Hong Kong (CNN) Over the past year, hundreds of global brands have fled Russia in response to the invasion of Ukraine. This has forced Russians to seek alternatives for everything from smartphones to cars.
Companies that benefit: Chinese competitors. Smartphone giant Xiaomi and automaker Geely are among those that have seen sales growth in recent months, industry data shows.
While iPhones and Samsung Galaxies were once bestsellers, models from Xiaomi and another Chinese vendor Realme now top the sales charts, according to Counterpoint Research.
Chinese manufacturers were already popular in Russia before the war, accounting for about 40% of the smartphone market in December 2021. They have now almost completely captured it, accounting for 95% of the market a year later, according to Counterpoint data.
During this, SAMSUNG ,ssnlf, And Apple ,AAPL, — which usually held the number one and two spots, respectively — saw their combined market share drop from 53% to just 3% in the same period they pulled out of the country.
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A similar story is playing out on the streets of Russia. Over the past year, Chinese carmakers Chery and Great Wall Motor have jumped into the top 10 passenger vehicle brands, while Germany’s BMW and Mercedes (MBGAF) have disappeared, according to data from S&P Global Mobility.
Russians bought Chinese cars in record numbers last year, according to data provider Autostat. Chinese new car sales in the country are set to rise 7% to 121,800 vehicles in 2022 even as the market crashes, a report said last month.
Lada, Russia’s most popular carmaker even before the war, was the domestic brand, with its market share rising from about 22% to 28% in 2022, according to S&P data. (Renault sold its controlling stake in Lada in May.)
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These businesses are largely the last to stand.
Like Renault, global automakers pulled out of Russia following its invasion of Ukraine, including Hyundai and Kia, other big foreign players.
“It left a huge hole in the market,” said Tu Le, founder of Sino Auto Insights, a Beijing-based consulting firm. “And the Chinese are happy to fill that hole.”
Xiaomi, Realme and Honor, budget brands formerly owned by Chinese tech giant Huawei, “reacted quickly to seize the opportunity,” said Jan Striczak, an associate director at Counterpoint Research. He predicted a 39%, 190% and 24% increase in shipments to Russia in the third quarter of 2022, respectively, compared to the previous quarter.
Xiaomi has been the main beneficiary, doubling its market share over the year. The Beijing-based company is now the top seller of smartphones in Russia, in large part due to its popular Redmi line, an affordable range of devices known for high camera quality.
sacrifice on service
In response to the corporate exodus, Russia has introduced a workaround to keep some goods on the shelves.
Last year, the government authorized what is known as “parallel imports” of smartphones, allowing the goods to be brought in from neighboring countries such as Kazakhstan.
Counterpoint Research analyst Harshit Rastogi wrote in a blog post that the practice helped major Russian retailers continue selling Samsung and Apple phones even as direct shipments were suspended.
But the measures come with potential problems. Rastogi said that users buying these phones could have trouble downloading mobile apps blocked in Russia, while getting service from official providers was “not guaranteed”.
Similarly, according to Tatiana Hristova, an associate director of automotive research at S&P Global Mobility, people are buying cars sold in the country through parallel imports, knowing they won’t have access to warranties.
“People are willing to do it because there is no other option,” she said.
Some Russians have been buying Mercedes and Audis while on holiday in Kazakhstan or Uzbekistan, in scenes reminiscent of the collapse of the Soviet Union in the 1990s.
“If you wanted a car that wasn’t [a Soviet-era] Zhiguli … You just ordered someone who goes to Europe by bus, buys a car for you and brings it to Russia for you,” Hristova said.
tough times for consumers
While Chinese brands are taking advantage of Western sanctions, the Russian market is shrinking as its economy declines.
According to Counterpoint Research, Russian smartphone sales fell 33% to 21 million last year. By comparison, Europe’s smartphone market was down 20%.
Russia’s car market fared even worse, according to Autostat, with a nearly 60% decline in 2022 from a year earlier.
Hristova said that for many Russian consumers, decisions on big-ticket items were “probably on hold for now,” especially as they prepare for possible future waves of military mobilization.
According to analysts, the big question now is whether the market has changed forever.
Strijak said that if the war in Ukraine ends, Apple and Samsung could rebuild operations in the country and regain smartphone sales.
The jury is out on the autos, although some firms have already shown their interest in an apparent comeback.
In its decision to exit Russia last year, Renault left the door open for a return, with an option to buy back its interest in Lada through 2028, Hristova said.
Still, with international brands returning, Chinese players could hold their own, especially given how long it may take to rebuild supply chains.
Much is likely to depend on how long the war lasts.
“Saying it a bit harsh, but the Russian brands and the Chinese brands are sort of stand-ins for the real players,” said Le at Sino Auto Insights.
“Stand-ins can become permanent players.”