Under pressure to confiscate Russian assets... ‘Withdrawal dilemma’ for Japanese companies entering the local market

As the Russian government pursues measures to effectively confiscate the assets of foreign companies operating in the region, such as Japan Tobacco Industry (JT), in the form of temporary management, the concerns of Japanese companies, including Ajinomoto, are deepening.

Amid concerns that they may completely lose the local base they worked so hard to build for a long time, they are unable to make a decision at the crossroads of withdrawal or maintaining the business.

According to the Yomiuri Shimbun on the 11th, Shigeo Nakamura, president of Ajinomoto, a seasoning and food conglomerate, said at an earnings presentation on the 9th, "We are unable to decide whether we should completely give up the business we have maintained for a long time in Russia."

Ajinomoto stopped selling food immediately after the invasion of Ukraine in 2022, but has maintained sales of agricultural materials and research and development of fermentation technology.

In particular, the consumption of mayonnaise, Ajinomoto's main product, is at a world-class level in Russia, so the problem is that if the company withdraws, it may lose its footing to re-enter the market.

Likewise, Japanese companies, which had maintained a wait-and-see attitude after the invasion of Ukraine, are being pushed into an urgent situation due to the Russian government's recent move to confiscate their assets.

This is because the risk has become a reality, with seven local JT subsidiaries recently being subject to temporary management by a Russian company and having their management rights taken away.

According to a survey by Yale University, there are currently 65 Japanese companies operating in Russia, including food, manufacturing, finance, and trading companies.

However, even if a withdrawal is carried out, huge losses cannot be avoided.

This is because when a company in an unfriendly country sells a local corporation, it must sell it at a price less than 40% of the market value and pay 35% of the market value to the Russian government.

Relations between the two countries have deteriorated sharply since Russia's invasion of Ukraine, with Russia including Japan on its list of 'unfriendly countries and regions'.

Previously, European companies such as Danish beer company Carlsberg and French food giant Danone also suffered trillions of won in losses by selling local assets at low prices.

JT's net assets related to its Russian business are approximately 1.3 trillion yen (approximately 11 trillion won), so massive losses are inevitable in the event of business withdrawal.

Experts point out that Japanese companies may have to make the decision to take losses and withdraw before the initiative is completely lost.

Professor Hattori Michitaka of Hokkaido University said, “Japanese companies are faced with a situation where they have to make a realistic decision: ‘We must cut losses when we are in control.’” The Japanese government has also begun emergency consultations between relevant ministries, but a clear solution has not been found as uncertainty continues to expand.