Are Iranian SMEs Ready for International Business?
This research note is adapted from a Master’s Thesis submitted to the University of Geneva and University of Savoie Mont Blanc.
Academic research on Iranian managers is scarce, mainly because of the lack of business ties with foreigners and longstanding international sanctions. Relatively little is known about how Iranian managers, particularly those at smaller enterprises, perceive business collaboration with outsiders. In order to address this knowledge gap, we have conducted a major survey among Iranian managers in the industrial sector. The aim of this original research, conducted as part of studies at the University of Geneva and the University of Savoie Mont Blanc, is to help Swiss, and more broadly European, businesses better understand the expectations of Iranian small and medium-sized enterprises (SMEs). The goals of this research are as follows:
Address the perception of Switzerland by Iranian SME managers in the industrial sector
Identify the expectations of Iranian managers when entering into a partnership with a Swiss company
Outline the importance of informal networks and the role of the "in-group" aspect in Iranian culture
A quantitative survey was conducted covering 101 managers from the textile industry, based primarily in Tehran and Kashan. These managers represent 87 different companies, of which 97 percent employ less than 250 people and therefore qualify as SMEs.
This survey clearly indicates the willingness of Iranian SME managers to do business with foreign companies and reflects the belief of these managers in international cooperation. When asked about the importance of an international network of business partners, a resounding 99 percent considered such a network "very" or "extremely" important. Currently, international connections are being established: 87 percent of the surveyed managers say that foreign companies have approached them for potential partnerships.
When it comes to the kind of partnership discussed during business collaboration, ventures that require limited capital are favored: 85 percent of the respondents would likely opt for an agency or distributor partnership while 59 percent are likely to choose a licensing arrangement. Regarding the possibility of engaging in joint ventures, 47 percent of managers would likely pursue a joint venture in which they would be the majority partner. On this basis, international investors should opt for "light" partnerships at first, such as agency, licensing or distributor agreements.
It is also important to consider the prevailing hierarchical model of business when approaching Iranian managers. Combined with understanding the strong "in-group" dimension of Iranian SMEs, a foreign company’s primary mission will be identifying the primary decision-maker. Resources could be wasted if this person is not identified, and if equivocal communication were to skew perceptions or the understanding of terms and conditions, it could lead to failure.
Accessing the full range of networks will be the key success factor for conducting business with Iran. This is a prominent cultural component, and the kind of networks that are important to Iranian managers have been quantified and qualified in our survey. We have addressed professional, personal, institutional, and international networks.
The personal network, encompassing friends and family, is the standout for its importance and Iranian managers rely on it to address business opportunities. Another important feature of Iranian culture is the fact that the personal network often merges with the professional network. More than 90 percent of the Iranian managers consider their their colleagues to be "part of their family circle." These managers rely heavily on both their private and professional networks to generate and evaluate business opportunities. A resounding 99 percent consider a referral from their "close network" to be be "very" or "extremely" important. More than two-thirds of the managers surveyed consider their personal/professional network to be "very efficient" as a means of identifying credible business opportunities.
From a business perspective, we can conclude that Iranian managers are open for business, and they wish to expand their relationships with foreign entities. That being said, foreign companies hoping to engage Iranian SMEs will need to develop cultural skills, and develop an awareness of Persian culture, Islamic tradition, and sentiments regarding Westernization.
This will allow interested parties to mediate what sociologist Ronald Stuart Burt refers to as "structural holes within a network." The informal networks of all managers can be leveraged, not just the professional networks. This view of networks is similar to the concept of "social context" as described by sociologist Mark Granovetter in his seminal work Strength of Weak Ties. In this sense, economic transactions in Iran are embedded within informal networks.
In regard to the perception of Swiss companies, we noticed that surprisingly, innovation is the least-favored feature. It is more important to Iranian managers that Swiss companies are trustworthy, precise, and that they deliver quality.
Overall, the insights from this survey can help foreign companies develop an entry strategy by outlining Iranian managers’ expectations. Iranian SMEs are very interested in foreign partnerships, but their approach to business depends greatly on informal networks. It is therefore important that potential foreign partners can navigate cultural nuance in order to successfully navigate business relationships.
Photo: IRNA
