Ukraine Conflict: A Shift in Corporate Behavior

Reading Time: 3 minutes

While corporations tended to differentiate trade and state affairs in the past, the Ukraine-Russia conflict has prompted their increasingly active role in geopolitics and altered corporate behavior in general.  The conflict has exacerbated the challenges facing the global economic and political structures, forcing multinational corporations to adapt their business strategies to a new set of circumstances.  Following the NATO countries’ adoption of extensive sanctions packages, corporations began closing their businesses in Russia, with some facing billions in losses

Companies Leaving Russia as a Result of the Ukraine Conflict

According to The Diplomat , the list of major technology, management, energy, media, and credit card companies that have either suspended or ceased operations in Russia only continues to grow.  Energy giant British Petroleum announced its exit from Russia on 27 February 2022, stating that it would give up its 19.75% stake in the Russian state-owned energy company Rosneft, which could amount to a USD 25 billion loss. 

At the beginning of March, technology leader Microsoft suspended all sales of products and services in the country, and multinational financial services corporation Visa Inc. soon followed.  Ultimately, hundreds of companies ended up “self-sanctioning,” which, in turn, is expected to significantly increase the cost of doing business in Russia and shrink the Russian market soon.

Furthermore, corporations’ decisions to exit Russia are expected to affect the global balance of power and trade.  Since the Russian economy has become increasingly isolated from the West, its companies will seek to enter other markets, most likely in China and Asia.  This may, in turn, prompt a closer Sino-Russian alliance and further intensify global divisions. 

Global Companies Face Increased Risk with Fears of Conflict in Other Countries

Experts have noted that in an era of increasing deglobalization and shift towards regionalism, multinational corporations face a new set of uncertainties and risks.  Notably, the increase in regulatory costs and reputational risks has made corporations rethink their pre-established strategy of over-compliance or de-risking

As additional sanctions from NATO countries and Russian countersanctions are expected to be imposed, corporations are advised to shift focus to regional and local operations and the diversification of their supply chains.  With the fears of potential conflict in Nagorno-Karabakh, Abkhazia, and Taiwan looming, companies must modify their operations further to combat rising costs and maintain supply chain security. 

Shifting Corporate Behavior as a Result of the Ukraine-Russia Conflict

Overall, corporations’ involvement in sanctioning efforts indicates a notable shift in corporate behavior and questions why companies continued their operations in countries facing human rights violations.  And while corporations claim that their response to the Ukraine crisis is an exception and not the rule, nothing is certain, and everything has become possible.