Communicaid is now part of Learnlight!  |  Learn more

Iran: The New Frontier for Companies Looking to Grow

Matthew MacLachlan

25 Apr 2017

The aviation industry is notoriously risk-averse. But there is a surprise in the list of priority markets for Airbus. Doing business in Iran might seem like an unwise choice given the current climate but the calculated gamble might well pay off and help Airbus surge ahead of their rivals, Boeing.

Airbus was able to move ahead largely thanks to the 98 aircraft bought by Iran

The competition between Airbus and Boeing is legendary, but in 2016 Airbus banked 731 orders to Boeing’s 668, according to Reuters. Airbus was able to move ahead largely thanks to the 98 aircraft bought by Iran.

Airbus is not the only organisation looking to gain a competitive advantage by opening up a previously closed market.

Boeing Vs Airbus

Source: http://visual.ly/

Why do business in Iran?

Iran has a long, mostly proud history. Persia, Iran’s predecessor, had one of the world’s largest empires and dominated the known world for much of recorded history. More recently Iran has earned a reputation as a global leader in science and medicine.

The relaxation of sanctions has left a cash-rich market ready to consume imported goods

Although largely unknown to tourists, Iran has a significant cultural impact, with many sites featuring on UNESCO’s list of World Heritage Sites.

Download our Guide to Doing Business in Iran

But what makes doing business in Iran particularly attractive for foreign investment is the consumer base. Iran has a young and well-educated population that is significantly more outward– and westward–looking than most Western media portray. The relaxation of sanctions has left a cash-rich market ready to consume imported goods.

What about the opportunities?

The Islamic Republic of Iran is already the world’s 18th largest economy and the second-largest economy in the wider Middle East. First is Saudi Arabia’s, with a ranking of 14th. This figure is remarkable when put in perspective after several years of sanctions – decades in the case of the USA.

The Islamic Republic of Iran is already the world’s 18th largest economy

Iran compared to Saudi

However, Iran has significant advantages over Saudi Arabia. Saudi Arabia’s economy is heavily reliant on oil and expatriate labour. The latter ranges from highly skilled opportunities usually reserved for Westerners to manual (and menial) labour that most Saudis shun.

Saudi’s economy and thus its future is in question and is dependent on its leadership – limited to the Royal family and religious figures.

Iran’s economy is much more diversified. Although oil features prominently, so do many other business opportunities in a wide range of fields, including

  • technology
  • agriculture
  • banking
  • finance
  • and huge potential for tourism

Doing business in Iran with the help of Iranians

Furthermore, its youthful, well-educated and ambitious workforce is ready to step up, creating a large talent pool ready to enter the global economic stage.

Finally, Iran benefits from a large, pro-business and well-connected diaspora. Iranians living abroad are a willing resource pool for Western organisations considering entry into a new market.

Its youthful, well-educated and ambitious workforce is ready to step up

Most of these Iranians, whether expatriate in the Gulf Countries of the Middle East (especially Dubai and Bahrain) or settled in Europe or North America are business-orientated and a good fit for Western organisations looking for a blend of understanding both cultures.

They will also bring language and cultural skills and in some cases a useful network of contacts throughout the country.

Iran benefits from a large, pro-business and well-connected diaspora

What about the challenges?

Of course, entering a market that has been impacted by sanctions will not always be easy. Like many other markets, organisations should be aware of promises from prospective business partners.

Rushing into agreements with a potential partner who is overselling services, exaggerating the depth of their network or downplaying the challenges is a risk in any environment; in Iran things will take more time.

Of course, entering a market that has been impacted by sanctions will not always be easy

1. Technology

Communications, including mobile roaming and access to 4G services, whilst improving, are not necessarily set up yet to provide the same robustness that organisations may expect, even in other emerging markets.

Doing business in Iran will require creative solutions to the communication challenges especially for Westerners used to instantaneous access to data and 24/7 availability of colleagues, clients and partners.

Perhaps the biggest barrier to overcome is financia

2. Financial barriers

In an article published by Huffington Post, both opportunities and challenges are explored. Perhaps the biggest barrier to overcome is financial. As Iran has been cut off from the global banking system, getting money in and out of the country is not straightforward. As Western banks start to establish a presence, some of these challenges may ease.

3. Economic sanctions

It is also critical to understand that US organisations continue to have restrictions imposed on them that have been fully lifted in the EU and other countries. This means American organisations, including their EMEA or similar offices, may have additional challenges to overcome.

President Trump has raised concerns about US business involvement in Iran

Special subsidiaries must be set up. Licences must be approved. Incorporating Iran into the US banking system is expected to take a much longer time to be established.

Download our Guide to Doing Business in Iran

President Trump has raised concerns about US business involvement in Iran, and although at the time of writing no official moves have been made, businesses will need to be aware that Iran is new to international relationships at this level and the situation is euphemistically termed “fluid.”

What about the future? 

There is no doubt that Iran poses difficult questions for organisations looking to enter this market. Sanctions were eased only a year ago, and the new US government has yet to give its full attention to Iran – the Trump government’s position will be a significant factor for any organisation and not just US ones.

The US and Iran used to have strong ties prior to the Iranian revolution. The outgoing Obama government made significant strides to recover some of that cooperation, even with a very different Iranian government. How much this is about to change is anyone’s guess, but it cannot be ignored.

The US and Iran used to have strong ties prior to the Iranian revolution

Iran is open for business and has the potential to be a strong business partner for global organisations. Whether the momentum will continue or will be slowed or even stopped will determine whether the new frontier is viable in another uncertain era.