The global economy, as in astronomy, has its own “centers of gravity” which attract resources, capital and companies. In astronomy, there is the phenomenon of the Great Attractor – a mysterious gravitational anomaly that draws galaxies toward itself. In Eurasia, the role of one such “attractor” has always been played by Russia. After Western companies exited, the voids they left are being filled not only by local players, but by representatives from Asia, the Middle East, South America and other regions of the world.

What makes Russia an attractive market? How are new players adapting to the local conditions? Will old players be coming back? When and how will this happen? And what will change now that a new US President has taken office? We will try to answer these questions through analysis of the current situation and scientific metaphor.

Russia as a “great attractor” for business

Statistics tell us that Russia, despite sanctions and geopolitical challenges, remains one of the largest markets in Europe. Even in the current situation, the Russian economy has not only avoided a deep dive, but has also demonstrated growth. Rosstat has calculated that GDP indicators have doubled in the last 4 years and at the end of 2024 have reached RUB 200 trillion (over USD 2 trillion). According to Valentina Matvienko, Chair of Russia’s upper parliament, the state budget has doubled its income and the economy’s growth rate of 4.1% exceeds the global rate.

The weak effect of sanctions is explained by the fact that Russia’s economy is almost independent from external capital, that there is continued demand for Russian goods and raw materials and that business has actively stepped forward to substitute formerly imported products. The Russian Central Bank informs that the current account surplus for the year has remained high and at the end of 2024 comprised USD 53.5 billion. At the same time, inflation continues to grow, and the Central Bank expects that in 2025 it will reach 13 to 15%. In order to stabilize economic indicators, on February 14 the Central Bank decided to keep the annual key rate at 21.00%.

That said, according to the World Bank (2023), Russia holds first place in Europe as to population (about 146 million) and sixth place in the world in GDP based on purchasing power parity (PPP). This ensures demand for goods and services, making Russia attractive for business. This is particularly apparent in today’s complex global economy situation.

The metaphor of the “great attractor” seems to apply, since Russia, being one of the centers of gravity, attracts new companies that are ready to fill the vacuum left by players who exited. As we know, since the time sanctions were imposed, many Western brands have left Russia, selling their assets to the local management, to subsidiaries domiciled in countries friendly to Russia or to local players. However, the market, despite the loss of some of the goods, for example, European cars or home appliances, did not empty out, but has seen substitutions and sometimes even additions as companies from China, India, Turkey, Southeast Asia and South America stepped in:

• Chinese techno giants, such as Huawei and Xiaomi have expanded their presence in Russia, offering to consumers accessible alternatives to Western products. According to MTS,[1] Xiaomi’s share on the Russian smartphone market in 2024 comprised as much as 24%, making it the segment leader.
• Chinese automotive brands such as Chery, Haval and Geely, have also significantly increased their share on the Russian market. According to the Association of European Business (AEB), in 2023 Chinese manufacturers took up more than 30% of the new car market in Russia. By summer of 2024, according to Avtostat-Info, sales of Chinese autos grew by 221%, with total income comprising RUB 1.7 trillion (around USD 19 billion) by the middle of the year.
• Indian pharma companies have grown their presence, taking the opportunity presented by European pharma manufacturers slowing down their development on the Russian market. According to RNC Pharma, in 2023 India became the largest pharma supplier for Russia, having surpassed the previous leader, Germany.
• Turkish, Belorussian and Chinese home appliances are among the leaders in sales. The share of new brands is over 40%, and they have successfully substituted Western brands that left the market. According to a major retailer, home appliance sales have grown by 14% in 9 months of 2024 and comprised RUB 467 billion (roughly USD 5.4 billion).

Exit borders

Some companies have actually left the market (exit deals), selling their assets completely to other players, without a hint of returning. Others, in order to retain their business during the geopolitical storm, took the strategy of leaving the door ajar, selling the assets to the local management through a management buy-out deal (MBO). A stark example is the Vkusno i tochka restaurant chain. It took the place of McDonald’s in Russia and is rather successful in its continued operations. Henkel used a similar mechanism, retaining the right to buy out the Russian business within 10 years. These are not the only examples; many other Western companies did the same thing.

Representatives of the auto business are among those who made similar deals, the industry being one of the most sensitive ones that underwent changes when Western companies left the market. For example, when Mercedes-Benz sold its assets to the Avtodom Holding, it stipulated a buyback right for a term of 6 years. According to Forbes, 21% of M&A deals in Russia involving foreign companies contain the buyback option.

It is no secret that after foreign brands Renault, Hundai andVolkswagen left, along with premium class auto manufacturers BMW, Mercedes-Benz and Porsche, a substantial share of the market freed up. And even though Chinese brands such as Chery and Geely are active in trying to fill it, it is fair to say that the luxury segment has few Asian alternatives. Hongqi and Exeed are trying to compete, but their share is insignificant. This is because Western luxury brands are not just cars, but a long-time status symbols, and substituting them with Asian analogs at this point is difficult.

