"The new opportunities in Iran will benefit not only the country itself but also foreign companies."
Opening up business opportunities in Iran
- It was a historic agreement: The Joint Comprehensive Plan of Action, signed by Iran, the EU, the five permanent members of the UN Security Council, and Germany in July 2015, was the crucial step to relax sanctions and to end the isolation that paralyzed the Middle Eastern country for years.
Since then, many companies have been making good progress with their Iran market re-entry. The new growth opportunities will clearly benefit not only the country itself, but also foreign companies that can now do business in Iran.
However, some multinationals remain hesitant. The reason: a small number of sanctions - and associated risks - still exist, like the US Primary Sanctions. It is understandable that companies are still unsure how to tap the new potential.
Opportunities in Iran strongly surpass the risks. The main reason is that Iran’s economic fundamentals are relatively sophisticated. This basis clearly suggests a strong potential to become a regional powerhouse. These are only three aspects supporting this idea:
- Population: 41% of the Iranian population is younger than 25 years. That offers a firm foundation for economic growth.
- Industrial base: The natural resources of the world’s 17th biggest country are known (natural gas and crude oil, in particular). Less known is that Iran has established industries such as pharmaceuticals and auto manufacturing, the latter being capable of producing more than 1 million vehicles per year.
- Intellectual property: With a youth literacy rate of 98% and a university enrolment rate of 58%, the education standards are comparable to France and Germany. Iran is ranked 16th in terms of global output of academic articles, and Bloomberg included it in their latest overview of the 50 most innovative countries.
With all these positive qualities, Iran is being discussed in the boardrooms of many multinationals. At the same time, it is not an easy place to do business. Foreign companies must tread with care. Despite a promising outlook, Iran is still a fragile economy, plagued with uncertainties. However, most obstacles can be overcome if companies adhere to certain rules and set up an appropriate strategy.
Philipp Grosse Kleimann, a Partner at Roland Berger, explains how companies can successfully master the challenges of doing business in Iran and outlines the opportunities for the automotive industry in particular:
In principle, most foreign companies with a readiness to invest and learn should be able to succeed in Iran. We have identified four rules to facilitate a smooth entry. They refer to legal, strategic and cultural aspects (e.g., “Start at the top, but be aware of the middlemen”).
Some foreign players are better positioned than others, of course. Just consider loyalty displayed throughout the sanction years. How about your own business prospects?
How to do business in Iran - successfully
- Photo credits tunart / iStockimages; Frank van den Bergh / iStockphoto; Roland Berger; Mark Stay / iStockphoto