Putin! Not Everybody Is Welcome Back

Last week, President Vladimir Putin outlined the conditions for the return of foreign companies and stated that only those who did not harm the businesses they were leaving behind, but handed it over safely to Russian management, can return.

Some foreign companies that exited the Russian market over the past three years due to their governemnts presuring them to cease conducting business in Russia have begun to assess a potential return.
Of particular importance is the stipulation and their niches have not yet been filled by domestic companies.This is in order to protect our investors who have shown confidence in these markets. The possibility of returning their business to those who sold it to Russians at a discount with the condition of a buyback (for example, Mercedes-Benz, McDonald's, L'Occitane) remains in question. Various estimates suggest that there are approximately 150-200 of these companies, and a total of about 360 companies have exited Russia or ceased supplying us with goods for political reasons.
In any event, experts are now anticipating an influx of some of the former players to the Russian market, primarily in those industries where Russian business has yet to fully master the niches left behind – the IT sector and electrical engineering, oil services and other high-tech industries. In the consumer sectors, the places of foreigners were occupied quite quickly.

The Russian Union of Industrialists and Entrepreneurs (RSPP) held a congress on 17 March, where the head of the RSPP, Alexander Shokhin, informed the country's president directly that domestic businesses are seriously concerned about the expected return of foreign companies. "Russian companies have successfully filled many vacant niches, and we are not going to allow them to be overtaken by 'returnees'." He proposed the urgent creation of conditions that would allow foreign companies to return to Russia, whether voluntarily or involuntarily, following the start of the SVO in 2022. Alexander Shokhin emphasised the necessity of these measures to "protect domestic businesses that are successfully addressing import substitution challenges."

Vladimir Putin acknowledged the intentions of number of international companies to return to the Russian market, but emphasised the importance of prioritising the interests of domestic entrepreneurs who have already invested in developing businesses abandoned by their foreign counterparts. "Many have already made sustantial investments, set up production, and some are only at the beginning of projects and are launching their efforts, despite the high key rate. It is our intention to make sure that these plans are NOT undermine or they have to reduce the invested efforts and resources to zero," Vladimir Putin reassured domestic entrepreneurs.

"If the niches of Western companies are already occupied by Russian business, then, as I said before, our people say, the train has left, there will be no privileges and preferences for those returning," the president outlined the main "red line" for foreigners.
Putin stated that they cannot expect the return of companies that "... demonstratively slammed the door, wanted to sell their Russian segment, by the way, often at a big discount, and did so." "Or, even worse, they began to sabotage the activity and thereby put entire teams, their Russian clients, suppliers, contractors in a vulnerable position. We are well-acquainted with these companies and were compelled to appoint temporary management in them.
However, those investors who left in a satisfactory manner will be given an "individual assesment approach" — Vladimir Putin has requested that the government apply this to those who were compelled, under pressure from Western countries, to leave our market, retain their personnel, technologies, and transfer control to Russian management, sometimes even under a different brand.

 "We acknowledge that these investors took significant risks and could have faced negative repercussions from their respective governments. However, they made an independent and responsible decision, and we respect this choice. We will treat these partners with the respect they deserve," the Russian president reassured potential "returnees."
However, it should be noted that these investors should not expect to repurchase their businesses at the same low prices at which they were previously forced to sell. The Ministry of Finance is currently developing a list of requirements for foreign companies to return to the Russian market, which will be agreed upon by the government commission on foreign investment.
Since March 2022, in the wake of the SVO, Western governments have prohibited their companies from conducting business in Russia and trading with the country.# According to calculations by the consulting company Kokos Group, 560 companies exited Russia or suspended investments in their brand in the country in the first quarter of 2022. However, as of the fourth quarter of 2024, 235 have returned. This indicates that 325 companies may now be reconsidering their initial decision to cease operations in Russia.

The potential impact of this exodus on various industries has prompted the government to legalise temporary management of foreign companies preparing to leave Russia in 2022. This measure was applicable to companies with a foreign ownership stake exceeding 25%, assets valued at over 1 billion rubles, and a workforce of more than 100 individuals. These companies were obliged to coordinate the sale of local assets with the Russian authorities, as well as meet certain requirements, including offering a 60% discount to the buyer and making a contribution to the federal budget of 15% of the transaction value.

In response, the majority of foreign companies elected to adopt a risk-averse approach, retaining their right, as stipulated by Russian law, to repurchase their business in the event of a discounted sale. For instance, Mercedes-Benz (with an option valid for six years from the date of sale), McDonald's (15 years), L'Occitane (five years), Renault, Bosch, and Baker Hughes, among others, have such rights.
To date, none of the companies have officially announced their intention to buy back their businesses. However, several brands have made their presence known in foreign media. For instance, in early March, representatives of the American oilfield services company Baker Hughes told Politico that they would "assess the commercial situation for a return," but only when sanctions against Russia are lifted.
Likewise,the American elevator manufacturer Otis has intimated in the media that a return to Russia is under consideration, but only once supply chains are restored and direct bank payments are resumed.
A representative of the German electronics manufacturer Bosch has confirmed that it is currently in negotiations with Gazprom Bytovye Sistemy, following the sale of its St. Petersburg plant to Gazprom in 2024. The nature of the negotiations remains undisclosed, although it is speculated that they may pertain to the supply of spare parts.

