Samsung, LG face operation challenges in Russia amid prolonged Ukraine war

Samsung Electronics Co.’ Kaluga factory in Russia. [Courtesy of Samsung Electronics]

Major South Korean companies, including Samsung Electronics Co. and LG Electronics Inc., are facing severe challenges with operations in Russia amid the prolonged Russia-Ukraine war, as the Russian government is effectively seizing the assets of pro-Western foreign companies operating in the country.

According to multiple sources, Russia has reportedly been taking measures intentionally to seize assets instead of granting approval. For example, when foreign companies request for a sales approval of their local businesses, the Russian government informs them with an asset seizure, sources said.

In addition to difficulties in the sale of local factories and pressure from the Russian government demanding forced operations, Korean companies’ market share in dominant sectors have declined and are caught up by Chinese rivals.

According to industry sources and reports from the Russian media on Monday, LG Electronics’ share in the local TV market dropped to 4.2 percent in January this year from 19.1 percent last year.

LG Electronics, which was the first Korean company to begin factory operations in Russia in 2006, suspended operations at its Ruza facility in August last year.

Samsung Electronics has also been reported to bear net losses at its Kaluga facility since it ceased operations in March last year. Samsung Electronics’ Kaluga factory had been reporting profit growth since it started operations in 2008.

The market share lost by Korean companies in Russia is being taken over by Chinese companies.

According to data from market research firm GfK, Samsung Electronics and LG Electronics held over a combined 40 percent share in Russia’s home appliance market in 2019, while Chinese companies like Haier Group Corp. and Hisense Group Corp. only 25 percent.

However, industry estimates show that Korean companies’ market share has fallen below 10 percent this year while that of Chinese companies has increased to over 90 percent.

Currently, Korean products are mainly imported via third countries. Local factories of Korean companies face disruptions as they are unable to receive necessary parts due to sanctions against Russia.