To leave or not to leave: How are the world’s largest MNEs responding to the war in Ukraine?
By Polina Knutsson (Polina.KNUTSSON@oecd.org), Statistics and Data Directorate (OECD)
Navigating challenging business environments is standard practice for most Multinational Enterprises (MNEs), as they often operate in several countries coordinating their activities over multiple markets. Russia’s war of aggression against Ukraine has triggered unprecedented economic sanctions with potentially far‑reaching implications for doing business in Russia. Difficulties making international payments, reduced access to foreign capital, and logistical challenges are likely to disrupt local operations of companies with a global footprint. Mounting reputational pressure and volatile market conditions may put additional strain on the ease of doing business in the country. These practical challenges, along with ethical considerations, have prompted a large number of multinationals to curtail their activity in Russia. Yet, as the OECD Analytical Database on Individual Multinationals and their Affiliates (ADIMA) shows, the economic impact of exiting the Russian market is limited for many foreign MNEs, since most of them have only a few affiliates in the country or derive less than 2% of total revenues from Russia.
Many MNEs used to do business in Russia
In 2020, 173 MNEs out of the world’s largest 500 covered by ADIMA had a physical presence in Russia, of which only 6 are Russian-owned, with the remaining 167 being foreign with at least 1 affiliate in the country. Most of the foreign multinationals operate in either consumer goods or healthcare sector (Figure 1A). Over one-third are headquartered in the United States, with many other enterprises coming from Europe and Asia (Figure 1B).
Notes: Sectors in Figure 1A are defined following the Refinitiv Business Classifications. Figure 1B includes only the top 10 source countries.
The war has triggered a large-scale response
By 29 July 2022, 25 foreign MNEs covered by ADIMA had announced their exit from Russia and 113 suspended or scaled down their operations in Russia, while 29 continued business as usual, according to data collected by the Yale School of Management, the Kyiv School of Economics (KSE) institute and the LeaveRussia initiative.
The response by sector was uneven (Figure 2A). Nearly one-third of energy and utilities companies and one-fifth of technology and industrial MNEs announced their complete withdrawal from the Russian market. On the contrary, less than 10% of finance and healthcare companies withdrew completely, and more than 25% continued their operations, a larger share than in other sectors. Most consumer goods multinationals decided to maintain at least some business in the country, with many of them citing the willingness to meet the essential needs of the local population, such as food and hygiene products. The steps taken by foreign-owned enterprises also varied across different source regions (Figure 2B). Most MNEs headquartered in the United States or Europe have announced their withdrawal or reduced their operations in Russia since the onset of the war, whereas close to 50% of Asian multinationals did not signal any intention to halt their activity.
Notes: ‘Leave’ denotes companies that are fully ceasing their engagements in Russia or completely exiting the country, ‘Suspend/scale back’ refers to companies partially suspending their activity, scaling back operations and pausing investment plans in Russia, ‘Stay’ stands for companies continuing their business in Russia as usual.
Sources: OECD calculations based on ADIMA, Yale School of Management, KSE institute and LeaveRussia initiative.
In exiting Russia, many MNEs are leaving behind only a small fraction of their global activity
For many multinationals, pulling out of Russia entails losing a relatively small share of their global activity. According to ADIMA, most foreign MNEs have few affiliates in the country: a third have only one affiliate, a quarter have two (Figure 3A). More importantly, the Russian market accounts for a small fraction of total revenues for many enterprises. Estimates based on affiliate-level data suggest that the majority of MNEs covered by ADIMA derive less than 2% of total revenues from Russia and less than one-fifth generate between 2 and 4% (Figure 3B).
Note: Revenue shares are available for 121 out of the 167 foreign MNEs covered by ADIMA and are based on the data collected by the KSE institute and the LeaveRussia initiative, updated and complemented with the information from companies’ webpages or news agencies. These estimates should be interpreted with caution considering that various sources might use different approaches in the allocation of financial results of MNEs to specific countries.
Sources: OECD calculations based on ADIMA, KSE institute, LeaveRussia initiative.
However, the stakes of some enterprises are higher: Russia reportedly accounts for at least 4% of total revenues for 10 of the MNEs covered by ADIMA. Yet, high reliance on the Russian market did not prevent some multinationals from declaring a complete withdrawal, possibly suggesting that other factors than market size are driving the decision to leave.
The OECD Analytical Database on Individual Multinationals and Affiliates (ADIMA) relies on a number of open big data sources to provide new insights on world’s largest Multinational Enterprises (MNEs) and their global profiles. Visit oe.cd/ADIMA to explore the data further.