When Russia invaded Ukraine, most American companies very publicly suspended their operations in Russia. That's a powerful gesture on behalf of the people of Ukraine, a sign of solidarity, but ultimately one that may have little impact on Russia's economy.
It's a powerful visual and a good press release, but Starbucks (SBUX), which has about 100 cafes in Russia, and McDonald's (MCD), which has 850 locations, shutting down won't have a major economic impact on Russia, University of Michigan's Ross School of Business Assistant Professor Eric Gordon told ABC News.
"It's unlikely that any of the Western business pauses will make an impact on Russian President Vladimir Putin's war in Ukraine, compared to the economic sanctions levied by the U.S. and European nations. The Russian government, however, will likely retaliate against Western-based products and services with boycotts and blocks as the conflict continues," according to Gordon.
Starbucks and McDonald's closing likely does not truly punish anyone associated with Putin's unprovoked war. Instead, it hurts the people of Russia, who live in a dictatorship where short of a revolution, have no way to reign in their rogue leader.
Burger King Can't Close Its Russian Restaurants
Restaurants Brands International (QSR), which owns Burger King, has found itself in a tricky position in Russia because it does not control the stores operating under its brand. That's a situation RBI’s International President, David Shear tried to explain to employees in an open letter.
We entered the Russian market ten years ago through a joint venture partnership, similar to our approach in 15+ other global markets. We have three joint venture partners in Russia: Alexander Kolobov, who has extensive restaurant experience and is responsible for the day-to-day operations and oversight of the 800 restaurants in Russia; Investment Capital Ukraine ("ICU")– one of Ukraine’s largest investment firms; and VTB Capital. VTB Capital, as an affiliate of one of Russia’s biggest banks, has partnered with several other western companies in Russia, including other large QSR brands. We own a minority stake (15%) in the joint venture and none of the partners has a majority share.
Basically, that means that RBI does not decide whether or not its stores in Russia remain open. The company has, however, taken some steps, according to Shear.
- We started the process to dispose of our ownership stake in the business.
- We contacted the main operator of the business and demanded the suspension of Burger King restaurant operations in Russia. They have refused to do so.
- We suspended all corporate support for the Russian market, including operations, marketing, and supply chain support in addition to refusing approvals for new investment and expansion.
- We committed to redirecting any profits we receive from the business, including our ownership stake, to the United Nations’ refugee agency (UNHCR) and made an immediate donation of $1M toward that commitment. We’ve also worked with franchisees from more than 25 countries to distribute $2M of free meal coupons for Burger King restaurants to NGOs supporting Ukrainian refugees.
Shear made it clear that the parent company wants to close its restaurants in Russia, but it simply can't. That begs the question of whether American companies exiting Russia hurts Putin and the country's leadership, or, its citizens.
Closing Stores in Russia May Not Be a Simple Decision
Some companies pulling out of Russia -- oil companies, for example -- will have a meaningful impact on Putin's war effort.
"[Oil and fossil fuel companies pulling out] combined with other financial measures, will make it much more difficult for the Russian petroleum industry to raise funding,” Wharton Business School Professor Philip Nichols told Fast Company. “And oil and natural gas exploration are very capital intensive industries. We’re going to start feeling the effects of that relatively soon.”
And, while Putin clearly has his supporters, a poll from the Indepdendent Levada Centre showed that only 45% of Russians support the invasion of Ukraine.
The Guardian US, which covers American and international news for an online, global audience, ran an article sharing that Russian citizens who do not support the war were concerned about the impact on the average citizen of companies pulling out of Russia.
"We’re economically dependent on other countries and apart from the financial hardship caused by the pandemic, we’re still feeling the consequences of the sanctions from 2014,” said Kristina from Kaliningrad.
She added that prices would go up for regular citizens and not the oligarchs.
And, the same article shared that while many Russians are against the war and sympathetic to Ukraine, they're afraid of speaking out.
“There’s little resemblance between Russia of 2022 and Russia of 2011 when hundreds of thousands of people took to streets to protest against the rigged elections. However, Russians are not silent – we are being silenced,” Natalia, a 52-year-old teacher in St. Petersburg told Guardian US.
