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Five tips for doing business in Iran

Iranian market specialist  Mehrdad Parhizkar of Frontier Partners gives his advice on expanding businesses to include Iranian markets

Following the recent nuclear agreement, a significant number of EU and US-based companies have started reassessing their strategy towards Iran. There is a growing consensus among their senior executives that any market share gain or profitable growth in the short to medium-term would only materialize from effective strategic planning that must take place right now.  In prioritizing ready-to-execute Iran plans, foreign companies are advised to:

1. Remain mindful of sanctions

Companies worldwide with significant assets and operations in the United States and that are contemplating doing business with or re-entering Iran will want to draw upon broad sources of expertise as they consider their strategy in this new environment. Engaging legal counsel will, of course, be essential. But knowledge of the legal situation and regulatory environment alone will not be sufficient. The future of US-Iran political and economic relations will be determined through a complex process involving interplay among the U.S. Administration; Congress; America’s many private political and policy organizations and politics of the November 2016 American elections. Sanctions policies and regulations of the European Union and other countries will need to be considered and evaluated. Accurate information and interpretation of developments in these areas will be critical to avoid reputational harm, forecast risk and seize early-mover opportunities when legally permissible.

2. Understand the Iranian Mindset

Iran has the ambition of becoming the economical and technological powerhouse of the region.  Although the imposition of sanctions has had a significant negative impact on reaching this objective, the ambitions remain in place. It should be noted that key economic indicators such as inflation and unemployment have been improving in spite of sanctions and although economic size and growth are below benchmark peers such as the UAE, given the economic diversity and abundance of natural resources of the country, Iran is poised for significant growth in the post-sanction area, helping it move closer to realizing its vision.

Iran also aims to develop a knowledge-based economy and as such is looking for the two important elements of skill and technology transfer in its partnership with foreign entities. According to the latest estimates, Iran is in need of $2,000 bn of industrial investment over the next 10 years. It should also be added that the country is moving away from an import-based mentality to one based on the development of its manufacturing base and export potential. As such entities that opt for the establishment of either independent or joint production units will be preferred over those seeing Iran as just an export destination.

3. Take one step at a time

In order to match corporate strengths and market opportunities, foreign companies need to identify their key target sectors, conduct thorough research on what is happening in those sectors and ensure full justification for entering those markets. Once business justification has been established, the most appropriate market entry strategy must be selected. This could either be direct or indirect. Given that Iran has just started emerging from international isolation, the latter option seems to be favored as a first step in order to minimize risks. Local partner selection is also a key exercise that will have to be diligently undertaken in indirect entries.

It is worth mentioning that Iran has significantly reduced foreign investment risks through the introduction of the Foreign Investment Promotion and Protection Act (FIPPA), which allows the repatriation of foreign capital and corporate profits as well as providing protection against any loss as a result of direct action by the government that may lead to disruption in the business activities of the foreign entity.  Iran has also taken serious steps in encouraging foreign presence through allowing 100% foreign ownerships of companies and offering competitive corporation tax rates. 

4. Act early & show commitment

In the past few months, Iran and Iranian managers have seen many foreign businessmen coming into the country either on their own or as part of delegations. The trips on their own are considered insufficient and superficial. Iran is keen on concluding business negotiations and witnessing actual investment and physical presence as soon as possible. Experience shows that those foreign entities that entered the Iranian market during relatively risky and unstable periods, have benefitted from their first mover advantage. In contrast, those business partners that left the Iranian market as a result of the imposition of sanctions now find themselves in unfavorable situations in their attempt to re-enter the Iranian market. Without visible action and commitment, no foreign entity is likely to be taken seriously. 

5. Get the right advisors 

In devising strategies and implementation plans for Iran, it is highly recommended to make use of reputable local consultants who can bring significant value to the table though their local knowledge and deliver huge time and cost savings through lessons learnt from past relevant experiences.

Frontier Partners is a specialist professional services firm providing consulting, financial advisory, transactions support and investment services to multinational corporations and diversified conglomerates with respect to their entry strategy into Iran.