The Business Environment and Activities of Western Companies in Russia Three Years after Russian Military Aggression against Ukraine

Abstract

This paper analyzes how the business environment for Western companies, especially Japanese and European firms operating in Russia, has transformed after the Russian military aggression against Ukraine in February 2022 and examines the implications for their future business.

Although economic sanctions against Russia had existed in various forms including the field of trade, finance and investment since the annexation of Crimea in 2014, their scope remained relatively narrow compared with current measures imposed after 2022. Therefore, Western companies continued investing in Russia during that period, largely because they perceived strong market potential.

Since 2022, while the categories of sanctions generally remained the same, their severity expanded significantly. Measures included the exclusion of certain Russian financial institutions from SWIFT, restrictions on energy-related transactions, and the introduction of “secondary sanctions” targeting third-country entities engaged with sanctioned Russian counterparts. Russia also responded with its own countermeasures: tighter foreign exchange controls, the legalization of parallel imports, and the temporary state administration of corporate asset. These developments sharply worsened the business environment for Western firms and made market exit difficult. Moreover, a new so-called “reputational risk” became a key factor in corporate decision-making regarding continued operations in Russia after 2022.

Despite these challenges, the actual rate of withdrawal was limited. Surveys indicate that as of December 2022, only about 20 percent of Western companies had exited the Russian market, and by 2025 membership in Japanese and European business associations in Russia had declined by roughly 30 percent compared with 2022. Several factors explain this relatively low exit rate: expectations regarding the scale and long-term potential of the Russian market, the considerable assets already invested, the high costs associated with withdrawal, and new institutional barriers imposed by the Russian government.

Since 2022, perceptions of the Russian market have increasingly diverged between European and Japanese companies. Business sentiment among European firms improved, supported by Russia’s short-term economic recovery, while Japanese firms were still cautious, complying with the self-imposed restrictions and corporate guidelines.

These trends suggest that the fundamental attractiveness to the potential and prospect of the Russian market is gradually being eroded. Therefore, business of Western companies in Russia is expected to be stagnant for the foreseeable future.