McDonalds and Nissan could buy back Russian subsidiaries as it is revealed most Western corps have failed to exit the country
The vast majority of Western corporations have failed to properly exit Russia, according to research carried out by two Swiss universities.
Multinational firms such as including McDonalds and Nissan even have kept an option to buy back their Russian subsidiaries via clauses into their exit contracts; this would let them return to Russia if tensions die down.
A paper from the University of St Gallen and IMD Business School found that fewer than one-in-11 firms based in EU and G7 countries have actually divested from the Russian Federation, despite claims of a widespread exodus from the country.
In Nissan’s case, the car maker inserted a six-year buy-back provision in selling its Russian manufacturing business to the country’s state-owned NAMI.
In the case of McDonalds, the fast-food firm has 15 years to decide whether it wants to claw back its Russian business, after it sold its operations in the country to Siberian billionaire Alexander Gover.
The paper warns that major Western companies have resisted calls from government, the media and NGOs to pull out of Russia as it notes just 8.5 per cent of EU and G7 companies have actually divested from at least one of their Russian subsidiaries.
The European Union has 27 member states while the G7 consists of seven of the world’s largest economies, including Canada, France, Germany, Italy, Japan, the UK, and America.
At the start of the war in Ukraine, a total 1,404 EU and G7 firms owned a combined sum of 2,405 subsidiary companies operating in Russia, paper says.
However, by November 2022, just 120 firms were confirmed to have actually exited Russia.
The report notes that the 120 exits represent just 6.5 per cent of Western firms’ overall profits-before-tax, as it argues businesses were more likely to drop less profitable and underperforming subsidiaries.
It points out that the companies dropped also had larger workforces on average, as it notes the ditched subsidiaries accounted for 15.3 per cent of Western firms’ overall Russian workforce.
The paper shows 18 per cent of American firms, 15 per cent of Japanese companies, and just 8.3 per cent of EU businesses have pulled out of Russia. It notes that the EU and Japanese owned firms that were ditched had particularly low profitability.
The findings cast doubt on the West’s ability to decouple its economy from Russia’s and raise concerns about the effectiveness of Western sanctions.
The paper also warns that its findings bring into question the West’s ability to fight an economic war against China, as it notes that for every one US dollar of foreign direct investment in Russia there are $8 invested in China.
It argues that Russia is the “perfect test case” for the West – due to the size of its economy – in showing many firms are willing to withstand reputational damage in keeping operating in the country.
McDonalds and Nissan were approached by Morning Wire for comment.