Russian Higher School of Economics (HSE) has published a study entitled «Adapting Russian Industrial Enterprises to Sanctions: Initial Steps and Expectations», which surveyed representatives of 1860 companies in the processing industries of Russia. The survey demonstrated a mixed impact of sanctions: despite the fact that advanced companies with a high share of imports suffered the most, many of them showed a high degree of adaptation to the new conditions.
According to the survey, the Western sanctions, introduced after the start of Russian aggression in Ukraine, affected about 2/3 (67%) of Russian companies in the processing industry. At the same time, 39% of companies assessed the impact of sanctions as undeniably negative, and 3% as positive. 25% of companies agreed that sanctions had both a negative and a positive effect.
The main problems for companies were price increases for raw materials and components on the domestic market (for 41% of companies), difficulties with imports of necessary goods and services (31%), as well as problems with logistics (22%) and importing and servicing equipment (19% of companies).
The most import-dependent companies were hit hardest, as they were the most successful and dynamically developing. According to the HSE, in 2021, before the sanctions were introduced, the share of companies importing intermediate goods from the so-called unfriendly countries was 32%, and for equipment — 17%. In addition, a quarter of companies in the processing sector in 2022 were in a situation of lack of real analogues of imports in Russia or «friendly» countries.
The metalworking, pharmaceutical, electrical engineering, automotive, chemical, rubber and plastics industries (70-80% of companies) have felt the most acute consequences of sanctions. In contrast, companies in the textile and light industries, food production, and machine repair and installation sectors have encountered fewer negative effects (60% or less of companies).
Among the positive effects of sanctions, new opportunities (28% of companies), the ability for major firms to increase market share in their traditional markets (9%), new niches for products (7%), and the ability to enter new markets (6%) were noted. Additionally, 4% of respondents were able to attract highly skilled personnel due to the sanctions.
The report authors identify three adaptation strategies for Russian companies in 2022. The first is the innovation-expansionist strategy, which involves entering new markets, developing new products and technologies, and digitalization. This strategy is significant for the pharmaceutical and electrical equipment industries.
The second strategy is contraction and simplification, which involves reducing investments, personnel, and product lines, as well as simplifying the latter. This is relevant for industries heavily dependent on imports and companies with foreign investments, such as the wood processing and automotive industries.
The third strategy is extensive growth, which involves increasing the company's main production factors: labor resources and capital. This behavior is more characteristic of industries where there are alternatives to imports combined with the emergence of niches in the Russian market, such as textile production and furniture manufacturing.
Overall, the report notes the continuation of Russia's high dependence on imports, which has not been overcome through import substitution. The latter was primarily focused on finished products rather than technologies. This increases the risk for Russia of expanding "secondary sanctions" aimed at "friendly" states that resell Western components to Russia. "At present, we cannot yet speak of established adaptation strategies of Russian companies to sanctions,” the report states. This is due to the shock of the sanctions, the short period of time for adaptation, and the constantly changing conditions (both negative, in the form of new sanctions, and responsive, in the form of new government assistance measures).
Sourse — HSE
