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this post was submitted on 07 Sep 2023
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I have a genuine question that maybe somebody with more economic knowledge can educate me in:
How is continuing the sale in Russia helping Russia? As I understand Russia is gaining money on the sales taxes, etc. but the rest of the earnings will go to the US parent company, which cannot be taxed directly by Russia. If Pepsi backs out, wouldn't operations just be replaced by a rebranded russian company, where all of the earnings would be under russian "sphere of influence"?
I genuinely do not understand why Pepsi backing out is considered bad for Russia. I thought countries generally prefer national companies over foreign ones.
Because Pepsi doesn't just manifest out of nowhere in Russia. They are brining need for supplies, transportation, repair, maintenance etc.
In other words economic movement and income for the country.
Could some other fully Russian company take over the same thing? Maybe, but not without startup investment and knowledge. All of that isn't free, and if an economy is unstable, no-one is going to commit money into it.
At least the knowledge is already there. Pepsi is not going to take the workers in Russia away with them. And as far as I know the investment is mostly the cost of buying the assets from the western company. For example the russian McDonalds branch just reopened with a new name at the same locations.
Not all the knowledge is there. Some ingredients are imported, in order to protect trade secrets and ensure global consistency.
After Russia took over McDonald's, customers did notice a change in how the food tasted.
If they imported some ingredients before and then had to switch to local suppliers after the pullout ... doesn't this also benefit Russia, since now all of the production is national and they require less imports?
It is not like making food or soft drinks is really high tech. At worst, it is just going to taste a bit different if the ingredients are different. Or other, already local companies might gain market share.
That depends on if they can keep their customer base.
If your local McDonald's left town and a place named Burgers-R-Us took its place, would the new restaurant sell as many burgers as the McDonalds did? I doubt it. McDonald's devotes vast resources to build its brand and get customers into their restaurants. Smaller companies don't have those resources.
Good point. Thanks for your insights.
Despite what people say, imports aren't necessarily a bad thing. I mean it's literally stuff that's coming into a country that the people of that country now have. Having more stuff is good. Having less stuff is bad.
Trade means the people that can most efficiently produce a certain good in a country most efficiently do that while the people in your country who can most efficiently produce another kind of good do that. Russia having to produce all their goods locally is an economic inefficiency.
And yes, that economic inefficiency means more jobs for Russians. And that's great! I want Russians to be working in jobs to supply their McDonald's substitute instead of working on a factory line making tanks.
Yeah but how does that meaningfully impact their lives? If McDonalds ceased to exist here today, I might grumble a bit and then move on to some other fast food joint. And in Russia where people are already resigned to not having any say in the matter?
Not saying these companies shouldn't pull out, they should. But unless it's something fundamental (chip fabs, steel production, etc.) it won't have that much impact. These luxury goods aren't going to make any difference.
Let's put it this way. There are about 250 McDonald's in NYC. If they were all replaced by an Arby's, there is no way they would be as profitable as the McDonalds were. Arby's cannot match the brand or advertising power of McDonald's.
NYC does not want 250 Arby's, and consequently some - probably most - of the Arby's would close. That certainly would change the lives of those employees.
So, do Russians want Tasty-and-that's-all as much as they wanted McDonald's? I doubt it.
That's how Fanta became a thing after Coca Cola withdrew from Germany in WWII.
Using that example, yeah there's an economic cost to doing that. They may not be able to get the ingredients they could get before and would have to do some work in coming up with a new recipe with the ingredients they have available. Figure out supply chains for the new ingredients, all that kind of thing.
Also consider what happened with Fanta after the war. Coca Cola returned to Germany and resumed ownership of their bottling plants. "Oh people actually like this Fanta thing you came up with while we were gone? Yeah that's cool... we own that now."
How much is someone going to invest in a company that is operating in a bottling plant owned by Pepsi, who may return and take it all over again after Putin is gone?
Your question is basically "why are embargoes effective"
Collectively shunning an economy cripples it, and it's most effective when widely adopted.
Pepsi should be ashamed of their actions.
My question was more specific than that. I absolutely understand why it is important to sanction high-tech products and stop Russia from exporting their goods.
But western companies selling non-critical goods inside Russia felt more like russian economic dependancy to western companies to me, which (for me as a layman when it comes to economy) seemed preferable to Russia having an independent economy. Thats where my question came from.
Now I realized that rather than "dependant economy" or "independant economy" the intended goal in this case is "no economy", although i am doubtful whether that will really work.
Because Russia companies can't make Pepsi products, they just don't have the supply chain to get the flavor right. They can, and do make similar products already, it's just Mountain Dew is way better than off brand Mountain Dew. If the Russian consumers wanted that, they would have been buying it already.
I for one would never drink a cola that is not coca cola. Soda is a luxury, and in my opinion no other cola has the flavor profile to be worth the calories. Some people feel the same way about Pepsi, and a massive amount of people feel that way about Mountain Dew and other Pepsi products.
How's that been working for Russia? Hasn't their manufacturing PMI been shooting up? Isn't inflation actually higher than desired because their economy is red hot?
Lol.
No.
The rubble has fallen to the value of approximately one penny.
That's the cause of their inflation: because their currency is worthless.
You’re right, it doesn’t matter.
A sanctioning country can get good results from doing its thing to a sanctioned country when the stuff being sanctioned is important to their development. That’s why the us wants to keep 5g chips out of chinas hands.
E: touching finger to ear I’m receiving reports this did not work at all.
A set of sanctions doesn’t matter when the thing that’s being kept out of the sanctioned country’s hands isn’t important. So naturally when in a war no one cares about specific brands of soda or fast food. Pepsi executives saw what happened to McDonald’s and stayed in.
People will say things like “it hurts their economy” and “it makes the people unhappy”. The American experience of war is so completely different than almost every other nationality that they think that makes sense, and the American experience of a war economy is so far beyond the cultural memory that it only reenforces the idea that specific brands of soda matter in wartime.
So basically you’re right, what Pepsi does doesn’t matter. But if we as consumers of Pepsi outside the conflict wished it had a better policy, one that put its weight on the scale to end the fighting, we should wish for it to stop supplying both nations and perhaps even any nation directly supporting either one.
Turns out, keeping 5G chips out of China's hands didn't work out too well. Do people just happen to forget that Huawei isn't exactly some young naive kid in the telecommunications space?
The whole thing was bait to get the most advanced Chinese companies to make the chips they’d otherwise have gotten from tsmc so they could be sanctioned by the west directly and lose their lucrative western contracts.
Jokes on America though, between china throwing state money at contracts to create internal production and brics+ picking up the slack it’s gonna be just fine for em.
Tfw u sink semiconductor reshoring before it even gets off the ground.
Huawei was already sanctioned to shit, though... And a lot of the other big consumer tech companies are technically headquartered in Taiwan.