More than 400 companies have announced their withdrawal from Russia since the launch of its invasion of Ukraine on Feb. 24, according to a list compiled by Yale School of Management.
Ukrainian President Volodymyr Zelelnskyy in his address to U.S. Congress reiterated calls for all global brands to exit Russia — a market “flooded with [Ukrainian] blood” — as part of ongoing efforts to apply economic pressure to the pariah state.
For some brands, however, a clean break is easier said than done.
Fast food giants Burger King and Subway, British retailer Marks & Spencer and hotel chains Accor and Marriott are among a number of companies restricted from withdrawing amid complicated franchise agreements.
“Unlike a company-owned operation, a franchise company going into an international market makes a binding, long-term contractual commitment to a sophisticated counter-party, typically a franchisee or licensee,” Dean Fournaris, partner in Wiggin and Dana’s franchise and distribution practice, told CNBC.
Under such contracts, a company — known as a franchisor — outsources its brand to a counter-party — known as a franchisee — which then owns and operates the brand in a specific location. Companies looking to expand their footprint in a particular market can find such agreements make sense from an operational or financial perspective. But, as legally binding contracts, once signed, they can leave little room for maneuver.
That has complicated some Western brands’ efforts to step back from Russia — even as many peers have paused operations or exited the market entirely over their rejection of Moscow’s invasion and logistical challenges that have arisen as a result.
“Brands with only company-owned operations are better positioned to shut down locations quickly because they do not have to deal with the layer of the franchise relationship,” Earsa Jackson, a member of Clark Hill’s franchise and licensing team, said.
CNBC