Russia soon became a wasteland of western tech brands, and all names such as Apple, HP, and Dell ceased operations locally after the invasion of Ukraine and the subsequent collapse of western sanctions. Such a gap may seem attractive to Chinese companies, but the reality is much less clear, as staying in Russia can lead to loss of access to the more important western markets.
Against the backdrop of this threat, world-leading drone maker Da-Jiang Innovations (DJI) announced on April 26 that it will suspend operations in both Russia and Ukraine. Western sanctions are not mentioned in the statement on the English website, but the company points out that it “reassesses compliance requirements in various jurisdictions internally.” This move made it the first Chinese company to officially close its business in Russia.
Other companies currently operating major businesses in both Russia and the West, such as Alibaba, Lenovo and Huawei, have taken similar steps or risked being locked out of these markets by foreign banks. You need to decide whether to face other potential actions such as losing access to the system.
Since Russia first invaded Ukraine in February, both sides have been accused of using DJI drones, which are considered some of the best in the world for military operations. Ukraine even claimed that the company provided Russia with military data. DJI also failed at the beginning of the war to continue its Russian business while Western companies were inactive.
On March 27, Germany’s largest electronics retailer Media Markt pulled all of DJI’s drone products off the shelves and gained international attention. DJI called the accusations that only the Russian side made the data available unfounded. On April 21, the company issued another statement that all of its products were for civilian use, had no military design, and refused to customize or modify the product for military purposes.
According to data from Drone Industry Insight, DJI dominated 76.1% of the US drone market last year, with nearly 80% of drones worldwide manufactured by the company. The company emphasized that it has decided to stop selling in Russia. This is a statement of principle, not to identify any country. However, observers primarily see it as a defensive step to prevent the loss of the much more important western market if they decide to stick to Russia.
DJI is not alone in this dilemma. Other Chinese companies may see the current situation as a great opportunity to expand their presence in Russia. But they also recognize that doing so could sacrifice them the entire western market and impose sanctions on them, which ultimately makes profits in Russia an empty victory. Probably.
Fertile land
In the last decade, Russia has become a fertile land for global-minded Chinese and its western companies in an attempt to develop one of the world’s largest developing markets. Taking the smartphone sector, for example, China’s Xiaomi is Russia’s second-largest brand after global giant Samsung, surpassing the third Apple that is currently out of the market.
In terms of PCs, the US giant HP was Russia’s largest brand, accounting for 21% of the market last year, and China’s Lenovo was second. Huawei was the largest telecommunications equipment supplier on the market and was fiercely competing with Sweden’s Ericsson on local 5G contracts.
That said, these Chinese companies are getting far more business from the West. According to Xiaomi’s latest financial report, last year it was second, accounting for 22.5% of the European smartphone market. Outside of China, it earned 163,590 million yuan ($ 24.7 billion), nearly half of the total. The situation is similar in Lenovo, earning $ 8.49 billion in Europe, the Middle East and Africa, accounting for 24.4% of total revenue in the previous fiscal year up to September last year. Its business in the Americas was even bigger, generating $ 11.33 billion, or 32.6 percent of the total.
Significantly reduce delivery
Xiaomi, Lenovo and Huawei have already reduced deliveries to Russia in the last two months as a result of foreign exchange risk after the ruble first plunged at the beginning of the war. Perhaps they are more worried that continued sales to Russia will make them more susceptible to western sanctions and, as a result, could be kicked out of the western market.
Alibaba and Tencent are facing similar difficulties. Russia is Alibaba’s main market for AliExpress and helps Chinese companies engage with buyers from other countries. A joint venture called AliExpress Russia was established in Russia with 35 million monthly active users. The venture generated a total commodity volume of $ 1.86 billion in the first half of last year, up 36% year-on-year and occupying about 10% of Russia’s e-commerce market. The venture was scheduled to open in Russia earlier this year, but unplugged when the war broke out and the ruble plunged.
The Russian market is not important to Alibaba in terms of overall profits. But now the company must be worried that the continued operation of AliExpress Russia could lead to sanctions that could deny parent company access to markets, especially in the US, France and Brazil. ..
Even games aren’t overwhelming. Ukraine’s Deputy Prime Minister Mykhailo Fedorov posted a tweet asking 12 gaming companies, including Tencent, to end sales to Russia. At the same time, the harsh attitude towards Russia by Western companies such as Microsoft, Electronic Arts, Take-Two, Ubisoft and Sony has been a major headache as Tencent’s two games are the most popular in Russia. The Russian electronic gaming market is also one of Tencent’s fastest growing and important overseas markets in the world.
Tencent has shown no intention in the market, although it has become difficult to process payments in the market after Mastercard and Visa shut down their business in Russia. Online payment platforms like Apple Pay are no longer used. Even China’s own UnionPay avoids dealing with licensed Russian banks for fear of collateral damage.
After all, the war in Ukraine left Chinese companies in an unfamiliar global geopolitical minefield. They don’t want to endanger Russia’s operations, nor do they want to look unfriendly to one of China’s closest allies. But they don’t want to be hostile to the West either. This means that many will be forced to decide whether to follow DJI’s example or seize the opportunity by continuing to do business in Russia.
Tina Yip
© 2022 Epoch Times. The Epoch Times does not provide investment advice. all rights reserved.
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