The ripple effects of Russia’s war with Ukraine — fast approaching its third month — continue to spread. Finland and Sweden have applied to join NATO; the trial of the first Russian soldier to be charged with war crimes has begun; and nearly a thousand large companies have curtailed their operations in Russia beyond the requirements imposed by international sanctions, according to the Yale School of Management.
Yet for the many Western firms that do business in China (Russia’s most powerful ally) the unintended consequences of the war are still unfolding. On May 17, the FiscalNote Executive Institute hosted a virtual roundtable: looking at how China’s strategic ties with Russia would create geopolitical risk for companies. Moderated by Mark McNamee, Director, Europe at FrontierView, the conversation also featured:
- Omar Vargas, Vice President and Head of Global Policy, General Motors
- Kevin Rejent, Senior Counsel for Regulatory and Government Affairs, Energizer
- Ritika Singh, Program Officer, Center for International Private Enterprise
Here are some key insights from their discussion and the follow-up audience Q&A.
Reacting to the war in Ukraine
- ESG is on the rise. The war in Ukraine is the first major war where companies have faced intense demands from investors, consumers, and governments to adhere to ESG best practices.
- Exit or remain. When deciding whether to continue doing business in Russia, companies must weigh ethical, reputational, and commercial costs and benefits in the short and long term.
- Better late than never. Over time, conditions on the ground may change or a firm may reconsider its initial decision to exit or remain in Russia; it’s wiser to change direction as needed than to stick stubbornly to a failing strategy.
- Future of globalization. The patterns of international trade are likely to evolve in the years ahead, as companies and governments balance the desire for economic efficiency with concerns about national security. In response to this dilemma, some will push for greater diversity and openness of supply chains while others promote self-sufficiency and increased regionalization of trade with like-minded countries.
Dealing with China
- “Zero COVID” creates havoc. China’s commitment to the policy is causing serious economic problems within the country, as well as supply-chain woes that are hampering global economic growth and exacerbating inflation.
- No longer the apple of our eyes. In addition to “zero COVID,” numerous other factors make China a less attractive place to invest, including continued geopolitical tensions with the West, as well as with Japan, Korea, India, and other Asian nations; China’s rising labor costs; the country’s monetary easing as interest rates rise elsewhere; and its crackdown on its technology sector.
- Hard to say goodbye. China’s deep integration into global supply chains and relative manufacturing and tech prowess make it difficult to decouple from it.
- China walks its own tightrope. The country’s foreign-policy ambitions (namely: to serve as a counterweight to U.S. power) conflict with its economic dependence on America — and the West in general — as a trading partner.
Other lingering questions
- Impact of neutrality. Will countries, such as India, face serious blowback from the West for their accommodative stance toward Russia? And/or will Western companies that do business in India eventually feel the heat?
- Power of precedent. For many firms, divesting from Russia brought PR benefits at relatively little damage to the bottom line. In the event of a major war elsewhere, however, will firms still follow the “exit” precedent if withdrawing also inflicts huge costs on their organizations?
- Climate casualty. How will the West’s strained relationship with China and Russia affect international efforts to reduce greenhouse gas emissions?