iran market entry strategies
TRANSCRIPT
Iran Market Entry Strategies
In order to map out the entering path to Iran Market a trade-off analysis among different
strategies should be deployed to balance risk, control, resource based or market strategies
that are triggered mainly for managerial decisions. Therefore, by keeping the philosophical
articulation aside and turning to a pragmatic approach, each strategy can be depicted by
considering its pros and cons into account.
Given the fact that prior to any market entry some steps are always taken for granted,
namely "Market defining", "Market Analysis", "Internal capabilities assessment", and
"priorities and market selection", this article is intended to elaborate more on "Iran Market
Entry Strategies" which is the final step but is merely spoken about.
1- DIRECT EXPORT
Goal: To deliver goods or services directly on purchase orders which avoid any middleman
to earn higher return on sales, or even assist to set lower prices for a more competitive
position.
Fair and Exhibition
About 138 international fairs hold each year in more than 8 cities of Iran, Tehran hosts about
47% of the international fairs. Large participation of actively interested visitors provides
many opportunities for sales and to generate sales leads.
Tenders
Services and commodities in different categories notably including Oil, Gas and
Petrochemical, Agriculture, Healthcare, and Urbanization projects with invitation to tender.
These projects are often financially supported by government. However tenders capable of
financing the whole project have better chances of winning the tenders.
Online Sales
IT services, software, games, electronic books or articles, or even online sales through well-
known online shops like Amazon and eBay. This type of services are not pervasive due to
limited access of Iranian customers to credit card.
2-INDIRECT EXPORT
A middleman facilitates import to Iran and deliver directly to market or just pass it to the
local distributors. There are two main types of indirect export, "agent or representative" and
"local or area distributors".
Agent or representative
Known as one of the most convenient ways, in-land agent or representative is offering a well-
tried & common strategy to be deployed for Iran Market entry. Customers usually look for
reliable purchasing sources. However for several years, sanctions forced local businessmen
to get their agency right indirectly from Middle East representatives of the mother
companies, an approach that caused many harmful side effects. One of the primary side
effects is emergence of various agents for well-known brands in Iran forming an unorganized
mediated relationship between customers and mother companies. A consequence of such
complex relationship is aftersales service inefficiency and thus customer dissatisfaction.
Another threatening consequence of multi- indirect agents is blockage of bidirectional
information flow between companies and the market. A key factor in market development is
finding unmet needs and wants in the target market. With the current instability of wants
and needs in our changing world, companies that fail to stay in touch with its market and
customers will soon lose its market share to the competitors.
Local or Area Distributors or Traders
Unlike agents, distributors usually (Middle East distributors or Iranian traders) don’t
purchase, they put order and their payments are either on credit or after each sales.In this
respect no guarantee, warranty, and after sales service is required from exporter.
Distributor`s value mostly meet traditional or provincial markets` need (lower price,
moderate or low quality, top famous or unknown brands are more profitable) such as
Tehran's Grand Bazaar or markets located far from provincial capitals. These distributors
are known for trading both general range of products or specific categories of products.
3-PARTNERSHIP
Partnership with an Iranian company is categorized mainly in two forms "outsourced or
customized overseas factory-less production framework" or "direct investment".
Outsourced/Customized Production
Since sanctions began to squeeze Iran market, many producers turned to leverage their
involvement in fixed-investment and in-house production risks, by outsourced or
customized production via overseas suppliers (mostly Chinese, Russian, and some East
European). The epidemic low-quality product syndrome in these years, underscores the
desperate needs for market development by high quality and desirable products.
Co-branding or other sorts of alliance is to be reached on a mutually beneficial decision.
Despite higher rate of engagement for parties than direct or indirect export, the way for long
term export to Iran Market would be more squarely paved.
Assembling and CKD
CKD (complete knock-down) and SKD (semi knock-down) are common practices to avoid or
at least reduce import tax and tariff or to obtain tax preferences. In fact, local job providing
or to be allowed as bidder in national tenders, given that CKD or SKD, is in high
attractiveness to Iranian businesses and government. Iran "Free Trade Zones" and "Iran
Special Economic Zones", are missioned particularly to provide legal or financial facilities
for CKD or SKD in Iran, for instance 1200 containers of home appliances had been imported
by CKD in 2013.
Partial or full Production
A well-known domestic brand, accompanied with widespread distribution channel, could
embrace new technologies or products in its spare or vacant production (supply) capacity. A
customized strategy could be tailored by means of partial investment in the form of
technology, machineries or licensing as complementary to existing domestic businesses.
As a consequence of sanctions, a considerable share of the manufacturing sites and
production capacity, estimated to be 30-50%, have been left vacant. Having the situation
changed, foreign investments are highly welcome not only to work on full capacity but also
to have a fresh start with different collaboration frameworks. This is in line with the recent
policy trend aimed at reducing import by increasing domestic production. Given that
Petroleum is the main industry of Iran, related investments are highly regarded and recent
calls from the government self-evidently demonstrate the trend.
Despite main strategies for Iran market entry has been discussed as well as their advantages
and disadvantages which matter most, scoring each strategy or presenting the best to
creative superior value is left unchecked.
This needs pre and post-market entry analysis steps according to exporter capability,
corporate (business) strategy and market goals which are mentioned at the beginning of this
article. Therefore, it results in different strategies, varied for each company.