Strategic Risk - Russian Sanctions and their Impact on Danish Companies: A Study of the Effect of the Russian Counter Sanctions on Danish Companies in the Food and Agricultural Sector Exporting to Russia

Mark Johannes Durhuus

Student thesis: Master thesis

Abstract

This paper examines the background and effect of the Russian counter sanctions on the Danish food industry, and points to strategic risk mitigation tools available to companies facing adverse changes in the external environment. As case company Arla is used in order to illustrate the effects on Danish food companies and the actions taken with the aim of reducing the negative impact of the sanctions, and macroeconomic data is used to investigate the aggregate effect on the Danish economy. The paper contributes to the literature on a contemporary topic, which has not received much attention by the scientific community. Firstly, the background was found to be partly historical with reference to events in the Cold War and post-Soviet Russia, namely the annexation of or reunification with Crimea, and partly based on the political, institutional, and economic structure of Russia. An authoritarian rule with centralized power, an aggressive foreign policy, and a need for victories on the domestic political stage were all contributing factors leading to the imposition of the sanctions. Secondly, the effect on both Arla and the Danish economy has been insignificant at an aggregate level, although the interaction with the Russian market was reduced drastically, where Arla took a range of measures in order to reduce the impact of the sanctions. These actions include a general approach of diversification, an aspect of long-term strategy and collaboration with a local partner. Four different risk mitigation tools were assessed: adjustment of internationalization efforts, supply chain resilience, diversification, and lobbying. Of these tools, diversification was deemed the most effective, while supply chain resilience also contributed to reducing risk exposure, and both of these tools were used by Arla to some degree. Finally, the generalizability and predictability of trade conflicts and non-market-based impact, with emphasis on the coronavirus, were discussed, where it was found that many similarities exist, especially with regard to other trade disputes, and that these adverse events were only predictable to some extent. Suggestions for further research include the usage of in-depth firm-level analysis using internal data, a deeper analysis of the mechanics of Russian society and perspectives from other sectors in similar crises. The validity is assessed as being high, while the reliability is at a medium level, spurring the need for further analysis.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages79
SupervisorsNiels Mygind