Japan Tobacco in Russia: "It's business as usual"

The CEO of Japan Tobacco International has announced that the manufacturer will maintain its operations in Russia, after conforming its supply chains to the sanctions affecting the Russian Federation. The move, reported by the Financial Times, is primarily aimed at satisfying investors.

The cigarette maker, one-third owned by the Japanese state, announced at the beginning of the invasion of Ukraine that it was considering withdrawing from the Russian market. While the manufacturer has halted its investments and marketing activities in the country, Japan Tobacco International (JTI) is one of the largest global companies still operating in Russia. The Financial Times points out that the cigarette maker is not the only one continuing its activities in Russia, as Philip Morris is also still active there.[1].

Russia, a strategic market for the cigarette manufacturer

According to Japan Tobacco International CEO Masamichi Terabatake, the decision to continue the company's operations in Russia is primarily aimed at reassuring investors, who are concerned about the potential drop in profits that would have resulted from the multinational's withdrawal from the Russian market. Indeed, with a market share of nearly 35%[2], Russia is proving to be particularly strategic for Japan Tobacco International, which makes a fifth of its global profits there.

Masamichi Terabatake even goes so far as to point out that a withdrawal could amount to a breach of fiduciary duties if he were to close a profitable business. In this case, the CEO of the cigarette company indicated that he could be subject to legal action by shareholders.

Manufacturer sticks to company's compliance with sanctions

The European Union, Japan, the United States and other Western countries have implemented sanctions aimed at penalizing the Russian economy in response to the invasion of Ukraine. Japan Tobacco's CEO said he has taken steps to ensure the company's compliance with the sanctions: "There are several things we have to pay attention to regarding sanctions: what kind of people can be involved in decisions or not, [...] sending people not related to sanctions to places like Hong Kong. Otherwise, it's business "as usual." In other words, after having declared that it was considering withdrawing from the Russian market, the manufacturer indicated that it would only stick to respecting the sanctions, in order to continue its activities in Russia and in Western markets.

In France, some companies have decided to maintain their activities in France, such as Lactalis, Vinci and La Redoute. For its part, the Ministry of Economy and Finance had recalled that "French companies must scrupulously respect the sanctions against Russia. For the rest, they are free to make their own choices."[3].

A reputational risk deemed too low to justify a withdrawal

The decision to stay in the Russian market was also driven by scrutiny over the company’s reputation. According to Masamichi Terabatake, while maintaining operations in Russia could have posed a significant reputational risk at the start of the conflict, these concerns have now been dispelled. At the end of 2023, Sergei Glushkov, director of corporate relations and communications, justified JTI’s continued operations in Russia by the company’s desire not to deprive consumers of “the product they are used to.” Similar rhetoric was used by Auchan, which explained that it was staying in Russia and Ukraine to “feed local populations,” as well as by the Rocher group, which indicated that it did not want to “abandon its teams on Russian territory.”

©Tobacco Free Generation

FT

[1] Financial Times, Japan Tobacco reshapes supply chains to protect Russia business, May 2024 (accessed 06/05/2024)

[2] Pravda, Japanese tobacco company JTI decides to continue its business in Russia, 03/11/2023 (accessed 06/05/2024)

[3] West France, Why these French firms are staying in Russia at all costs, 02/25/2024, (accessed 05/06/2024)