Week 9 - Carlsberg in Russia

GLOBAL BUSINESS
STRATEGY

Student Participation

100 %

Lima – Peru

2023
 Integrative Case 13
Carlsberg in Russia

1. Why is investment in Russia considered politically risky?

- Unstable political environment - Russia has undergone significant political

changes in recent decades, from communism to democracy to increasing
authoritarianism under Putin. This political instability creates uncertainty for
investors.

- Weak rule of law - The legal system in Russia is perceived as weak and subject to
political influence. There are concerns about property rights, contract
enforcement, and fair treatment of foreign investors.

- Government intervention - The Russian government has shown a willingness to

intervene in business, as seen in cases like BP being forced to give up control of its
Russian operations. There is always a risk of assets being expropriated.

- Geopolitical tensions - Ongoing tensions between Russia and Western countries

like the US and EU create additional uncertainties and risks for Western
companies investing in Russia. Sanctions related to geopolitical events can directly
impact foreign businesses.

- Corruption - Russia is perceived as having high levels of corruption. Bribery and

lack of transparency create costs and risks for foreign investors.

2. Despite the political risk, why do foreign multinationals such as Carlsberg eager to invest
in Russia?

- Unstable political environment - Russia has undergone significant political

changes in recent decades, from communism to democracy to increasing
authoritarianism under Putin. This political instability creates uncertainty for
investors.

- Weak rule of law - The legal system in Russia is perceived as weak and subject to
political influence. There are concerns about property rights, contract
enforcement, and fair treatment of foreign investors.

- Government intervention - The Russian government has shown a willingness to

intervene in business, as seen in cases like BP being forced to give up control of its
Russian operations. There is always a risk of assets being expropriated.

- Geopolitical tensions - Ongoing tensions between Russia and Western countries

like the US and EU create additional uncertainties and risks for Western
companies investing in Russia. Sanctions related to geopolitical events can directly
impact foreign businesses.

- Corruption - Russia is perceived as having high levels of corruption. Bribery and

lack of transparency create costs and risks for foreign investors.
3. If you were a Carlsberg board member, would you vote “yes” or “no” for a new project
to acquire a local brewery in Russia?

If I were a Carlsberg board member, I would be hesitant to vote "yes" on acquiring a new
brewery in Russia at this time based on the following considerations:

- The Russian beer market is declining: Due to economic recession and laws
restricting alcohol sales, the overall beer market has been shrinking in recent
years. Expanding production capacity now seems risky.

- Currency risk: With the ruble devaluation, Carlsberg's revenues in Russia are
worth much less in euros. Further currency fluctuations could seriously impact
profitability.

- High political uncertainty: With an authoritarian government and fraught Russia-

West relations, the operating environment could deteriorate further in
unpredictable ways.

- Weakening consumer spending: Due to the recession, consumer purchasing

power has declined. A new brewery may face lackluster demand.

- Input costs could rise: With a devalued currency, imported production equipment
and materials will be more expensive, hurting profit margins.

- Ongoing regulatory restrictions: new regulations limiting beer advertising and

sales channels have already negatively impacted the industry.