Return as a quantum uncertainty

In a chess game opening, it is important to control the center, but at this point already, the West might not have control over the board. Even if Western politics allow companies to return to Russia, the question remains of whether they would be able to do so even if they wanted.

If they return, Western companies in Russia will not only need to battle new players, but also will need to come to terms with the lawful owners who have had time to reap the benefits of full control and are unlikely to be excited about returning things to the way they were.

Observations of activity on the market show that MBO owners are actively studying counter-sanctions measures that would allow them to retain control of the business. Moreover, the transaction documents already signed are being studied thoroughly because they could reveal certain loopholes, which – in part, due to frequent changes in the law – would prevent the previous owners from exercising their buyback options. To add, there is the position of the courts, which could be quite liberal in respect to the current owners and might not support the idea of control over assets being returned to the former owners. The owners that exited should in turn be ready for such resistance and should stay in contact with the current owners, carefully monitoring their mindset and actions aimed at protecting their own interests.

The specific terms of each MBO deal, including timeframes, price and option exercise conditions, are not in the public domain, and by principle of quantum superposition, we will not find out what will happen until this “Pandora’s box” is open, and the Western partner will be the one to open it.

Regardless of the uncertainty, we can already note some important legal aspects to be aware of:

• Sanctions laws

The return of Western companies to the Russian market will depend on changes in sanctions laws of the US, EU and other countries. If the new US President tones down the sanctions policy, this will open the path to a return; however, companies will need to consider the risk of restrictions being imposed again in the future. This is why it is important to once again study in detail the existing sanctions against Russia, so as to reclaim assets and resume work in Russia with minimum risks and negative consequences (given the Western sanctions on importing into Russia certain goods, mechanisms, technical equipment, resources and software).

As regards Russia’s counter-sanctions, we should note that the regulations are aimed at limiting the outflow of Western capital, but do not hinder foreign business investing in the Russian market. We have heard this position on many occasions when discussing with government authorities the transactions on foreign companies exiting Russia.

• Ownership title and reclaim mechanisms

Exercising options could become complicated by resistance on the part of the new owners. It would be to the parties’ benefit to examine both the terms and conditions of the deals made earlier, as well as the restrictions aimed at Western business in response. We should note that Russia, as a response measure, has restricted export and import of certain goods and raw materials. As of today, export to all countries except for EAEU member states is prohibited, and the restrictions themselves concern various types of timber goods, metals, medical equipment, vehicles, etc. – all in all over 1600 items. New regulations for cross-border business have also been adopted, under which a Russian resident company or foreign company from an unfriendly state needs to obtain permission from the State Commission in order to perform a transaction.

• International law and arbitration

Russia has denounced in the last 3 years a substantial portion of international treaties on protection of investments. In case of a dispute with the new owners, Western companies can refer it to international arbitration courts as indicated in the master agreement for the MBO. However, whether these mechanisms will be effective will depend on Russia’s readiness to enforce decisions made by international courts.

New US President: a change of course in trade policy?

If Washington’s policy in respect to the Russian market was obvious before and set the tone for other players, now decisions of the new US President could be a turning point for the global economy. If he tones down or at least changes the sanctions policy against Russia in return for settlement of the conflict, as he has promised, this could open the path to renewing trade with the West. Yet, at the same time, the companies that filled the voids left by the West and have been enjoying profits, will most likely not be too excited about giving way without a fight. With this in mind, we feel that trade wars between new companies already on the market and old brands are inevitable.

In conclusion: old new rules of the game

It seems that any delay in making decisions is a luxury companies cannot afford, especially former owners of Russian assets and new players contemplating market entry. The Russian government’s policy and its interest in localization, as well as resistance from new players, could hinder Western companies’ return to the Russian market and will be contingent on various legal, economic and political challenges.

Western companies should be prepared for legal battles for their assets, which could be complicated by the terms of MBO deals entered into earlier. In addition, the new players, such as Chinese and Indian companies, have taken up firm positions on the market and are unlikely to give up without a fight. So part of the market will need to be won back again.

While there is uncertainty in the current state of global affairs, an understanding of the market, coupled with quick reactions, could be the key to success. Western companies will not only need to fight for their assets, but also gain once again the trust of Russian consumers who have gotten accustomed to new brands. For example, when today there are rumors of Visa and MasterCard making their comeback into Russia, there is certain skepticism too, since it will be difficult for them to get into the market, because the National Payment Card System has proven its effectiveness, and both consumers and business have adapted to the new reality.

The result of the trade wars will be determined not only by economical, but also by legal factors. Those who are able to make proper use of the legal mechanisms will be able to keep their positions on the market. Others will have to resign to the new reality where it is extremely difficult to return to the former status quo. In any event, those who are faster to adapt to business under the new conditions will be the winners.

Note: This article is based on analysis of current trends and available data. The situation can change, depending on geopolitical and economic factors.