The tension between Russia and Ukraine has reached an all-time high following Putin’s decision to support the separatist faction in Ukraine in February 2022.

Apart from the disastrous humanitarian crisis and suffering, the global economy is witnessing disruptions in the supply chain and, as a consequence, a weaker growth rate.

The world economy was battered enough by the measures employed by governments that injured the supply chain dynamics of the past two years; this sudden disruption along the European border will send the global economy down an uncertain road.

Investors’ expectations fall prey to the abrupt spikes in energy- fueled by the absence of reliable green energy solutions- and commodity prices fueled by the multiple sanctions imposed on Russia by Western nations, endangering the investment rate and growth in nations all around the world.

Additionally, consumer confidence threatens to fall excessively as an aftermath of the prior pandemic restrictions and the resulting inflation it derived; all accelerated by the reduction in production and the increase in money supply due to monetary and fiscal measures taken by governments (low-interest rates, grants, subsidies, and of the like).

Implications on Businesses

Whether a business has a direct relationship with either Russia or Ukraine, or if they are seemingly disconnected from the conflict, they will have to face the consequences of war.

Therefore, to maintain a sustainable and competitive position in the market, business leaders must analyze the effects of the war and plan accordingly.

To better understand how the Ukrainian war is altering the market, let us first go over its aftermath concerning:

• Effects of Sanctions on Russia
• Response of Corporations
• Supply Chain Discrepancies
• Global Inflation

How will it impact business activities?

The economic warfare against Russia has been the toughest since the sanctions imposed on Iran in 2010 and North Korea in 2013. While such economic restrictions are seen as justified in response to the atrocities committed by Russia, they are proving to be incredibly detrimental to the global market and the activities of marketers.

The sanctions on Russia impact business activities in two ways:

• Obstacles in Trade
• High Production costs

Russia happens to be a large consumer of Western brands; thus, the sanctions on Russia have put businesses in a dilemma. Trading with Russia becomes increasingly complex and costly as passages and flights are halted.

Thirty-three countries, including all EU countries, have closed Russian flights from their air space. This action has fallen severely on international businesses trading with Russia.

Goods that require passage through Russia, such as the one between China and Europe, must now reroute to a slower and perhaps more expensive path.

The cut-off of Russia from international trade will impact businesses both directly and indirectly. A.P. Moller-Maersk A/S, the world’s No. 2 container carrier based in Copenhagen, warned customers, “this is a global impact, and not only limited to trade with Russia.”

Regarding the indirect effects of these sanctions, the lack of Russian supply in markets such as the energy market has dramatically raised the prices. In countries whose dependence on Russia is exceptionally high, for instance, Europe’s dependence on Russian energy supply, the high prices will inevitably send ripples throughout the markets, pushing the cost of production up for most businesses.

Response of International Companies: support or indifference?

Corporations from different corners of the industry are uniting in their response to the invasion of Ukraine.

Following pressure from shareholders, energy producers such as ExxonMobil, Shell, BP, and Equinor have also suspended business relations with the country.

Moreover, several international companies have responded to the matter and stand in opposition to Russia’s actions by suspending their activities in Russia.

Swedish leader of the furniture industry, IKEA, has announced that it would be putting all export and import operations on hold in Russia and Belarus. IKEA’s decision to do so adversely affects the employment of 15,000 coworkers, potentially damaging the long-term income stability in Russia.

McDonald’s has also temporarily halted its business in around 850 restaurants in Russia alongside Starbucks, which stated it would halt its service in its 100 coffee shops in Russia.

It is not just the fast-food companies who have taken a stand, but big names in the retail industry have also stepped forward.

Cosmetic giants L’Oreal and Estee Lauder have announced that they will be closing their physical and online shopping services in Russia. Some of the world’s biggest fashion brands, such as H&M and Zara, have also followed suit by suspending sales in Russia.

However, we must consider that Russia was considered the fifth largest retail market globally in 2021. Thus permanently halting business in Russia would mean losing a considerable proportion of global market sales. Most companies plan to play it safe, announcing the temporary discontinuation of sales in Russia.

What Should Marketers Look Out For?

Business leaders have two roads laid out in front of them:

• Take action against war
• Remain indifferent

Showing indifference to the humanitarian crisis could invoke investor pushback, hurting the brand image. Thus if corporations adopt a morally sound strategy, they could pull out or temporarily shut off business in Russia, which may undoubtedly shrink the profits earned as a significant market share may be lost.

This is especially true for Western brands that operate various franchises across Russia, which contribute extensively to their revenues. On the other hand, pulling back from Russia may not be an option for some businesses. Some brands are unable to withdraw their services from Russia.

Retail leaders Marks and Spencer and fast food producer Burger King cannot close down their 48 shops and 800 restaurants, respectively, due to being bound by legal franchise deals.

