US under Friendly Fire

By Ricbard Stahl

– American Firms Push Europeans and Japanese Out of Russian Market

  • Medical diagnostic equipment market in Russia now dominated by US firms due to legal loophole
  • European producers like Siemens Healthineers are pushed out of the market
  • As Russian medical facilities transfer to US scanners, the shift in market share is likely to be long term

Russia faced unprecedented sanctions since February 2022. On the 19 May 2023, the US restricted export of advanced medical equipment to Russia. MRT scanners, CAT equipment, ultrasounds, and other diagnostic devices were made subject to receipt of export licenses. This restriction applied to all companies operating in the US, including European and Japanese producers. However, the complex regulations gave US firms an advantage enabling companies like General Electric Healthcare to actually increase export volumes to Russia, replacing European competitors.

The Bureau of Industry and Security (BIS), an agency of the US Department of Commerce, administers trade in goods that carry national security risks. High technology like advanced medical scanners make the cut and the BIS can affect global trade flows with its decrees. In May 2023, the BIS did just this – from then on companies like Philips Medical Systems were obligated to apply for licenses with national regulators for each individual unit in a contracted volume for export to Russia and Belarus.

Restrictions took a toll on the supply chain. Most firms could not bear the time delay and cost of applying for individual licenses. The dominos started falling quickly as European and Japanese producers bailed from the Russian market.

Only a few days later on 23 May 2023, Philips Medical Systems informed its distributor in Russia that it is ceasing export to Russia until further notice. Not only did Philips stop export but already shipped units were shut out of maintenance and upgrading services.

Philips was the first of several industry giants to falter under pressure. Siemens Healthineers quickly relocated or made redundant its engineers working in Russia. It also stopped exports to Russia. Based on Siemens data, it would take at least nine months to be given the export license by Germany’s BAFA (The Federal Office for Economic Affairs and Export Control). Such a long waiting time precluded commercially successful deals being struck, effectively eliminating Siemens as a competitor on the Russian market.

Even companies with significant investments in Russia effectively forfeited them. Canon Medical Systems had a joint venture production facility in development with Russia’s R-Pharm. Despite the company not being under sanctions, Canon stopped supplying the joint venture without explanation or announcement. Canon too could not bear the cost of getting export licenses. It is likely that Canon wanted to escape the bad publicity of pulling medical equipment out of Russia and harming ordinary people.

Here comes the twist. BIS restrictions flushed out European and Japanese companies who feared sanctions or struggled with their national regulators. However, General Electric Healthcare informed Russian buyers that it is ‘working closely’ with the BIS and can increase shipment volumes. The time GE will take to get BIS approval will be under 60 days, according to corporate letters sent to distributors.

The US government cleared the market for its companies to take over. Russia and America are increasing trade in medical tech, to the detriment of European and Japanese companies. The situation is contrary to the stated goal of trade restrictions, unfair to the affected European and Japanese firms, and may be reputationally-damaging to the BIS.

But on the bright side, the market vacuum is also an opportunity for Chinese and other Asian firms to enter the growing Russian market, but so far only US companies took advantage to expand into the vacuum.

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