Kavan Choksi shares that more than 200 Japanese companies have already pulled out of Russia following the Ukraine invasion. The Russian economy is at an all-time low. It primarily relied on local transactions and production after several countries halted exportations.
Did Japan make the right decision? Although each company has its respective beliefs, most terminated Russian operations for the following reasons:
Foreign Sanctions
More than 30 countries, including the U.S., have already sanctioned Russia for its invasion of Ukraine. We’ve yet to see the full extent of these sanctions. However, Russia currently has an extreme shortage of basic commodities and essentials traditionally sourced from overseas manufacturers.
Kavan Choksi shares that opting to stay in Russia may be interpreted as a sign of support for Putin and his invasion of Ukraine. Companies that don’t pull out soon will draw flak. These companies might even get sanctioned by global institutions as well.
Supply-Chain Disruption
Several overseas companies stopped importing to Russia under foreign sanctions. These restrictions, combined with the global supply-chain disruption, make it nearly impossible for manufacturers to secure raw materials. As a result, local factories can’t operate anymore.
Weakening Ruble
The Russian ruble is at an all-time low. Not only has it weakened against the greenback significantly, but foreign banks have also started freezing Russian offshore accounts under recent sanctions.
Bottom Line
Overall, Japanese companies chose to halt operations in Russia for sociopolitical and economic reasons. The risks of continued business far outweighed the pros. In the worst cases, global companies that didn’t pull out of Russia either drew backlash for supposedly supporting the Ukraine invasion or ran out of financial resources riding out the market downfall.
Moreover, Kavan Choksi believes that the Russian market will take time to recover. Even if Volodymyr Zelenskyy and Vladimir Putin agree to a ceasefire agreement, companies that halted Russian operations wouldn’t automatically resume again. Considering these factors, brands in Russia should brace for several months of losses.