Company withdrew from Russia, CoolCola, Fancy and Street are now on the Russian supermarket shelves instead of Coca-Cola, Fanta and Sprite.
“The fact that the Russian side quickly provided a ‘replacement’ may also have something to do with the fact that appearances were to be maintained towards the population,” explains Dr. Hella Engerer from the German Institute for Economic Research (DIW) in Berlin. “However, the question arises as to whether this ‘replacement’ can keep up in quality and also offer the usual service in the long term.”
Replacing Western products with newly invented Russian brands is not possible in all areas. On the one hand, Russia may lack the know-how for some products or medical devices. On the other hand, the development of alternatives is made more difficult by sanctions because previously imported preliminary products are no longer supplied, according to Dr. Hella Engerer. “In addition, it may be that maintenance and repair of production facilities for food, for example, are no longer possible if Western companies withdraw.”
German companies that are still active in Russia therefore often provide the population with basic supplies, which Russia would probably not be able to provide on its own without foreign companies. For example, the health group Fresenius told FOCUS online that it was concentrating exclusively on basic medical care in Russia, for example with the operation of dialysis centers.
However, further investments have been put on hold. The disposal company Remondis behaves in a similar way, reducing some of its business activities and halting investments.
Another German company that remains active in Russia is retailer Globus, which has so far halted investments and expansion projects. “In Russia, Globus is currently only focusing on its core business, the basic supply of food for the civilian population.” However, Globus sells “almost exclusively local and regional goods” in its Russian markets.
A withdrawal by the retailer would not have a sanctioning effect in the sense of the EU, but an ethical one. However, Globus argues that if the German retailer closes its stores, the Russian state would “reap significant assets”.
“In addition, there is a risk that our local management would face severe criminal penalties in the event of a closure. We want to avoid that. That is why we have decided to continue employing our employees in Russia and to keep our markets open for basic supplies.”
also dr Hella Engerer points out that not every company can immediately end its activities in Russia. “Often, legal issues – such as patent and trademark protection – have to be clarified first before an orderly withdrawal is possible.”
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In addition to the still current question of the possible termination of business in Russia, the companies face another problem: the loss of workers. After Russian President Vladimir Putin announced partial mobilization at the end of September, the situation in the country changed again. The plan is to draft 300,000 reservists for the war in Ukraine. As a result, over a hundred thousand Russians tried to leave the country and travel to neighboring countries. As a result, Russia is losing workers who will be missing from the economy after Western companies have withdrawn.
“In addition, a so-called brain drain can be observed: Young talents, for example from IT, are leaving the country. In addition, Western companies take their employees with them when they withdraw from Russia. And new specialists are not coming to the country, because who would want to work in Russia now?” says Dr. Hella Engerer. “These workers will then be missing in the long term. However, the exact consequences can only be assessed after some time.”
When asked by FOCUS online, companies that are active in Russia and are on the Yale list stated that they had not felt any effects from the partial mobilization so far. dr Hella Engerer explains this with the still existing uncertainties about the exact design of the partial mobilization. “It first has to be seen whether, according to the official announcement to date, certain groups of people are actually excluded from the (partial) mobilization; this should apply to students, among others.
It is also unclear whether workers in certain sectors of the economy and government will be exempted in order to keep certain branches of production going. In addition, it is also not clear whether the (partial) mobilization will also be carried out across the board or whether it will be concentrated on certain regions and their companies.”
Western companies that are still active in Russia despite the war of aggression and the associated sanctions could now face an additional challenge with partial mobilization. Then it’s not just about the ethical question of how entrepreneurial activity in Russia is justifiable, but also about the availability of workers who are drafted for the war or who leave the country on their own.
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