Japanese companies business suspensions in Russia hurting bottom lines

The Yomiuri Shimbun

6:00 JST, August 30, 2022

Six months after Russia’s invasion of Ukraine, the adverse effects on Japanese companies operating in Russia are growing. Their production, shipment and sales have been suspended due to supply chain interruptions in Russia, and most of the firms have no prospect of resuming operations.

The situation also casts shadows on exports to Russia.

Suspension for a year

Toyota Motor Corp. has suspended operations since early March at its St. Petersburg plant, which produces the Camry sedan and other models. An official said no decision has been made on when production will resume.

Nissan Motor Co. also halted production at its plant in St. Petersburg in mid-March. It is expected to be suspended until at least the end of September.

Mitsubishi Motors Corp. stopped production at its joint venture plant with European auto giant Stellantis NV in Kaluga Province, western Russia, in April. Mitsubishi posted an extraordinary loss of ¥8.2 billion in Russia-related operations in its consolidated financial results for the year ended March 2022.

Mitsubishi Executive Vice President Koji Ikeya is prepared for the situation to last for a prolonged period. “I think production in Russia will, in effect, stop for a year,” Ikeya said.

In late June, Hitachi Construction Machinery Co. suspended production at its Russian plant, which makes hydraulic shovels and other products. The company also stopped accepting new orders for construction equipment in Russia in early March. The company’s sales in Russia and surrounding areas are expected to fall by half to ¥19.7 billion in fiscal 2022 from the previous year.

Toyo Tire Corp. sold 24% fewer tires in the first six months of the year in Europe, including Russia, compared with the same time a year earlier.

Yokohama Rubber Co. resumed operations at its tire plant in Russia, which had been suspended since March due to difficulties in procuring raw materials. The restart was possible because the company became able to secure the minimum amount of raw materials necessary from countries such as Turkey.

Yokohama Rubber, however, is one of the few exceptions.

Zero exports

Russia’s prolonged invasion is casting a shadow over exports to the country, too. Before the invasion, Japan’s exports to Russia increased 27.8% in January on a year-on-year basis, but they fell 49.5% in July.

Passenger cars, which account for about one-quarter of the total exports, are in a serious situation. With automakers’ shipments suspended in and after March, exports fell from a monthly average of about 6,500 units in 2021 to less than 1,000 in April and 0 in May.

Construction machinery, which has been banned from export under economic sanctions against Russia, is in a similar situation. This could hurt the earnings of companies that export many of their products to Russia.

Wait-and-see attitude

According to Teikoku Databank Ltd., by Aug. 21, 74 out of 168 listed Japanese companies operating in Russia, or 44%, announced the suspension or withdrawal of their operations in Russia. Of the 74, 34 suspended trading, 14 halted production and 10 suspended their businesses. Six companies withdrew from the country.

“Compared with U.S. and European companies, Japanese companies are more cautious about withdrawing from Russia,” said Takafumi Nakai, head of the research department at the Institute for Russian & NIS Economic Studies. “Since there are also concerns that Russia may unilaterally penalize companies that are leaving, most firms must have been in a wait-and-see mode.”