On the one-year anniversary of the invasion of Ukraine, Japanese companies remain divided over whether to continue operating in or withdrawing from Russia.

A number of Japanese firms such as Toyota Motor Co. have pulled out of Russia in the past year. They were driven by the continued disruption of  their supply chains due to the prolonged invasion and humanitarian reasons.

On the other hand, many companies have not yet decided on withdrawing from the Russian market, considering the impact on people's lives and the need to maintain their investments in the country.

EMPLOYEES BUT NO PARTS

Glass giant AGC Inc. said on Feb. 8 that it started considering selling its glass manufacturing and sales operations in Russia.

The company made the decision because as the Russian invasion drags on, there is no light at the end of the tunnel, the company said.

“Considering the situation in Russia and international affairs, it is no longer meaningful to operate our business,” said AGC Vice President Shinji Miyaji.

The company entered the Russian market in 1997 and has been producing glass primarily for building materials and for automobiles.

AGC has two plants in Russia. Company sales in the country in 2022 totaled 40 billion yen ($297 million) with an operating profit of 7.8 billion yen.

With around 2,000 local employees in mind, Miyaji said, “Taking responsibility, we’d like to hand over to a good transferee.”

After the invasion began on Feb. 24 last year, major Western companies such as (U.S.) Apple Inc., (U.S.) McDonald’s and (French) Renault were the first to announce their withdrawals from Russia.

Japanese companies had initially taken a wait-and-see approach but have followed suit since fall last year, some six months after the start of the invasion.

The auto industry also has made a major exodus from the country.

Toyota Motor Corp. announced a pullout from Russia in September 2022, the first Japanese automaker to do so.

The automobile giant closed its Russian plant in early March 2022 as it became difficult to procure parts.

International criticism of Russia increased and the “reputational risk,” where the brand image is damaged, also grew.

Toyota had continued to pay around 2,300 factory workers through the local currency, the ruble, after suspending production.

But the automaker decided to terminate operations while it had the resources to provide a larger severance package to affected workers and help them find new employment.

Nissan Motor Co. and Mazda Motor Corp. also decided to withdraw, saying that parts procurement and logistics are not expected to improve.

Sony Group Corp.’s music business exited Russia in September 2022, transferring the business and its musicians to a local Russian company.

Later, the entertainment conglomerate also withdrew from its movie business in Russia.

The advertising giant Dentsu Group Inc. announced that it will transfer its entire stake in a local joint venture.

Hitachi Energy Ltd., which operates a power transmission and distribution business, said that it has sold its Russian operation.

Some companies are still teetering over whether to withdraw or continue their business though they have suspended operations.

Fast Retailing Co., operator of the Uniqlo clothing store, halted its operations at all 50 stores and online sales in Russia in March 2022.

In February this year, the Russian economic newspaper Kommersant reported that “Uniqlo is likely to completely withdraw from Russia.”

However, a Fast Retailing spokesperson said, “The company is still suspending its operations.”

PEOPLE'S LIVES, NATIONAL INTERESTS

In a survey conducted by the Japan External Trade Organization (JETRO) in January in which 99 companies responded, 35.4 percent said they are operating as usual in Russia.

The figure was down from the 55.7 percent who replied in the affirmative in a March 2022 JETRO survey.

The companies said they decided to continue operations because their “business is directly related to people’s lives” and “if they withdrew, other countries would take their market share.”

Japan Tobacco Inc. (JT) has four factories in Russia and the Russian market accounted for about 11 percent of its sales in the year that ended on Dec. 31.

“We have been able to procure raw materials and settle accounts," JT President Masamichi Terahata said at a news conference on Feb. 14.

“We have more than 4,000 employees, so as long as we are able to do so, we will continue our business,” he said.

Iida Group Holdings Co., a major housing company, also intends to continue its operations in Russia, saying, “Our management policy has not changed.”

Hitachi Construction Machinery Japan Co. halted production of hydraulic shovels but continues to offer repairs and servicing of the company's products.

“Our products are closely related to people's lives. We can’t just say, ‘Well, goodbye,’” a company spokesperson said.

Rakuten Group Inc., an e-commerce marketplace giant, continues to provide Viber, a calling and chatting app, in Russia, positioning it as “the main communication channel for fighting disinformation.”

Major trading companies are maintaining their involvement in the Sakhalin-1 and Sakhalin-2 oil and gas extraction projects in Russia’s Far East.

The Japanese government asked the companies to “positively consider” continuing their investments, saying that Japan needs to diversify its energy sources as it is highly dependent on Middle East suppliers. 

The private sector also stressed “the need to maintain the interests” for the sake of Japan’s energy security.

A senior official of a major trading company said, “The government showed us a direction, which made it easier for us to make a decision.”

The company was concerned of criticism from people and shareholders about continuation of its Russian business involvement. 

Fumiya Kokubu, chairman of the Japan Foreign Trade Council Inc., consisting of trading companies and other organizations, said at a news conference on Feb. 8 that maintaining involvement in Sakhalin was “the right choice, even if we look back now on the events that have transpired.”

(This article was written by Satoru Eguchi, Yoko Masuda, Takeshi Suezaki and Hideki Aota.)