By Damien Duhamel
Sanctions on Iran may have just been lifted, but Damien Duhamel, CEO of Solidance, thinks foreign companies need to be quicker to get a piece of the action
Last month sanctions against Iran were lifted and a quiet but collective bubble of excitement could be felt in the top executive floors of some of the largest multinational companies in the world. Admittedly, the range of excitement differed depending on which country or region the enterprise originated from. The excitement was strongest amongst global and regional CEOs of some of the largest companies in Europe and Asia; countering that excitement was many Chief Executives of US and Chinese companies –for many different reasons.
First, one must understand the immense opportunity that Iran presents – to understand just how high the stakes are, and why so many C-level executives across the globe are salivating. With a GDP of approximately USD 1.4 trillion, Iran currently is home to 1.5 per cent of the world’s GDP and is the 18th largest economy in the world – placing it between Turkey and Australia.
Iran’s economy is also much more sustainable than the 'hottest' emerging Asian and Middle East economies. Many of Asia’s emerging countries are still focused on pulling themselves out of an agriculture-based economy, and the GCC’s wealthiest nations are working hard to move away from an oil-based economy. Iran already has a very solid infrastructure and industrial base enabling it to kick start its economic catch-up. It already boasts the 2nd largest proven natural gas reserves and the 4th largest proven oil reserves in the world, is also home to a well-balanced and diversified economy, closer to that of the world’s most industrialized nations. Oil and gas contributes to 25% to the country’s wealth, while the automotive, agriculture, and manufacturing & mining industries contribute to 10% each.
While some of the world’s biggest companies withdrew from ‘the race for Iran’ five years ago, Chinese companies continued without looking back. Over the past decade, China capitalized on Iran’s estrangement to the global economy by securing primary positions in both oil and non-oil sectors of Iran’s economy. However, Iranians now crave for Europe’s high quality consumer brands and industrial goods. The end of sanctions means the Chinese must now compete with international players, and are sure to lose some of their inflated market share. Some signs have already been illustrated in recent month; Iranians have boycotted both Chinese and locally manufactured cars in recent years, stating that the quality of the cars and automotive parts were not at a high enough standard.
European and Asian multinationals have not enjoyed the unrestricted access Chinese firms have had, they are still well-positioned to outpace their North American counterparts. Quality European and Asian brands will thrive in Iran, so long as strong relationships are built with the country's most competent partners. Due to stringent compliance regulations in the US, American Fortune 500 CEOs watched impatiently as their European and Asian competitors travelled freely in and out of Iran over the past months to gauge the market and re-establish long-lost relationships. As such, the Americans have sidelined their best corporate entities, and inevitably, the Americans will be last to the Iranian dinner table.
When it comes to Iran opening up to the world, the first-mover advantage will carry with it significant advantages. Speed is paramount; this is true for many markets, but rings especially true in Iran. With a ranking of 130 out of 189 countries on the 2015’s Ease of Doing Business Index, a competent and strong local partner will either make-or-break a business here. There are only a handful of experienced, trustworthy distribution or joint venture partners in the country. After these few businesses are signed up to a foreign player, others will have little room to manoeuvre.
The starting pistol may have officially gone off on January 16th, but there is a big difference between companies preparing to go in and those that have not yet started the process. Careful entry development and growth roadmap execution with strong partners will define a company's success in this exciting and newly re-opened market.