RUSSIA REPORT
March 10, 2022–Foreign companies which have paused their business operations in Russia must resume their work, or face bankruptcy of their Russian division.
Foreign companies made huge investments to localization production in Russia, and they don’t want to leave the Russian market, but they face unprecedent pressure by their own regulators. In this situation the government has developed three scenarios for foreign concerns’ subsidiaries which have production plants in Russia.
The first option involves the company continuing normal operations in Russia, with a supply of materials and components required for production. The second option is that foreign co-owners transfer its shares to their Russian partners, and later they can go back to Russian market. Some investors have already selected this option.
And the third option involves the company quitting work in Russia, shutting down production and firing employees. “We consider this as inspired bankruptcy,” said a Russian official.
The last scenario is actually nationalization of the foreign operation, and it will be applied as an extreme measure because no manufacturer wants to lose its investments and profits. It’s also bad for the Russian party because in can lead to problems at the bankrupted plants, related to patent violations, and lack of components. The patents can be neglected in the current situation, but there is no substitution for foreign components at this time.
PSR Analysis: It looks like the confrontation scenario was calculated in advance, and both parties here will bear significant losses. PSR
By Maxim Sakov, Market Consultant – Russia Operations
