Western companies cutting ties to Russia has limited effect, experts say

Microsoft, Disney and Ikea are some companies that paused services.

March 6, 2022, 8:02 AM

In light of Russia's unprovoked invasion of Ukraine, many major American and Western companies have decided to drop their presence in the region.

In the last two weeks, movie studios Warner Brothers, Sony Pictures and Disney, the parent company of ABC News, have dropped future movie releases in Russia. Ikea shut down all Russian stores and production operations. Microsoft and Apple have ceased all sales, including game consoles and phones, in the country as well.

On Saturday, Visa and Mastercard announced they would stop Russian operations.

That list is expected to grow as the conflict continues and consumers look for companies to take a stand on the invasion, business experts told ABC News.

PHOTO: Customers enter an IKEA store, in Moscow, March 3, 2022.
Customers enter an IKEA store, in Moscow, March 3, 2022.
Reuters, FILE

"Companies have found it difficult to stay out of [current events]," Erik Gordon, an assistant professor at the University of Michigan's Ross School of Business, told ABC News. "That doesn't work anymore. If you don't take a stand one way or another the conclusion is you're either amoral or taken a bad stand."

Gordon and other business experts said that there is also the economic calculus involved in the companies' decisions to pull out of Russia as its declining economy makes the country a poor investment. Nonetheless, the experts said this is likely to pose a turning point in nearly 30 years of Western business in Russia.

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Gordon said 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.

On Friday, the country said it would ban Facebook and Twitter.

"I don't think the Russian business will be a hospitable place for Western business for a very long time," he said.

PHOTO: Shoppers walk past a closed 're:Store', an Apple reseller shop in a shopping mall in Omsk, Russia, March 2, 2022.
Shoppers walk past a closed 're:Store', an Apple reseller shop in a shopping mall in Omsk, Russia, March 2, 2022. Apple announced halting the sales of its iPhone and other popular products in Russia as part of an intensifying corporate crackdown spurred by the country's invasion of Ukraine.
Evgeniy Sofiychuk/AP

Shon Hiatt, an associate professor of management and organization at the University of Southern California, told ABC News that a similar situation took place during World War II when American companies stopped shipping their goods to Germany. Corporations lost millions of dollars in revenue during the 1940s, but Hiatt said the increased globalization of today's economy means that American companies won't take as much of a hit by halting their Russian operations.

"This isn't the divestment like we're seeing with BP or the other oil companies," Hiatt said. "This is a small drop in the bucket for these companies compared to other markets."

He noted, as an example, that the Russian market represents roughly 3% of worldwide sales for the movie industry.

Hiatt said the next couple of months will be interesting to watch within the business community. Depending on how long the conflict goes on and if Russia succeeds in its invasion, corporations around the world will have to make a major decision barring any government action, he said.

"Most companies believe this is a small strategic pause," he said. "They may believe that in a few months, things might go back to normal. It's still a changing situation."

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