Tech’s Russia withdrawal might be doing more harm than good

Tech companies are withdrawing from Russia in response to its attack against Ukraine, but some experts say they need to go further.

Apple has stopped selling all of its products in Russia, while Microsoft is suspending all new sales of its products. The marquee names are joining a long list of companies pulling out of the country. The exodus raises a host of ethical and practical issues.

“Companies need to look at how they can create opportunities for these refugees and stability for them,” Raj Shah, North America Lead for Technology, Media, and Telecom at digital consultancy Publicis Sapient, said in an interview.

Tech Drain

Russians have lined up to stockpile Ikea furniture, plump their wardrobes with Uniqlo clothing, and taste McDonald’s, KFC, and Starbucks before the companies shut down operations in Russia over the war. When Apple and Samsung jumped onto the departure, Russians raced to buy imported smartphones and other electronics before the supply dwindled.

As international companies pull out of Russia, homegrown firms will likely step to fill the void, Shah said. Russia has an educated population, many of whom had already moved to a de-Westernized set of platforms and tools for social media and eCommerce. “Severing many of those links with the West will be painful but not irreplaceable,” Shah added. “And if countries like China don’t sever those links, then Russia will have access to the technology it needs to replace or replicate much of what it is blocked from, but with more government control. Just as China has Baidu, Alibaba, and Tencent to replicate the West’s Google, Facebook, and Amazon, Russia may easily build its own “homegrown” versions.”

But cybersecurity analyst Joseph Steinberg said the Russian government is replacing American technology products with Chinese offerings. The result of the boycott is that American companies are reducing their foothold within the Russian infrastructure and slashing the capability to conduct future intelligence or cyber-attack operations.

“Considering that China poses a far greater danger to our national security and to that of the West in general than does Russia and that China’s government is an immoral repressive regime with little regard for human rights, today’s boycotts may be doing far more damage to the cause of freedom over the long term than they are benefiting it,” Steinberg added.

Fighting Disinformation

The invasion marks the beginning of what Wasim Khaled, the CEO of cybersecurity Blackbird.ai refers to as the ‘Future of Conflict’. The term includes real-time Tik Tok and Twitter updates, engagement on social media, and influencers swaying public opinion.

“While cyberactivism is playing a key role in motivating people to join hands and shame them if they don’t, disinformation on social media is blurring the lines of what’s actually happening – making it difficult to distinguish what side is the ‘right side’,” Khaled said in an interview. “Global conflict is occurring on land and online, and individuals are armed and empowered with smartphones making this event unlike any other in history. The invasion of Ukraine is setting the stage for all future geopolitical events of this magnitude and it is clear social media will remain a key territory in the landscape of war.”

“Tech companies like Meta and Twitter have effectively blocked or removed much misinformation and propaganda campaigns launched at the onset of the invasion,” Khaled said. However, the influence of these earlier campaigns is still driving current-day narratives.

“The goal since the onset of the invasion has been to disempower Russian propaganda artists from having another tool in their war chests and while success is being demonstrated on this front, it is being done reactively which still gives room for error and demonstrates lack of preparedness.”

Protecting Reputations

Technology analyst Rob Enderle said that the withdrawal from Russia was prompted by brand protection and liability protection.

“Companies were being called out, and people were boycotting them for not leaving Russia, and sanctions could have put their assets at risk,” he added. “So, they exited the country to protect their brands and assure they wouldn’t be on the wrong side of sanctions.”

Big Tech’s reactions to the war in Ukraine have been varied.  For example, Google Pay and Apple Pay can no longer be used in Russia, whereas Meta eliminated the ability for Russian state media to monetize Facebook and Instagram content.

“A company’s response to the crisis affects its reputation — that is, how do customers view the response and how does this affect sales of products and services,” Pam Drake, a professor at James Madison University with expertise in finance and business, said in an interview. “A company’s management and its decisions affect the value of the company’s ownership interest and, while profit affects a company’s value, so does risk and reputation risk.”

“Another consideration is that a company may have contracts that are hard to unwind and breaking these contracts may result in a liability,” Drake added. “In some cases, companies have not been able to close down franchise arrangements due to complex contracts.”

“For tech companies, the revenues generated in Russia are only a tiny portion of their global revenues, so taking actions to remove themselves from Russia is symbolic and does not affect their bottom line much,” Drake said.

“Therefore, these moves by Big Tech are mainly symbolic and reputational. In other words, shunning Russia will not materially affect the profitability of Big Tech — but not shunning would affect Big Tech’s reputation and share value,” Drake added.

Weighing the Moral Argument

“The ethics of canceling Russia using economic weaponry is complicated,” Drake said. “Do we cancel an entire country because of an out-of-control autocrat? Have actions against Russian artists, athletes, and oligarchs altered the course of the war?”

“In the short-term, this does not seem to alter Putin’s war, but perhaps longer-term it may as the country becomes more isolated,” Drake said. “However, there is always the risk that this isolation may solidify ordinary Russians’ fight against the West and risk an expanded war.”

Many companies are trying to walk a fine line between punishing the Russian government for the Ukraine invasion while protecting the livelihood of their employees, Enderle said. For example, some companies that exited Russia have provided up to 90 days’ salaries in Russia for their laid-off workers.

“On the other side is pulling support from franchisees where they are likely in default on the related contracts, but given those contracts have to be enforced in Russia, it will only become a big problem if they intend to return,” he added. “The employees aren’t at fault for the war and thus shouldn’t be punished individually.”

Sergii Opanasenko, the co-founder of Ukraine-based web development company Greenice, said that companies can’t stand on the sidelines of the conflict.

“Regardless of whether the company decides to continue business as usual or not, it is a choice and representation of whose side you are on,” he said. “If you continue working in Russia, you indirectly support this war, period.”

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