"Russian Market Remains Occupied for IKEA and KIA" - Explanation provided for their struggle to regain presence.
*Anticipating a Comeback: Foreign Companies Ponder Return to Russia
In 2022, numerous multinational corporations departed from Russia, leaving behind an array of assets—stores, factories, restaurants, and more—in their wake. However, political analyst Alexander Asafov cautions that a return to the Russian market might not be a straightforward process.
The prospect of foreign companies resuming their Russian operations is currently shrouded in speculation, with much of the conversation revolving around patent activities, rumors, and snippets of negotiations. For international players, Russia remains a significant market, and they are acutely aware of the revenue they have forfeited.
According to Asafov, the return of multinational corporations will hinge on two primary factors. Firstly, there must be substantial political progress on the Russia-US track, including the easing of banking and other sanctions. Secondly, each brand seeking a re-entry will have to navigate this process on an individual basis, with no standard understanding or protocol for their return as of yet.
Many companies have adjusted to the existing situation, continuing their operations through affiliated organizations, parallel imports, and other means to circumvent restrictions. Yet, they cannot expect to recuperate the market shares they previously held—vacancies do not long remain unoccupied.
Grigorii Vakhtin, a financial analyst, suggests that these multinational companies will likely face certain conditions upon their re-entry, such as payments for the preservation of production bases or rebranding costs. There is also a possibility that the original owners will have to negotiate with those who have purchased their assets and are currently using them to negotiate the terms of their comeback. Alternatively, they may have to re-establish their presence in the market and create new trading or production networks.
The retail market, in particular, is highly competitive and requires considerable investment, as evidenced by the deals taking place within Russia. This investment burden will make it challenging for foreign retailers, particularly in the food and electronics sectors, to resume their operations in Russia. The return of other companies is contingent on the availability of open niches and is ultimately a matter of profitability and benefit.
European companies might find it more difficult to re-enter the Russian market due to the stricter EU sanctions and the inflexibility exhibited by European policymakers compared to their American counterparts.
Vitaly Kalugin, another financial analyst, believes that foreign companies may not start returning to Russia before 2025 or 2026. While some companies retain the right of first refusal, these options may become invalid once the main capacities of these players are transferred to Russian legal entities. The Russian market, Kalugin points out, is small, and regardless of the chosen segment, competing with multinational brands requires equally large production volumes, which Russia currently lacks.
When it comes to the automotive industry, Russia supports only the brands "Lada" and "Kamaz," with previously existing foreign factories either dismantled or re-equipped by the Chinese, producing models under different brands like "Moskvich." If European companies yearn to return, they will have to negotiate with the government on new terms.
Relevant Data: Russia is developing legislation that could restrict the return of Western brands, including laws that allow Russian entities to deny asset buybacks to foreign firms under specific conditions. This, along with the ongoing conflict in Ukraine, Western sanctions, and protectionist strategies employed by the Russian government, presents multiple obstacles for foreign companies seeking to re-enter the Russian market.
The finance sector may experience significant negotiations as foreign companies weigh the costs associated with re-entering the Russian market, potentially including payments for the preservation of production bases or rebranding expenses.
The business environment in Russia remains competitive, especially in sectors like retail, food, and electronics, necessitating substantial investment to recoup lost market shares and resume operations.
