The Economist - UK (2022-04-16)

56 Business The Economist April 16th 2022

TheRussiaremainers

Reputation v

revenue

A

ndrij melnyk,  the  Ukrainian  ambas­

sador  in  Berlin,  did  not  hold  back.

Mocking  Ritter  Sport’s  advertising  slogan,

he  tweeted  on  March  29th  “Quadratisch,

Praktisch, Blut”  (square,  practical,  blood),

replacing gut (good) in the firm’s slogan. A

couple  of  days  later  Dmytro  Kuleba,

Ukraine’s  foreign  minister,  called  for  a

boycott  of  the  maker  of  chocolate  snacks

tweeting:  “Ritter  Sport  refuses  to  pull  out

of  Russia  citing  possible  ‘serious  effects’

for  the  company.  However,  remaining  in

Russia brings worse effects, such as a fatal

damage to reputation.”

Companies  often  comply  with  at  least

some of these type of demands for reasons

unrelated to the immediate impact on the

bottom  line.  “Calls  for  boycotts  usually

have very little impact on sales, but the me­

dia  spotlight  can  do  much  harm  to  the

brand equity,” says Brayden King at North­

western  University  in  Illinois.  The  more

media coverage a company gets the bigger

the potential future damage.

Ritter Sport, a family­owned firm that is

over 100 years old, is taking the risk. It tried

to  explain  its  decision  to  continue  doing

business  in  Russia,  its  second­biggest

market  after  Germany,  accounting  for

around 10% of sales. If it stopped deliveries

in the country, many of its suppliers, cocoa

farmers in west Africa and Latin America,

would lose out. “We are not an internation­

al conglomerate that can simply stop some

business  activity  here  to  shift  to  another

over there,” says the firm. But it promised

to cease advertising and investing in Rus­

sia and donate all profits from sales there

to charity.

This  is  not  enough  for  activists,  who

continue  to  call  for  a  boycott,  spreading

the word through social media. They tend

to  go  after  firms  with  a  good  reputation

such  as  Ritter  Sport  because  their  criti­

cisms are likely to be more damaging and

hence more effective. Recent efforts to bur­

nish its image include promises to become

carbon  neutral  by  2025,  and  using  only

sustainably­grown  cocoa  from  decently

paid  farmers.  “Ritter  Sport  is  a  high­in­

volvement  product,”  says  Colin  Fernando

of  BrandTrust,  a  marketing  consultancy,

which means that it is supposed to repre­

sent  its  customers’  self­image.  Continued

involvement  in  Russia  may  leave  a  nasty

taste in the mouth.

Campaigners  will  take  heart  that  they

have forced Nestlé, a Swiss giant, to change

B ERLIN

Companies are fearful of calls for

consumer boycotts

Russiansanctions

The ordnance in

the arsenal

P

residentjoebidenhaspromisedto

“ratchetupthepain”forVladimirPutin

overRussianatrocitiesinUkraine.Theeu

vowswave after wave of “rolling sanc­

tions”.MomentumisgrowingintheWest

tofirethetwobigeconomicweaponsthat

havesofarbeenkeptlargelylockedinthe

arsenal:anembargoonRussianoiland

gas, and “secondary” sanctions, which

wouldpenalisepeopleandentitiesfrom

othercountriesthattradewithRussia.

TheEuropeanCommissionispushing

hardfortheeutocurbRussianenergyim­

ports,paymentsforwhichhelpfundRus­

sia’sarmedforces.Sofar,however,thebloc

hasbannedjustcoal,whichmakesuponly

around5% of Russian hydrocarbon ex­

portsto theeu—andwithafour­month

phase­out.Bigimporters,includingGer­

manyandItaly,remainwaryofanimmedi­

atebanonoilorgas.Hungary,whosesup­

portisneededbecauseoftheeu’s unanim­

ityprinciple, is morestrongly opposed,

andhascalledtheissuea “redline”.

However,pressureisgrowingonthe

foot­draggerstoacceptsomesortofblock­

ade.A formeradvisertoMrPutinhassaida

full oil­and­gas embargo could endthe

war.Ukraine’spresidenthassteppedup

criticismofGermanyforitscoyness.Paul

Krugman,aneconomistandcommenta­

tor,hascontrastedGermany’s reluctance

toacceptsharpeconomicpainwithitsin­

sistencethatGreeceandothercountriesdo

justthatintheeuro­zonecrisisof2009­12.

Anenergyembargowasnotformallydis­

cussedata meetingofeuforeignministers

onApril11th.Butseveralideasshortofan

outrightbanarepercolating.

OneistoimposetariffsonRussianhy­

drocarbons. Another, emanating from

America,istotakea pageoutoftheIran

playbook.Whenseveralalliescomplained

thatsanctionsagainsttheIslamicRepublic

a decadeagowouldleavethemshortofoil,

Americadevelopedaworkaround.Other

countriescouldcontinuetobuyIranianoil

if theypledgedtoreducerelianceonit over

time.Thepaymentswentintoescrowac­

counts.Iranagreedtothisarrangementin

part because it was permitted to use a

chunkoftheparkedmoneyfornon­sensi­

tive goods like consumables. “It func­

tionedlikepocketmoney,”saysAdamM.

SmithofGibsonDunn,a lawfirm.

Russia would almost certainly reject

suchanarrangement.ButMrSmiththinks

itcouldbetempted by sweeteners.One

might be to allow it to use some of the cash

in escrow to buy high­tech items that have

been hit with Western export controls.

Support  for  secondary  sanctions  is

strongest  in  America’s  Congress.  Its  law­

makers are keen to “get back on the game”

afterleavingsanctionspolicy mostly to Mr

Bidensofar,saysanother  sanctions  law­

yer.Morethana dozensanctions­related

billsarecirculatingonCapitol Hill. Several

couldbecomelawintheweeks after Con­

gressreturnsfromEasterrecess. But when

Americaimposedsecondary  sanctions  on

Iran,theywerecontroversial: Europe even

createda legalmechanism  to  try  to  neu­

tralisethem(whichfailed).  With  the  out­

rageoverRussianwarcrimes  as  strong  in

BrusselsasinWashington,  however,  this

timeisdifferent.

Such sanctions could  be  imposed  in

oneoftwoways,saysMrSmith: explicitly,

throughofficialmeasures, or implicitly, by

leaningonothercountries. American offi­

cialsareunderstoodtohave raised the is­

sueona recentvisittoIndia.  “The  threat

couldbesanctions,orcurbs on correspon­

dentbanking,orincreased red tape such as

enhanced checks on investment  and

trade,”reckonsMrSmith.“Iran is still fresh

in minds. When America  says  to  other

countries,‘Becareful’,they know what it is

talkingabout.”

Thebigquestionwith secondary sanc­

tionsishowChinawould react. It has cir­

cumventedWesternsanctions on Iran and

NorthKoreabytradingwith them through

smallChinesebankswith no connections

toWesternfinancialcentres—and  which

arethuslessexposedtosanctions. Wheth­

eritcoulddothesamewith Russia’s much

larger,moregloballyconnectedeconomy

isunclear.Thestakeswouldbea lot higher,

forbothChinaandtheWest.n

What other weapons could the West

wheel out?

Heat from the streets