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Mar 8, 2022 2022-03 Business Administration Faculty Research in Education

How brands are navigating Russia’s invasion of Ukraine

As Russia’s attacks on Ukraine intensify, many companies are reacting by ending sales and service in Russia. Every day, more multinational organizations – from Netflix to PayPal to Shell – are cutting ties. But some, like Coca Cola, Pepsi, and McDonalds, haven’t yet taken that step. Gies Professor of Business Administration Carlos Torelli talked about how companies should address this minefield in a recent interview with WLS radio in Chicago.

Carlos Torelli“There are three main reasons companies need to pay close attention to what’s happening in Russia,” said Torelli. “First is brand reputation-related risk; consumers are demanding companies take action, and there’s a real risk of alienating consumers if they don’t act. Secondly, there are basic logistical issues. It’s much harder to do business in Russia with credit card companies shutting down and supply chain issues there. Third is the long term risk. Very few people think this is going to be resolved quickly. Russia is going to be a very unstable place to do business for a quite a while.”

And while some companies can easily pull out of Russia, others like McDonalds and Coca Cola are much more engrained in the market and might have financial concerns or contractual obligations preventing them from cutting ties immediately.

“It’s not a matter of if, but a matter of when,” said Torelli, who noted the Russian market is roughly the size of the Hispanic market in the United States. “Most companies are planning how to pull out in a way that doesn’t dramatically impact their bottom line.”

Financial risk is, of course, a top concern for these companies – but Torelli notes that risk is mitigated simply because many Russians will no longer be able to pay their bills or have disposable income. The value of the ruble has seen record declines, and the Russian stock market still hasn’t opened in order to prevent a further drop.

“The purchasing power of regular Russians is going to deteriorate, and doing business there is going to become a losing proposition for many companies,” Torelli said. “Russia accounts for about 2% of McDonalds’ global revenue. It’s significant, but not nearly as large as the negative impact to their brand if they refuse to cut ties with Russia. More people are starting to talk about this conflict as a watershed moment between the West and Russia. I wouldn’t be surprised if brands start to take a lot more heat.”