Newfound Urgency: 4 Steps for Western MNCs in the Iran Market

In a recent benchmarking study conducted by Frontier Strategy Group, more than 80% of the 28 multinational companies (MNCs) surveyed said they are focused on reassessing their strategic plans for Iran. These recent survey results, along with anecdotal evidence provided by my daily conversations with clients on investing in Iran, indicate an unprecedented interest from EU- and US-based MNCs. There is good reason for this newfound urgency.

Even if a final nuclear deal is reached by the June 30 deadline or after another extension, it will be hard to anticipate an exact timetable for sanctions relief in Iran. Yet there is a growing consensus among senior executives that any market share won in 2016 or 2017 and profitable growth from 2018 onwards, would be the result of strategic planning that must take place right now.  As a result, MNCs are prioritizing ready-to-execute Iran plans.

For example, a pharmaceutical company that is already allowed to work with a local distributor could assess ways that the partnership could expand once sanctions relief creates the appropriate conditions to do so. Other MNCs, especially in technology and industrial sectors, are not afforded the same opportunities given the stringent international sanctions regime that keeps them out of the market. However, senior executives from these companies are able to prepare in several other ways, including through visits to Iran, conversations with peers who are doing business there, and beginning to identify potential local partners.

In all instances, we are seeing a hunger among executives to ensure they are closely adhering to established sanctions parameters while at the same time readying their organizations to better understand and ultimately succeed in Iran. This balancing act is not an easy task, especially when you consider different dynamics presented by a company’s country of origin, industry, size, local experience, and risk appetite.

Because there is no one-size-fits-all approach to Iran, FSG has developed a four-step process to help our clients determine the right way to structure effective plans for the Iranian market. The rest of this blog post outlines a simple, four-step process that any foreign MNC can use to structure or pressure test their Iran plan.    

Step 1: Confirm Market Opportunity

Despite Iran’s huge potential, the market will not be worth the risk for every foreign company. We advise MNCs to evaluate where they fall on an Iran risk spectrum by answering key questions related to industry opportunity, market prioritization, risk appetite, and organizational resources. FSG designed a short questionnaire to help senior executives pinpoint where their organizations fall on the risk spectrum, and to challenge pre-conceived notions about whether or not Iran should remain off-limits if sanctions are lifted. Given the unprecedented level of MNC focus on Iran planning, most companies we’ve spoken to move on to step two.

Step 2: Establish Working Group

The best way to align an organization on what is required to prepare for Iran’s complex operating environment is to establish a cross-functional working group. This step is especially critical for larger MNCs that could face an uphill battle in navigating organizational bureaucracy. Participants in such a group will vary by company, but it could include: Head of Middle East North Africa and/or Europe, Middle East, and Africa; Head of Strategy; Chief Financial Officer; General Counsel; Heads of Business Units, and any other relevant senior management. Setting a clear mandate upfront is important in order for the group to achieve goals, such as streamlining internal communication on Iran, educating the rest of the organization on opportunities and risks, and building or updating the Iran plan.

Step 3: Gauge Organizational Readiness

To be successful in Iran, senior executives will need to understand exactly where there are organizational strengths and weaknesses in their entry or expansion plan. To assist in this process, FSG created an “Iran readiness diagnostic” for our clients. The self-assessment tool allows senior executives to measure their level of confidence in addressing several key areas of Iran planning, such as strategy, finance, legal, operations, and customer segmentation. Typically, MNCs find that they are prepared to answer some, but not all questions that are required to build or update an effective strategy for Iran. While results will vary from company to company, this type of objective evaluation is critical for all senior executives seeking to prepare their companies for Iran.      

Step 4: Develop Action Plans to Close Gaps in Iran Strategy

MNCs can use results from step 3 to begin closing the biggest gaps in their strategic plans for the Iranian market. First, senior executives should use the self-assessment results to align their organizations on where internal resources must be directed for Iran planning. Next, Iran working groups should prioritize which areas must be addressed and the required timelines before Iran entry or expansion is even possible. Finally, resolving these key questions should be done through comprehensive action plans that outline relevant analysis, follow-up steps, timelines, and key stakeholders involved.

Let the Buyer Beware

With Iran’s market opening likely to occur gradually after any finalized nuclear deal, foreign companies must be prepared with flexible entry or expansion plans to stay ahead of fierce competition. Given the Iranian market’s complexity, the traditional approach to strategic planning will not succeed. The four-step process outlined in this blog post is one way to compensate for the likelihood of a challenging and shifting Iranian investment climate in upcoming years. Without thoughtful plans prepared ahead of Iran’s opening, MNCs could expose themselves to a number of serious compliance and operational risks that would reverberate negatively across their organizations.   

Photo Credit: Frontier Strategy Group