Japanese firms in Russia face a difficult dilemma
A report by the Yomiuri Shimbun on November 11 stated that seven subsidiaries of Japan Tobacco Inc. (JT) in Russia have been placed under temporary administration by Russian entities, highlighting the risks associated with its operations in the country.
Following the outbreak of the Russia-Ukraine military conflict in 2022, many companies chose to scale back operations and wait for conditions to improve. This time, as the risk of asset seizure grows and urgency increases, Japanese firms operating in Russia are confronted with tough decisions.
At the company’s earnings briefing on the 9th, President Shigeru Nakamura of Ajinomoto said: “We have not yet decided whether to fully abandon our long-term business operations in Russia.” Although food sales activities in Russia were suspended in 2022, the company continues to operate its agricultural products distribution and fermentation technology development businesses. Exiting remains an option, but doing so would forfeit any future ability to re-enter the Russian market. Russia is also one of the world’s major markets for Ajinomoto’s flagship mayonnaise product.
A survey conducted by Yale University found that 65 Japanese companies—including major trading houses, manufacturers, and financial institutions—continue to operate in Russia. While numerous Japanese firms exited the Russian market following disruptions to logistics networks after the start of the war, the situation has since stabilized.
In April 2023, Russia introduced measures allowing temporary administration of assets belonging to companies from non-friendly countries. The recent developments involving JT are based on these regulations. Although JT’s local subsidiaries may continue generating revenue, the loss of actual control makes repatriation of overseas funds increasingly difficult.
Moreover, even if a company decides to exit, it must sell its Russian subsidiary to a local entity at no more than 40% of market value and pay 35% of the market price to the Russian government. On the 9th, JT announced the cancellation of its scheduled investor briefing on the 26th, citing “changes in the business environment” as the reason.
Under JT’s accounting standards, if control is lost and management authority is insufficient, the Russian subsidiaries must be removed from consolidated financial statements—a move that further worsens the financial outlook.
Among European firms, Carlsberg Group reported a loss of approximately 7 billion Danish kroner (about 170 billion yen), while French food giant Danone recorded a loss of 1.2 billion euros (around 210 billion yen), eventually forcing both companies to sell their Russian subsidiaries at significantly discounted prices.
JT’s assets related to its Russian operations (excluding liabilities) are estimated at around 1.3 trillion yen, potentially leading to substantial losses.
The Japanese government has taken emergency measures, but no improvement in the situation is evident. At a press conference following a recent cabinet meeting, Economic Minister Akira Akaizumi noted that Russian actions “have increased uncertainty regarding the business environment for companies operating in Russia.” Moving forward, the government plans to coordinate closely with relevant ministries and enterprises through intergovernmental consultations and information sharing.
According to Professor Toshitaka Hattori of Hokkaido University, who specializes in Russian affairs, although many Western companies quickly prepared to withdraw after the outbreak of the war, some Japanese firms adopted a wait-and-see approach, merely reducing the scale of their operations.
“Other Japanese companies may ultimately be forced to make a decision to cut losses while still retaining control,” Hattori said.
Original article: toutiao.com/article/1881541014866944/
Disclaimer: The views expressed in this article are those of the author alone.