Multinational Tobacco Companies Cannot Easily Abandon the Russian Market

On February 24 this year, the war between Russia and Ukraine broke out. It has been more than 8 months so far, and there is no sign of a truce. The period has sparked a wave of sanctions against Russia in the United States and Europe, leading hundreds of companies, including tobacco companies, to pledge to withdraw or reduce their operations in Russia.


In early March, the world’s four leading multinational tobacco(new tobacco-HNB and conventional tobacco) companies, Philip Morris International, British American Tobacco, Japan Tobacco International and Imperial Brands, successively announced the adjustment of their strategies in Russia and Ukraine. Philip Morris International suspends planned investments in the Russian Federation, British American Tobacco: suspends operations in Ukraine, suspends investments in Russia, Japan Tobacco: suspends all new investments and marketing activities in Russia, Imperial Tobacco: suspends all operations in Ukraine and Russia.


However, exiting the Russian market is easier said than done. Russia is the fourth largest cigarette(Heated tobacco & traditional tobacco) market in the world. Before the war, JTI led the market with a 36.7 percent share, followed by Philip Morris International (31.7 percent) and British American Tobacco (23.5 percent), according to Cowen & Co.


Take Philip Morris International as an example. Philip Morris International is trying to sell its Russian business and has held talks with suppliers interested in buying the business. At first, it was unclear which Russian authority would approve the sale, or what the approval process would be. Philip Morris International CEO Jacek Olczak described the process as “brutal and complicated.” In July, Olzak admitted in an interview that the company was unlikely to leave Russia before the end of 2022.


Russia is an important market for Philip Morris International, accounting for nearly 10% of its global cigarette and heated tobacco shipments in 2021, and about 6% of its $31.4 billion in net revenue. At the beginning of this year, Philip Morris International had more than 3,200 employees across Russia.


In 1977, Philip Morris International signed a licensing agreement with the then Soviet state-owned industry to manufacture Marlboro. Philip Morris now has a factory in St. Petersburg and sales offices in about 100 cities in Russia.


The company will hit its global sales target for its smoke-free products a year later than expected due to its withdrawal from the Russian market, Chief Financial Officer Emmanuel Babeau said at a meeting in May.


The big tobacco companies have had to carefully adapt to changing regulations in Russia and avoid misguided measures that could spur government seizures, all while working to protect the safety of their employees from being targeted by the government.


Tax payments by large multinational tobacco companies have provided the Russian government with at least $7.25 billion in additional revenue since the war broke out between Russia and Ukraine, according to a Daily Telegraph analysis of Russia’s finance ministry figures.


Ukrainian anti-smoking lobby group Center-Life told the Daily Telegraph that taxes from Philip Morris International and Japan Tobacco International alone could provide the Russian army with 700 Mi-24 helicopters, 1,970 T-72 tanks and 382 Soviet aircraft in 2020. -25 fighter jets.


Bob Seeley, MP for the UK Foreign Affairs Committee, said: “It is clearly completely wrong for these Western companies to continue to pay a lot of taxes to the Russian treasury, because a large part of Russian state spending is now used to fund the war in Ukraine, which is killing people in large numbers. .”