Faced with death and destruction in Ukraine, halting sales to the aggressor nation seems an obvious step for brands. But what about the impact on their own employees there and on ordinary Russians? And what of the longer-term challenges around the cracking up of the global economic order of the past three decades?
Over the past two weeks, as Russia’s invasion of Ukraine has continued, there has been a stream of western brands taking action in response.
Usually, this involves halting sales in Russia, with McDonald’s, Coca-Cola, Pepsi and Starbucks among the latest firms to do so. Donating aid in cash or in kind is also common, with Fast Retailing, the parent company of Uniqlo, committing $10m and 200,000 clothing items to the United Nations High Commissioner for Refugees (UNHCR) to support people forced to flee Ukraine.
Tech giant Samsung is also donating $6m, including $1m in consumer electronics, to actively support humanitarian efforts “around the region”. All of these enterprises feature in a list of over 200 organizations – from General Motors, the automaker, to brewer Anheuser-Busch InBev – to issue limitations on their activity in Russia.
Another member of this group comes from the advertising industry: holding group WPP was upfront about its reasons for ceasing operations in Russia, explaining that to continue to trade there would be “inconsistent with our values”.
Is globalisation coming to an end?
Such measures hint at a deeper, and far knottier, issue for businesses, and the marketers tasked with driving sales and crafting the public image of these firms.
That challenge is a potential reversal of the process of globalisation which has been the accepted engine of economic growth pretty much everywhere since the end of the Cold War – and which, in turn, has dominated the strategies of major brands for decades.
When surveying events in Ukraine last week, John Gray, a philosopher not noted for his optimistic outlook, observed that an effective financial embargo could push Russia into other regional systems and, specifically, into China’s orbit.
“The West would be actively promoting a process of deglobalisation,” Gray said.
Back in 2005, then-UK prime minister Tony Blair stated globalisation wasn’t up for debate: “You might as well debate whether autumn should follow summer,” he said. That was five years after Vladimir Putin first became president, since when Russia has become ever more deeply integrated into the global economic system. China too.
While this integration into the global system might initially have been about supply chains, it rapidly became about brands. Western brands, in particular, expanded into new markets and reaped the financial rewards.
At the same time, these brands have become far more politically and socially active. That trend has intensified dramatically in the last few years, be it in actively supporting the Black Lives Matter movement or taking concrete steps to address climate change.
A cracking of the global order from the past 30 years will thus have both financial and ideological elements – and marketers will need to think through the implication of both these prospective shifts as they plan for the future.
The financial impacts will vary
Financially, some western brands will take a relatively modest hit from halting sales in Russia. Entertainment giant Disney, for example, reported that Russia and Ukraine together account for just 2% of its operating income; Procter & Gamble, the consumer packaged goods firm, draws less than 2% of sales from Russia.
Philip Morris International, an arm of the one-time tobacco firm that now focuses on “smoke-free” products, yields around 8% of sales from Russia and Ukraine. And this higher exposure has led to a decline in its share price as investors take stock of the likely impact of the conflict.
Other short-term economic connotations may be familiar – but no less unwelcome – to brands that are already struggling to cope with the fragility of lengthy supply chains and just-in-time delivery that the COVID-19 pandemic has exposed.
Already, there are reports of farmers in Ukraine unable to take deliveries of maize seeds for sowing, for example, so food manufacturers relying on corn oil may need to start urgently reassessing where their raw materials are going to come from later this year and the price they will be paying. Ditto those relying on wheat; UK bakery chain Greggs has already warned investors that rising prices will hit profits.
Meanwhile, gas and oil supplies continue to flow from Russia to the West, but pressure mounts to cut off that source of money for Russia for both economic and political reasons. And that dovetails with actions required to address the looming climate crisis – a powerful confluence of geopolitical, environmental and business concerns.
Looking ahead, it is predicted that Western countries might boost efforts to become self-sufficient in many areas of manufacturing and energy provision, as well as tighter rules on certain areas of trade, and issues around rising inflation.
Such matters will need to be factored into the scenario planning undertaken by brands – and will demand very different ways of thinking than in the recent past.
Purpose comes under pressure
More broadly, international firms may have to prioritize certain markets based as much on their social and political dynamics as their economic promise.
Trade policy expert David Henig neatly summarised this proposition in arguing that “multinationals can now be considered a major international relations / economic actor, trying to navigate between authoritarian and democratic countries, but with consumers in ‘the west' being of particular importance”.
This mindset has distant echoes of the Cold War, especially with corporate references to the kind of “values” that WPP pointed to when announcing that it would draw a halt to operations in Russia.
Growing pressure on other businesses to be equally clear about their stance indicates this is a subject that cannot simply be ignored. For example, before its temporary closure of restaurants, there were loud calls for consumers to boycott restaurant chain McDonald’s.
There is an ethical flip-side to these decisions, too. It has been argued, for instance, that the safety and livelihoods of employees in Russia that previously worked for Western brands could be placed in severe doubt by firms pulling out of the country.
“It might be a powerful statement on the one hand, but it could put the lives of employees who have contributed to the success of your business at risk,” Bruce Haynes, global co-head of crisis communications and issues management for strategic communications firm SVC+FGH, said, as reported by Forbes.
Antoine de Saint-Affrique, the CEO of Danone, probably the FMCG business most exposed in Russia, similarly held a nuanced view. “It is very easy to get drawn into black-and-white thinking and demagogic positions, but in the end our reputation is about our behaviour,” he told the Financial Times.
“We have a responsibility to the people we feed, the farmers who provide us with milk, and the tens of thousands of people who depend on us.”
Unilever has chosen to effectively straddle the two positions, condemning “a brutal and senseless act by the Russian state” while continuing to supply everyday essential food and hygiene products that are made in Russia to people there, but suspending imports and exports of its products.
The decisions that individual companies and brands make will depend on their distinctive circumstances and the strength of the case they feel they can present to stakeholders demanding action.
Western luxury brands that thrived in China understand only too well the careful path that has to be trodden. But many of them are also now suspending operations in Russia – Hermès, Chanel, Richemont, LVMH, Kering, Burberry to name the most recent – citing operational challenges and concerns about staff as their reasons.
And the longer Russian aggression continues, the greater the pressure will be for any brand to take a stand, regardless of the value of any counter-arguments. As such, businesses will face tough decisions as their recent fine words about purpose run up against harsh new geopolitical realities and an altered economic environment.