ID :
Wed, 03/09/2022 - 09:06

Observers: Foreign Brands Leaving Russia Over Ukraine Spec Op are Losing Credibility & Market Niche

Dozens of foreign corporations have either temporarily frozen their activities or withdrawn from Russia due to Moscow's special operation to de-militarise and de-Nazify Ukraine and consequent anti-Russia sanctions. How could this pan out for Russian consumers and who could fill the shoes of the leavers? "There's still high purchasing power in Russia. There's a large market. It is absolutely interesting," says Angelo Giuliano, a Hong Kong-based financial and political analyst. The list of leavers is composed of companies across various industries, starting with energy producers, such as British Petroleum, ExxonMobil, and Shell and ending with consumer companies, such as IKEA, H&M, Nike, and Adidas. Most of them have not severed ties with Russia indefinitely; however, it's probable that the returnees will see their market niche filled by newcomers since Russia belongs to the club of the world's largest economies in terms of GDP based on purchasing power parity (PPP). Resources and Energy British energy giant BP announced on 27 February it was offloading its 19.75 percent stake in Russia's Rosneft. On 28 February oil Titan Shell signalled that it will exit all of its joint ventures with Gazprom, while on 8 March it said that it would stop all spot purchases of Russian crude. ExxonMobil said that it would discontinue operations at Sakhalin-1, and make no new investments in Russia. A number of other Western energy giants followed suit. However, China National Petroleum Corporation (CNPC) is concurrently strengthening ties with the Russian two energy giants. On 4 February, CNPC struck an agreement on the supply of 100 million tons of oil to China for 10 years and concluded a deal with Gazprom stepping up Russia's pipeline gas supplies to the People's Republic up to 48 billion cubic metres (bcm) annually. China has increased investments in Russian energy projects since 2014 and with good reason, according to Angelo Giuliano: "The long term risk for China was to have a blockade, a blockade which would be around the Malacca Strait," he says. "This is why China has invested massively into the Belt and Road Initiative. They're looking into really long-term cooperation. Russia needs the currency that is going to come from China, and China needs oil and gas. This is a win-win." Electronic Commerce After seven major Russian banks were disconnected from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), card payment giants Visa and Mastercard announced suspending operations in the country on 5 March. Paypal, Paysera, Webmoney and American Express also halted their work in Russia. Nevertheless, the measure has not disrupted Russia's domestic transactions: Visa and Mastercard payment cards issued by Russian banks are continuing to work – they're being processed by the homegrown National Payment Card System (NSPK) which was established in 2014. The company's core business is cashless money transfers with the use of Russia's own MIR bank cards. Several Russian banks, including Sberbank and AlfaBank, are reportedly planning to issue co-badged cards linking Russia’s MIR and China’s UnionPay systems to enable cross-border payments and cash withdrawals abroad. China's UnionPay cards are accepted in 180 countries and regions, while Russia's MIR is currently working in ten states, namely, Turkey, Vietnam, Armenia, Uzbekistan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, South Ossetia, and Abkhazia. Technologies and Consumer Electronics A vast number of Western telecom and hi-tech hardware and software producers, including Google, Apple, Microsoft, Oracle, HP, Cisco, IBM and many others, have joined brands temporarily halting sales and limiting services in Russia. The exodus of major hi-tech brands has given Russian consumers and enterprise users the shivers as it is threatening to disrupt their business processes and upend communication capabilities. Even if hi-tech giants return back it would be hard for them to restore trust with Russian customers, observers say. Every fourth Russian respondent (24%) stated that he/she would completely abandon the products of companies that have closed their businesses in Russia, according to a SuperJob online survey cited by Another 25 percent of respondents said that if the Western brands return they would buy only those goods which would not be replaced by that time by other competitors. Just every third Russian would continue to use the goods and services of Western companies, according to the poll. Under these circumstances, Asian producers of telecom, software and portable devices, such as Huawei, Tencent, Changhong Electronics, Skyworth Group, Meling, Xiaomi, and others are likely to expand their market share in Russia at the expense of the leavers, according to Angelo Giuliano. "I think all the Western companies that left, they'll be replaced extremely soon," he stresses. Transport and Components Foreign car manufacturers have also followed in the footsteps of come-outers. Daimler Trucks suspended joint projects with Russia's KamaAZ, while Japanese automaker Mitsubishi Motors said it may halt car production in Russia. BMW and Ford have also announced that they would stop the sales and production of cars in Russia. Jaguar Land Rover, General Motors, Volkswagen, Skoda, Porsche, Mazda and Honda have halted exports of their vehicles to Russia. Russian factories of Hyundai, Stellantis (formerly PSA Peugeot Citroen) and Renault have stopped. Nevertheless, it appears that none of them are inclined to never come back. This situation does not spell doom to Russian automobile buyers, according to observers, who predict that Chinese automakers are likely to benefit as rivals exit Russia. According to Automotive News, vehicle exports from China to Russia tripled to 122,800 in 2021 from 42,700 in 2020 with Chery, Great Wall Motor's Haval and Geely being the top best selling cars in the country. Thus, Haval was Russia's twelfth best-selling brand in 2021, Chery was thirteenth, and Geely was sixteenth, according to the Moscow-based Association of European Businesses figures. Russian auto dealers are also expecting Chinese car manufacturers BYD, Saik, Foton, FAW, Shaanxi and JAC to fill the market niche. Moreover, India's TATA and Mahindra may also jump in, according to them. "Indian companies are interested in maximising their profits," says Dr. Anuradha Chenoy, Professor of the Centre for Russian and Central Asian Studies at Jawaharlal Nehru University. "The Russian market is very interesting for Indian producers… The West is going to make it very hard for Russia. But markets have to continue. So, Indian businesses will look for ways to do business with Russia." The Remain Camp Not all foreign companies are rushing to sever ties with Russia: some of them have so far continued their operations in Russia regardless of sanctions. Among them is multinational food-products corporation Danone; American multinational beverage corporation Coca-Cola; US multinational fast food restaurants Burger King; French home improvement and gardening retailer Leroy Merlin and some others. Furthermore, some European leaders also appear to understand that the exodus from Russia is double-edged: according to Le Figaro, French President Emmanuel Macron on 4 March met with 15 "big bosses" of French flagships in industry, banking, energy, distribution and agriculture warning them against hastily leaving Russia "without consultation with the government." "Sanctions didn't start yesterday," says Angelo Giuliano. "Russia knew we were getting to this point, and it was getting ready for that. This is why when you look at the Russian economy, it's extremely self-sufficient. So when you have European companies sanctioning Russia, they don't realise that they are actually sanctioning themselves. Who's going to pay for that? It's going to be the EU consumer, there's going to be very high inflation and a lot of companies are going to collapse." Read more: