HONG KONG (CNN) Over the past year, hundreds of global brands have fled Russia in response to Ukraine’s invasion. This has forced Russians to find alternatives for everything from smartphones to cars.
The benefiting companies: Chinese competitors. Industry data shows that smartphone giant Xiaomi and automaker Geely have seen sales surge in recent months.
Where iPhones and Samsung Galaxies were once bestsellers, models from Xiaomi and another Chinese supplier, Realme, are now topping the sales charts, according to Counterpoint Research.
Chinese manufacturers were already popular in Russia before the war and accounted for about 40% of the smartphone market as of December 2021. Now they’ve almost completely taken over and a year later they make up 95% of the market, according to Counterpoint data.
Meanwhile, Samsung (SSNLF) and Apple (AAPL) – which usually ranked first and second respectively – saw their combined market share fall from 53% to just 3% in the same period they withdrew from the country.
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A similar story is playing out on Russia’s streets. Last year, Chinese automakers Chery and Great Wall Motor climbed into the top 10 passenger car brands Germany’s BMW and Mercedes (MBGAF) have disappeared, according to data from S&P Global Mobility.
Russians bought a record number of Chinese cars last year, according to data provider Autostat. Chinese new car sales in the country rose 7% in 2022 to 121,800 vehicles even as the market collapsed, a report said last month.
Lada, the domestic brand that was Russia’s most popular automaker even before the war, saw its market share rise from about 22% to 28% in 2022, according to S&P data. (Renault sold its majority stake in Lada in May.)
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These companies are pretty much the last ones standing.
Like Renault, global automakers pulled out of Russia after invading Ukraine, including Hyundai and Kia, the other big foreign players there.
“It left a huge hole in the market,” said Tu Le, founder of Beijing-based consulting firm Sino Auto Insights. “And the Chinese are happy to fill this hole.”
Crawl for product
Xiaomi, Realme and Honor, the budget brand formerly owned by Chinese tech giant Huawei, “reacted quickly to seize the opportunity,” said Jan Stryjak, a deputy director of Counterpoint Research. They increased shipments to Russia in the third quarter of 2022 compared to the previous quarter by 39%, 190% and 24%, respectively.
Xiaomi was the main beneficiary, doubling its market share over the year. The Beijing-based company is now Russia’s top seller of smartphones, in large part because of its popular Redmi line, an affordable range of devices known for their high camera quality.
People walking past a closed Apple retailer at a shopping mall in Omsk, Russia, in March 2022.
waiver of service
In response to business exodus, Russia has introduced workarounds to keep some goods on the shelves.
Last year, the government approved so-called “parallel imports” of smartphones, allowing goods to be brought in from neighboring countries like Kazakhstan.
The practice helped major Russian retailers continue selling Samsung and Apple phones after dropshipping ended, Counterpoint Research analyst Harshit Rastogi wrote in a blog post.
But the measures come with potential problems. Users who bought these phones may have trouble downloading mobile apps, which are blocked in Russia, while finding services from official providers is “not guaranteed,” Rastogi noted.
Similarly, people have been buying cars sold into the country via parallel imports knowing they don’t have access to warranties, according to Tatiana Hristova, associate director of automotive research at S&P Global Mobility.
The showroom of Chinese automaker Chery in Moscow April 18, 2022. The company is one of several companies from China to climb into Russia’s top 10 car brands over the past year.
“People are willing to do it because there is no other choice,” she said.
Eager to stick to premium brands, some Russians have bought Mercedes and Audis while on vacation in Kazakhstan or Uzbekistan in scenes reminiscent of the collapse of the Soviet Union in the 1990s.
“If you wanted a car, it wasn’t it [a Soviet-era] Zhiguli … You just ordered someone to go to Europe by bus, buy a car for you and bring it to Russia for you,” Hristova said.
Hard times for consumers
Though Chinese brands are reaping the rewards of the Western embargo, the Russian market is shrinking as its economy slumps.
According to Counterpoint Research, smartphone sales in Russia fell 33% last year to 21 million. In comparison, the European smartphone market declined by 20%.
Russia’s auto market fared even worse, falling nearly 60% in 2022 year-on-year, according to Autostat.
Hristova said that for many Russian consumers, decisions about large items “are likely to be on hold at the moment,” especially as they prepare for possible future waves of military mobilization.
The big question now, according to analysts, is whether the market has changed forever.
When the war in Ukraine ends, Apple and Samsung are likely to reopen operations in the country — and quickly recapture smartphone sales, Stryjak said.
Lada cars on display at a dealership in Tolyatti, also known as Tolyatti, Russia, in April 2022. Lada was Russia’s most popular car brand even before the war and has seen market share gains over the past year.
The jury is on cars, although some companies have already expressed interest in returning.
In its decision to leave Russia last year, Renault left the door open to return with an option to buy back its stake in Lada by 2028, Hristova noted.
Even then, Chinese players could gain a foothold with the return of international brands, especially given the time it could take to rebuild supply chains.
Much will depend on how long the war lasts.
“To put it a bit harshly, the Russian brands and the Chinese brands are sort of proxies for the real players,” said Le of Sino Auto Insights.
“The substitutes could become permanent players.”