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“Existential question”: why companies stay in Russia

Retreat for medium-sized companies “existential question”

At the beginning of the war, large western companies such as Adidas, McDonald’s or Amazon decided against the Russian market, although they are not affected by western sanctions. According to Rochlitz, one reason for this is the fear of a loss of image if you continue to be present on the Russian market despite the war of aggression.

However, the example of Volkswagen shows how difficult such a withdrawal can actually be. Shortly after the beginning of the war, VW stopped production at the Russian plant in Kaluga. However, the German car manufacturer has still not found a buyer for the plant, which is why it is still officially represented on the Russian market.

With this currently unpredictable market situation in Russia, it is difficult to find a buyer who would now like to invest in the Russian market, explains Rochlitz. After all, it could even happen that in 2023 there will be a large expropriation in Russia at some point. If you cannot find a suitable buyer, there is a risk of a major financial loss in the event of withdrawal. In addition, many companies would have to give up the customer relationships that they had built up over the years, according to Rochlitz. All of this is an existential question, especially for German medium-sized companies.

Russian government tries to prevent withdrawal

The withdrawal from the Russian market is also being made more and more difficult by the Russian government. According to Rochlitz, the future of the employees and management on site could also be in danger. “If you close the company, the employees in Russia can have legal problems and will be held accountable by the state.”

In addition, a sale of one’s own company would have to be approved by the Russian government, at times even by Putin himself. In addition, since December 2022, the regulation has stipulated that sales of shares are only accepted at 50 percent of the market price. Ten percent of the purchase price would even have to go directly to the Russian state. According to Rochlitz, a sale would even provide financial support for the war of aggression in Ukraine.

Economic stagnation likely in Russia

With the withdrawal of many Western companies, certain gaps in the market also emerged in Russia. Russian investors with close ties to the Kremlin were already trying to invest in these after Vladimir Putin called for “filling the gaps that have arisen” and “developing national brands” at the economic forum in St. Petersburg. However, Michael Rochlitz does not believe that these investments will be successful, especially not in the technology market. Because it is precisely there that one has become too dependent on investors from abroad in recent decades.

“I believe that in the current debate, the extent of the damage to the Russian economy is still being greatly underestimated.” Michael Rochlitz, Professor of Institutional Economics at the University of Bremen

At the same time, more than 100,000 highly qualified workers and scientists, mainly from the IT sector, left Russia in the course of the war. According to Rochlitz, there is no longer any possibility of better diversifying the Russian economy in the future and making it less dependent on the sale of raw materials. “If the situation develops like this and there is no change in direction in Russian politics, it will lead to long-term technological and economic stagnation and people will be worse off every year,” says the economist.

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