Is Iran Open for Business? The Challenges of Entering this Unknown Market (Part 2)

Matthew MacLachlan

17 Feb 2016

Many organisations are now looking at The Islamic Republic of Iran as their next market opportunity. Is Iran open for business? And if so, what do companies need to know about doing business in this fascinating country.

Is Iran Open for Business?  The Challenges of Entering this Unknown Market (Part 2:  The Solution)

In light of the recent embargo lifting, potential business opportunities in Iran are vast. Is Iran now open for business?

As highlighted in the first part of this article (Iran Part 1: The Landscape), a previously robust and developed country pre-revolution, in many ways Iran has a built up demand to catch up on more than thirty years’ business that has past it by.

Although many non-Western countries have continued to do business post-revolution, Iran’s business community is also often Western looking and is looking forward to starting to trade again with Europe and North America.

The [Iranian] business community felt its head was pressed under water for too long… It can come out now and breathe (Financial Times)

 

How do Western businesses learn more about their future prospects in such a potentially lucrative market?

1. Business Colleagues

Many Western organisations start to learn about the potential within the Iranian market from business colleagues they may have already been working with elsewhere in the region.

For example, parts of the Middle East have continued to do robust business with Iran, trading everything from heavy machinery to everyday consumer goods.

2. Iranian Business Leaders in Dubai or Bahrain

Learning more about the realities of the Iranian economy from Iranian business leaders based in Dubai or Bahrain may be a good way to start learning more about your organisation’s prospective business opportunities.

If you do not yet have direct contacts in Iran, remember that Iran, like much of the Middle East, is a relationship-oriented culture, so use your contacts in Dubai, Bahrain, China and Russia to get introduced to those with influence inside Iran.

3. Business Contacts from Western located Iranians

In addition, many Iranians living abroad have maintained strong ties back home.  Generally pro-Western, business contacts from the Iranian diaspora in your own country may be another way to position your business for future entry into the market.

However, do ensure that your Western located Iranian contacts are genuinely up to date; many may have not returned to the country since the revolution or may have a politically or socially skewed idea about the country themselves.

What major cautions and challenges should be considered?

1. Political Stability

Many people forget that the precursor to what is now known as the Arab Spring occurred in neighbouring non-Arab Iran in 2009

Future business in Iran will be impacted by political change.  This may be organic, as economic and social reforms evolve, or this may be more volatile if further political unrest reoccurs.

Many people forget that the precursor to what is now known as the Arab Spring occurred in neighbouring non-Arab Iran in 2009.  The Green Movement, supported by many young, educated, reformed-minded Iranians protested during that year’s presidential elections, which they believed excluded several legitimate candidates.

Ultimately, they failed and Ahmadinejad returned to office.  Although the 2013 elections were much more sedate, and the reform-minded Rouhani was elected President, it would be wise to keep an eye on political stability, both internally and within the wider region.

We have yet to see how the lifting of sanctions will affect the political stability of Iran, but Rouhani’s international position has been strengthened, and the middle class is in a position to re-build the economy.  This should lead to an increase in living standards and stability.

2. Involvement from Government

A centralised economy that can make some Western organisations uncomfortable as it means that there is generally involvement – whether directly or indirectly – from government authorities.  This may be very different to practices in other markets.

3. Economic Infrastructure

Whilst basic infrastructure in Iran, such as roads, is reasonably good, they are also in need of modernisation.  More important to most businesses is the economic infrastructure that is less reliable, such as a heavily restricted and antiquated banking system.  Inflation has also been a problem in Iran, especially in the lead-up and since the 2013 election.

It is also worth of note that Iran is still an oil-based economy.  While the price of oil is at historical lows, there are no immediate sources of funding for growth.  This has pros and cons: the Iranians are desperate for more foreign inward investment, however the returns are going to be much longer term.

4. Population’s Exposure

The Iranian people are the country’s greatest asset.  However, the general population’s exposure to the wider world is patchy.  Elite members of the population have always found workarounds to government restrictions such as illegal satellite television and using VPNs to avoid internet censorship.

However, average Iranians who have lived entirely within the boundaries of what has been permitted by the government may be less well prepared to join the global economy.

5. Language Skills

It is also worth remembering that Arabic is not the language of Iran – you will need to learn Farsi if you want to speak the local language.

In addition, although many Iranians speak another European language, it may be French or German.  English language skills are lower than before the revolution, although this is beginning to change, but it means that younger Iranians may have fewer English language skills than the generation about to retire.

It is also worth remembering that Arabic is not the language of Iran – you will need to learn Farsi if you want to speak the local language.

6. Business’ Social Practices

Organisations must also be prepared to operate within Islamic social practices, including strict dress codes for women and men, including foreign visitors.  Alcohol is banned.

On the other hand, although Western media often portrays Iranian women in a negative light, in reality, women have always played significant roles in their culture and continue to do so, including in the business world.

Iranian social life has always been vibrant and can still be found in many places today, including questionable Western practices, albeit mostly underground and thus accessed through personal and social connections.

An Exciting Opportunity

Iran is often associated with many negative portrayals, but as the doors to business begin to open, companies are going to find that Iran is a country with plenty of potential.  Despite the dominance of petrochemicals, Iran’s industrial base is surprisingly diverse.  The UK government estimates that at least $1 trillion will be needed to modernise the Iranian economy, which means there is a desire for foreign businesses to get involved.

Despite a gloomy decade, Iran is beginning to be a source of optimism: an Iranian banker, quoted in the Financial Times said, “The [Iranian] business community felt its head was pressed under water for too long… It can come out now and breathe.” Hopefully for the Iranian people (and the world) Iran is now open for business.



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