Western Investors In No Rush To Exit Russia As Most Opted To Remain

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Other Western fashion brands such as Zara are being rebranded under the MAAG name  

Around 200 foreign companies have so far exited the Russian market amid Ukraine-related sanctions, representing fewer than 10% of the international brands that do business in the country, new data has shown.

The Kiev School of Economics (KSE) conducted an analysis of 3,157 foreign firms that operated in the Russian market prior to the start of Moscow’s military operation in Ukraine as part of its Leave Russia project.

According to its calculations, 213 of these companies have divested themselves from Russia over the past year, or about 6.7% of the total. A further 473 have announced plans to leave but haven’t executed them so far. More than 2,400 of the companies continue to do business in the country, although about 50% of these have been curtailed their operations, including proposed Russian expansion plans to various extents.

The head of the project, Andrii Onopriienko, warned that it would become more difficult for firms to quit the Russian market without incurring losses as time passes.

“There are a lot of companies that did nothing or still continue to wait. Many companies will lose the opportunity to sell their businesses and will continue to lose because, finally, those assets could be nationalized or bought at a very cheap price.” he said, as quoted by the Washington Post. However, the Russian government hasn’t issued any indication it plans to nationalize foreign brands in Russia.

Under regulations introduced by the Russian government last year, companies that want to divest of their assets in Russia must first seek permission from the country’s authorities. The measures were introduced to protect the Russian economy and consumers after many Western brands announced their intentions to leave the market as a result of sanctions, which have made it difficult to continue operations due to logistics and supply-chain issues, although these are on the way to being resolved.

In the auto industry for example, Western brands exited and it took time for their manufacturing and assembly plants to be sold. Further time was taken to replace machinery and moulds and arrange the importation of alternative auto parts – with China leading the way. The retraining of workers also needed to be undertaken. As a rule of thumb, it took about 9 months for the first Chinese auto manufacturers to recalibrate European exited plants to new models, although for others the process for various reasons is still ongoing.

The Russian authorities though remain optimistic about the future of the economy despite the exit of foreign brands. President Vladimir Putin recently said companies that quit Russia are leaving behind a “good legacy,” which is has been eagerly picked up by domestic companies and entrepreneurs, who have successfully continued their work. Russia has also been actively reorienting both imports and exports from ‘unfriendly’ countries and companies to new markets, and introducing import substitution mechanisms, which help to keep the domestic market well-stocked.

The Russian government also recently approved several deals that will see popular products or their related items return to the Russian market. For example, clothing stores that previously belonged to Spanish retail giant Inditex, including Zara, Pull & Bear, Bershka and Massimo Dutti, will reopen in the coming weeks under new brand names after they were sold to a new owner. On Saturday, Belarusian furniture maker Swed House, which sells IKEA-like home goods and products, opened its first store in Moscow’s Shchelkovsky shopping mall.

Former Zara stores in Russia are to reopen under a new name, MAAG, by June 1st.

According to its website, MAAG plans to open some 60 stores across Russia this year, including at Moscow’s largest shopping centers. Stores will also be reopened in St Petersburg, Chelyabinsk, Surgut, Khabarovsk, Volgograd, Krasnodar, and other major cities.

The outlets used to belong to Spanish clothing conglomerate Inditex, but the company closed them shortly after the start of Moscow’s military operation, later deciding to leave the Russian market altogether amid sanctions pressure.

However, in March this year, Inditex secured approval from the Russian government to sell its business in the country to Fashion and More Management DMCC. The company is registered in a UAE Free Trade Zone and sources much of its collections from the same suppliers that Zara did. MAAGs license manager is a shareholder of Azadea, a Lebanese investment company belonging to the Daher Group, which owns one of the largest shopping centers in the world, the Dubai Mall.

Apart from Zara, the new owner is also expected to reopen other former Inditex stores Pull & Bear, Bershka and Massimo Dutti, under new brand names – Dub, Ecru, and Vilet, respectively.

Former Inditex stores in Moscow have already posted banners with new logos and “opening soon” signs in their storefronts. Russia’s Deputy Minister of Industry and Trade Viktor Yevtukhov earlier this month said that clothing collections for the stores have already received their final touches and been brought to Russia. MAAG this week presented its new collection on the brand’s website. It features, apart from the regular apparel for men, women and kids, clothing designed for the metaverse.

Source: Russia Today

https://www.rt.com/business/574825-western-firms-leave-russia/ and https://www.rt.com/business/574732-rebranded-zara-stores-russia/

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During these uncertain times and with sanctions in place, our firm helps Russian companies relocate to Asia. We also provide financial and sanctions compliance services to foreign companies operating in Russia. Additionally, we offer market research and advisory services to foreign exporters interested in doing business in Russia as the economy looks to replace Western-sourced products. For assistance please email russia@dezshira.com or visit www.dezshira.com