Iran is an attractive but complex market. With a population of around 80m, a well-educated and sizeable middle class, large amounts of natural resources in what is a diversified economy, and the expected lifting of many of the existing trade sanctions, opportunities will abound for companies willing to be first movers in the market. However, the operational environment remains complex. The country has been subjected to a comprehensive and restrictive set of sanctions by the UN, EU and US since 2006 and has been considered an international pariah until only recently. Indeed, companies that have done business in Iran over the past few years have faced a multitude of risks and difficulties, from an inability to move funds into and out of the country to reputational damage brought about by scrutiny of anti-Iran pressure groups. 

We think that companies can work on the assumption that the Joint Comprehensive Plan of Action (JCPOA), agreed in July 2015 between Iran and the five permanent members of the UN Security Council plus Germany (P5+1) will be implemented at some point in 2016. Now that all of the key respective political hurdles in Iran and the US have been cleared, the next step is for the International Atomic Energy Agency (IAEA) to be satisfied that Iran has met its initial commitments under the terms of the JCPOA, which will allow for the lifting of certain international sanctions. As they wait for Implementation Day, companies that want to benefit from first movers’ advantage need to prepare a robust market entry strategy which will provide confidence to their internal and external stakeholders that this is a calculated risk which should provide value to the company. As part of drafting this market entry (or re-entry) strategy, companies will need to consider the key role that their compliance departments will have to play in this process, which will shift them from their more traditional inward-looking attitude to dealing with detailed scrutiny by the company’s stakeholders of their own risk assessment processes and procedures.

There are essential questions that companies need to answer before entering a new market, such as: when to enter the new market, how to enter it and with whom. These fundamentals apply to Iran as much as they do to any other new market. Where Iran differs is in the attention that a wide range of stakeholders will pay to the company’s proposed activities in Iran, as they will seek confidence from the company’s compliance department that it has a thorough and robust strategy for entering Iran, which will ensure that the company is compliant with any remaining sanctions after Implementation Day.

Given the complexity of the Iranian market and Iran’s prominence in the news and in the minds of CEOs, the way in which compliance departments engage in dialogue with stakeholders on their governance processes with respect to Iran will be particularly important in securing approval on when and how to proceed with market entry.  Concerns from stakeholders are likely to include:

  • Ethical and legal concerns about Iran from the company’s shareholders, who may come from a diverse range of nationalities and have differing risk appetites, as well as concerns influenced by their own political opinions on and perception of Iran 
  • The legality and compliance of the company’s proposed activities in Iran with regard to relevant local regulations 
  • Concerns from politicians in the home country, for whom the prospect of doing business with Iran can be a sensitive issue, and who are regularly lobbied by interest and lobby groups with a view to discourage commercial engagement with Iran
  • Financial concerns from banks that have significantly lowered their risk exposure - sometimes to the extent that they will refuse to handle even legal and compliant transactions with Iran, following eye-watering fines meted out in the last few years for Iran-related and sanctions-related transgressions
  • Existing business partners or suppliers may express legal, ethical, reputational, compliance and political concerns with respect to following your company in Iran.
  • The entry of major international companies into Iran is likely to attract significant media attention, some positive and neutral, but much of it negative, and companies will need to ensure they are prepared to come under the media spotlight if they want to be a first mover.

Being prepared to proactively and reactively engage with these stakeholders will be essential to finding as smooth a path as possible on what is inevitably a bumpy road to market entry. We suggest seven steps that will be essential in shaping your market entry strategy such that you will have answers to these questions and provide your stakeholders with the confidence required that this can be a lucrative business opportunity for the company.

  1. Obtain independent legal advice that the company’s proposed activities are legally compliant with all applicable sanctions.This will be essential to demonstrate  to concerned stakeholders that the company is taking its approach to Iran seriously.
  2. Plan for post-implementation scenarios to understand what different events and outcomes will likely mean for your sector, business model and nationality in the event of any delay or derailing of the nuclear implementation agreement.
  3. Understand the local business environment in which you will be operating. It is important to understand and plan ahead for the various challenges you are likely to face depending on the nature of your operations and the sector you will operate in. These can range from availability of labour and infrastructure to political interference or exposure to corruption.
  4. Conduct independent due diligence on clients and partners in Iran, to know your partners and customers, and – in turn- their clients and partners in Iran - in order to understand your supply chain exposure.  Understanding the beneficial owners of your local partners and clients is particularly important in Iran, given existing sanctions targeted at specially designed individuals or organisations (SDNs). As such, due diligence will not only help you preserve the company’s integrity to potential corruption or fraud schemes, but also allow you to avoid unwittingly exposing the company to existing sanctions legislation.
  5. Identify the reputational risks of engaging with Iran. Whilst sanctions are the most obvious risk, with part of them remaining in place following the implementation of the JCPOA, there is potential reputational harm, particularly in the United States and parts of the Middle East, where Iran is a highly-politicised issue.
  6. Seek to strongly embed corporate governance standards for sanctions and corruption when setting up a business on the ground.  Iran has been an isolated market that has felt considerable stress and strain from the implementation of comprehensive sanctions since 2006. Patience and persistence will be required as you communicate and enforce those standards among employees and third parties.
  7. Monitor key developments in Iran which are likely to influence the trajectory and success of your local business. These can range from the influence that US presidential elections could have on a potential snapback of sanctions to upcoming national elections in Iran and any ensuing regulatory changes affecting the business environment in the near future. Monitoring such factors will allow your organisation to review its posture and adapt its market entry strategy and compliance procedures accordingly.

Following these seven steps as part of your market entry strategy will give your organisation and stakeholders the confidence that you have conducted proactive risk management in what is likely to remain a complex market for the foreseeable future; The JCPOA is after all a ten-year political agreement, so long-term planning will be a key factor of success for any company considering this opportunity.