Whether private entities should abruptly halt all business activities in Russia, or provide a relatively business-focused response, depends majorly on how vital the Russian market is to your business.

For instance, the market for luxury goods only attains a small portion of its revenues from Russia; personal luxury goods in Russia amounted to about $6.75 billion in 2021.

Effects on the Supply Chain: impact on the global market

Russia and Ukraine have a marginal influence on the global market. Russia accounts for less than 2% of the global GDP, and Ukraine represents an even tighter 0.14%.

Nonetheless, we must remember that the global supply chain was already under immense pressure, meaning that the Russia-Ukraine conflict could not have emerged at a worse time. The resultant disruptions in the international markets create a ripple effect that blooms into a much more problematic matter.

Energy

Russia’s dominance in the global market lies in the energy sector. A transcontinental nation with around 146 million people, Russia has intricately woven itself into the commodity market as a leading exporter of oil, gas, and raw materials, essential to the survivability of industries worldwide.

• Europe imports about 40% of its natural gas and around 25% of its oil from Russia.
• The drop in Russia’s supply of fuel sources has resulted in a worldwide shortage sending global prices into a frenzy.
• The price of crude oil has risen to about $110 per barrel, the highest it has gotten in 13 years.

This tremendous change will cause knock-on effects to materialize down the supply chain. The most significant impact of rising oil prices will be on the commercial sector. With the rising transportation and operating costs, marketers with some decision-making power will cover the increasing production costs with higher prices.

On the other hand, companies with minimal control over prices may have to leave the market.

2. Agriculture

Russia and Ukraine are also the largest suppliers of wheat, their market share amounting to nearly a quarter of total global exports (28.9%).

Disruptions in the supply of the three main crops in the world: wheat, corn, and soybeans, already persisted before Russia’s invasion. With Russia and Ukraine’s inability to produce their part, the world food prices are set to sky-rocket.

Consequently, this poses a problem, especially for countries such as Egypt and Turkey, which are highly reliant on wheat imports from the two.

Kazakhstan and Tanzania also concentrate around 90% of their wheat imports from Russia.

Global Inflation and Growth

With commodity prices on the rise and an excessive increase in money supply, inflation is bound to rise to astronomical heights.

Global inflation is expected to cross 6% this year and potentially next year. When a global health crisis hit the world two years ago, central banks planned an expansionary monetary course of action to challenge the effects of falling demand and a recessionary economic atmosphere. That being the case, low-interest rates and elevated government expenditures led to a sudden surge in the global money supply.

On top of that, now, with the onset of the Russian-Ukrainian war, inflation is rampaging across the global market, and marketers must construct their policies accordingly.

The growth rate is expected to fall. Such a high inflation rate causes investors and companies to become wary of the market atmosphere.

What does it mean for Marketers?

Marketers must not just respond to inflation but must also cater to the consumers’ response to inflation.

As agencies and enterprises pull out of Russia and significant global activities experience unfavorable effects, unemployment has diminished real income. Being left with minimal purchasing power, consumers have become increasingly selective in their choice of goods, prioritizing necessity goods over luxury items. Especially in the areas affected most by the war and its restrictive implications, consumer sentiment continues to fall.

The recessive demand poses a threat to investors, as people will buy fewer goods and services, and as a result, marketers will record lower sales, and their total revenue will be reduced.

Next Course of Action for Marketers

As per our discussion, we can deduce two significant problems that marketers are to face:

1. The rising cost of production/ inflation;

2. Consumers’ shifting choices

To counter the harmful effects of these problems, we have prepared some tips to assist marketers:

Redefine value through advertisements

To counter the effects of the growing crises, marketers should diversify their advertisements through creativity and connectivity. Many agencies have adopted advertisements as a vehicle of protest against the Ukrainian invasion.

According to a survey conducted by Gartner, 8 outta 10 consumers expected brands to publicly voice their concerns over the crisis and take some form of action.

Undoubtedly, marketers must proceed with vigilance because, at the moment, the market climate is delicate. The horrific news and content circulating the media today make it considerably tricky for marketers to ensure brand safety in their ad placement and tone. Thus, marketers must tread this path carefully, aiming to aid the situation rather than come off as indifferent to it.

Reignite demand through promotion

To boost the falling demand, it would be a good idea to offer your customers incentives such as:

• Discounts
• Deals
• Free shipping
• Exclusive sneak peeks

Do your part

Furthermore, as the global climate shifts, participating and offering support to the afflicted has become a requisite for marketing agencies and private corporations.

For instance, Airbnb recently secured housing for over 21,500 Ukrainian refugees.

However, such drastic measures of assistance can be impractical for some businesses. In such a case, marketers can do their part by maintaining a reasonable price level for goods and services. Businesses that have the capacity should strive to produce cheaper options for consumers.

Despite potentially constraining the profit margin temporarily, such measures can offer ease to the consumers during this time of need. And guarantee your company stays afloat during this troubling time.