Japan tobacco adapts supply chains to navigate Russian market amid Sanctions

Japan Tobacco has strategically revamped its supply chains to align with Western sanctions against Moscow while ensuring its foothold in the lucrative Russian market remains intact, according to CEO Masamichi Terabatake.

In a strategic move to comply with Western sanctions against Moscow while maintaining its operations in the lucrative Russian market, Japan Tobacco has made significant adjustments to its supply chains. CEO Masamichi Terabatake outlined these efforts, highlighting the company’s agility in the face of geopolitical challenges.

“We are making various efforts to ensure a sort of a ring-fence, by sending things from Turkey, for example, since there are countries that cannot do trade with Russia,” Terabatake explained. The company has had to carefully navigate sanctions, including restrictions on decision-making personnel and the relocation of staff to locations like Hong Kong, all while ensuring business continuity.

These changes, which include moving key personnel to Hong Kong and routing some business through Turkey, took around a year to complete, Terabatake said.

Originally, Japan Tobacco had considered selling its Russian business in response to the war in Ukraine. However, instead of divesting entirely, the company opted to suspend investment and marketing activities in Russia. Despite these measures, it has decided to maintain four factories and more than 4,000 employees at its Russia unit.

Terabatake noted that initial investor concerns regarding Japan Tobacco’s reputation for continuing trade in Russia have since receded. Russia accounts for about one-fifth of Japan Tobacco’s global profits, which totaled $3 billion in 2023. The country stands as the world’s fourth-largest tobacco market, making it a crucial market for the company.

While hundreds of Western companies have exited or suspended operations in Russia following Moscow’s invasion of Ukraine, Japan Tobacco’s strategic adjustments have allowed it to sustain its presence. The company’s Russian subsidiary did not pay dividends in 2022 and 2023, reflecting the impact of geopolitical tensions on its operations.

Japan’s stance on Russian energy projects has also been nuanced. Despite joining Western nations in imposing sanctions on Russia, Japan has maintained its presence in Russian energy projects due to its reliance on Russian liquefied natural gas. This highlights the complex balance Japan must strike between economic interests and geopolitical considerations.

Japan Tobacco’s adaptation to the evolving geopolitical landscape underscores the challenges and opportunities facing multinational corporations operating in politically sensitive regions. By adjusting its supply chains and operational strategies, Japan Tobacco has demonstrated its commitment to sustaining its business in Russia while navigating the complexities of international sanctions and geopolitical tensions.