With the political framework nuclear deal on April 2, Iran is one step closer to becoming a major FDI destination and realizing its potential as the world’s largest untapped emerging market. The good news is that there is still time for foreign companies to plan for how to react if a final deal is reached by June 30.
The bad news is that there will be uncertainty in the market for quite a long time because of the complexity involved in sanctions relief.
Assess opportunities and allocate resources
FSG is encouraging our clients to take two immediate actions in the aftermath of the Iran interim agreement. First, senior executives should review their organizations’ long-range strategic plans. It will be vital to determine where Iran fits into the portfolio of emerging markets over the next three to five years. Second, if Iran is viewed as a priority market, companies must be willing to commit significant resources to the planning process right now. Allocating extra resources will be vital to capitalizing on huge opportunities that will become much harder to capture as competitors move into the market. Advanced planning is also critical in order to mitigate serious risks in the operating environment that will exist even if a final nuclear deal leads to sanctions relief.
Wait-and-see approach will not work in Iran
Conventional wisdom seems to dictate that companies take a wait-and-see approach to planning for the opening of the Iranian market. Many senior executives are awaiting a final nuclear deal before building or updating a go-to market strategy for Iran. While a measured approach is required due to the current sanctions regime and unique challenges in the Iranian market, failing to plan now will make it harder to succeed after the market opening occurs.
In addition, foreign companies should anticipate that a lack of market data will be disruptive to entry or expansion in Iran. We know that some companies with an Iran presence receive inconsistent feedback from local contacts and partners. Additional resources will be needed to gather information as the market opening occurs. It is difficult to anticipate an exact timetable for post-agreement sanctions relief, so multinational corporations (MNCs) should prioritize ready-to-execute plans. Some Western multinationals are already operating in Iran, while many more emerging-markets companies are positioned to enter and expand rapidly.
Finally, a longer time horizon will be required for strategic planning that focuses on the Iranian market. This dynamic exists because the go-to market strategy for Iran must differ from the standard approach to emerging markets. There are major challenges faced by foreign multinationals that necessitate a more sophisticated planning process, including ongoing sanctions exposure, reputation risk, shifting market dynamics, international isolation of the economy, and very limited familiarity with Iran.
In order to overcome these challenges, senior executives must align their organizations on the best way to fill information gaps and leverage cross-functional expertise sooner rather than later. Without a thoughtful plan prepared ahead of Iran’s opening, multinationals could fall behind their competition and expose themselves to a number of operational risks.