Russian industrial companies under the “second wave” of sanctions: Response strategies

Abstract

The article presents initial findings of a research project aimed at analyzing the impact of the “second wave” of sanctions in 2022 on the behavior of Russian companies, assesses their actions to adapt to the new conditions. This paper is based on survey data collected from managers of 1860 Russian manufacturing companies between August and November 2022. Despite the severity and scope of the sanctions, one third of the companies did not take adaptation measures, particularly local, technologically backward firms without innovative activity. On the whole, firms integrated into the global economy reacted more actively to new threats than those confined to the domestic market. We found significant variability in companies’ responses to the sanctions shock. Four basic quasistrategies of firms’ response are identified. The first one involved reducing current activities, employment, and investments. These actions were most common in industries integrated into global value chains, notably automotive industry and wood processing. The second strategy included simplifying products to reduce dependence on imports, finding new markets, and changing investment directions — typically seen in pharmaceutical firms. The third one consisted of altering supply channels for materials and components, and it was frequently adopted by manufacturers of rubber and plastic products. The fourth strategy focused on digitalization, developing new products, and increasing interaction with authorities. This was characteristic of industries whose markets have carved out niches due to the exits of major foreign players, in particular, manufacture of furniture. We highlight the following recommendations for the state anti-crisis policy: In 2022, the relative success of companies’ adaptation was associated with the implementation of “easy” import substitution. However, in the future there will be a need to prioritize support for the development of domestic technologies and increased access to knowledge. In conditions of high uncertainty, it is crucial to assist companies in building their own value chains, and predictability of government actions appears to be a significant factor in enhancing private initiative.