An Adidas representative stated that the company has no plans to exit the Russian market, but noted that the goods in Russia are sold by independent suppliers. These goods are supplied via parallel imports, legalised by the Russian government, which are bypassing routes for the supply of important imported goods.

Meanwhile, Ingka, the Swedish owner of the furniture retailer IKEA, has expressed its desire to potentially re-enter the Russian market at a future point, though it currently sees no such conditions as being met. Meanwhile, Spanish holding Inditex, which owns the brands Zara, Massimo Dutti, Bershka and others, has not officially announced its return to Russia, but since the beginning of the year the company has filed 15 applications to register brands with Rospatent.
Vladimir Fomchenko, a partner in the transaction support practice at the consulting company Neo, believes that the government investment commission will prioritise the needs of the economy when determining the conditions for the return of each company. "Despite the emerging trend of import substitution, the high-tech industry continues to lag behind world leaders - for example, the implementation of key information systems at many enterprises has not been completed in full," the expert says.

Nikolai Ostarkov, Vice President of Delovaya Rossiya, concurs with this assessment. "We have encountered difficulties in a number of industries, including engine manufacturing, navigation systems, and cellular communications. However, we have successfully learned to partially substitute Western imported equipment and technologies in these sectors, either independently or with the support of partners from friendly countries.
Consequently, there remains a need for Western technologies in certain areas. He anticipates that in such instances, foreign entities will be offered the option of returning in the form of a joint venture with a Russian business that has assumed their position. "This will be a priority criterion if such a partner provides the joint venture with a solution to the problems with logistics and financial settlements that have arisen due to sanctions and it is not known when they will be eliminated," says Nikolai Ostarkov.
It is likely that this option will be presented to Renault by the Ministry of Industry and Trade, who have a six-year buyback option for AvtoVAZ. In 2022, the company divested its entire shareholding in Renault Russia to the Moscow government (with 67.69% of the shares in the automotive concern being acquired by FSUE NAMI, and Rostec retaining the remaining shares in the company). In mid-March, Russia's First Deputy Prime Minister Denis Manturov stated that for Renault to re-enter the AvtoVAZ shareholder base, the French automotive giant must resume stable supplies of automotive components and spare parts, while also maintaining the enterprise's digital management system.

Alexander Kalinin, president of Opora Rossii, stated that it would be more challenging for companies with a chain business that has been sold to Russian companies to return. He cited the example of McDonald's or Starbucks, stating that if they decide to return, they will have to rebuild the entire chain from scratch, since the new owners are unlikely to agree to a buyback.

In the retail sector, the state prioritises the return of businesses that have localised production in Russia, ensuring a connection to domestic raw materials, components and suppliers, as Vladimir Fomchenko explains. "IKEA and other DIY companies, for example, worked on this principle. However, over the years of their absence, production and raw material chains have been disrupted. Many Russian raw material suppliers have already reoriented themselves towards local manufacturers and retail, and their production capacities are now full."
It appears improbable that companies whose businesses have come under the control of Rosimushchestvo will return to the Russian market. In 2023, the mechanism of seizing assets of foreign companies for temporary state management was applied, for example, to the Finnish energy concern Fortum and the Prime Print printing chain, owned by the Norwegian Amedia.

In the food sector, similar restrictions were imposed on foreign companies' shares in the Russian subsidiary of Danone and the beer and beverage producer Baltika. In 2023, Vladimir Putin signed a decree on the temporary management of the Federal Property Management Agency (Rosimushchestvo) of a share in the Baltika brewing company, which belonged to structures of the Danish holding Carlsberg Group, as well as shares in Danone Russia, owned by Produits Laitiers Frais Est Europe, and Danone Trade

Baltika remains under the management of the Federal Property Management Agency, Carlsberg Group has not yet announced its claims for a buyback, and the Russian company has refused to comment on the situation. However, the assets of Danone and its 13 factories in the country were acquired by the company Vamin from Tatarstan, which belongs to Mintimer Mingazov. It was reported that Vamin could have acquired Danone's Russian assets for 17.7 billion rubles (with experts considering this amount to be understated). Following this acquisition, Danone Russia was rebranded as H&N. Meanwhile, Danone's closest competitor, Wimm-Bill-Dann (part of the American PepsiCo), which produces dairy products worth 117.2 billion rubles a year, somehow avoided the decision to transfer assets to state management.
So there you have it some companies never left and made money,some left with a heavy heart and on good terms and are welcome and others,well its unlikely the Russian Govt are going to be very welcoming and neither will the Russian public. After all we have managed to survive without Ikea's flatpacks and its meatballs so everything is possible