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Western Brands Unable to Quit Russia, While Supply Woes Hit Car Makers

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By Vinu Chakravarthy

March 31, 2022
6:57 am
Los Angeles, CA

With the war in Ukraine raging on, pressure on many international brands to quit Russia is mounting. They are being asked why they continue to do business in a country against which the international community is implementing financial sanctions. The brands are being asked to leave Russia, despite the financial losses they may face due to the move. “Make sure that the Russians do not receive a single penny that they use to destroy our people in Ukraine,” Ukrainian President Volodymyr Zelenskyy said to the U.S. Congress last week. He pleaded with the U.S. based businesses to quit Russia as soon as possible. Zelenskyy even named companies such as Nestle, Unilever, Johnson & Johnson, Samsung, LG, pharmaceuticals Bayer and Sanofi, asking them to pull out of the Russian market.

“Make sure that the Russians do not receive a single penny that they use to destroy our people in Ukraine,” Ukrainian President Volodymyr Zelenskyy said to the U.S. Congress last week. He pleaded with the U.S. based businesses to quit Russia as soon as possible. Zelenskyy even named companies such as Nestle, Unilever, Johnson & Johnson, Samsung, LG, pharmaceuticals Bayer and Sanofi, asking them to pull out of the Russian market.

However, not all brands are in the mood to heed the advice. The brands say they have entered into franchising deals with many Russian organisations, and that contract binds them. In some cases, international companies say that shutting down will hurt their innocent employees.

Such companies also fear that abandoning their branches in Russia will invite the Russian government to appropriate their businesses and make them State properties. Burger King said that they needed the cooperation of the Russian government to declare their franchisee contracts null and void, which they can’t expect any time soon.

“We will not walk away from our employees there or hand over these manufacturing facilities to the Russian government so it can operate and benefit from them,” said Koch industries President Dave Robertson in a statement. “Doing so would only put our employees there at greater risk and do more harm than good.”

Reports show that companies such as Unilever, PepsiCo and Nestle continue to do business in Russia. However, they have scaled back their businesses. They have also actively suspended new investments and not issued fresh advertisements for their products in Russia while production continues.

Supply-Chain Hit

While some companies refuse to quit Russia, many others face a crisis as their supply chains are hit.

BMW curtailed its 2022 profit margin due to a lack of many raw materials. The company said they are trying to find alternatives for the auto parts they used to get from Russia and Ukraine. The company has stopped producing its “Mini” vehicles due to a lack of parts.

Volkswagen, which used to source its “wiring harnesses” from Ukraine, are now desperately searching for alternate sources. The company is also planning to relocate its existing businesses out of Europe to China and South America.

Mercedes-Benz has ordered its german factory to reduce the output until things get back to normalcy.

In general, the car market in the European Union is on a downtrend. In February 2022, new vehicle registrations dipped by 6.7%. Already, due to a shortage of semi-conductor chips, carmakers were struggling to make profits. Covid-19 had also crippled the demand for cars. Supply woes have further derailed carmakers’ recovery with the war in full swing.

New car registrations declined by 17% for the Stellantis brand in January. Toyota Motor Company recorded a muted sales growth of 4.7% in January. However, the Hyundai Group stood out with a 25% increase in its sales.