Doing Business in Iran
Overview of Iran
Iran, ancient Persia, is a land of fine art and crafts, including world-renowned carpets and miniature paintings on paper. The name “Persia” derives from the region of Pars (Fars), where the ancient civilization originated. In 1935, Shah Reza Pahlavi requested that the country be referred to as Iran, which had long been the term used by those who live there.
Iran has five millennia of fascinating cultural heritage and history as one of the dominant civilizations of the ancient world. Since prehistoric times, the region and its people have served as a cultural link among the Eastern Mediterranean, India, and Central Asia. For example, among these early settlements, Arisman, in what is now in the province of Isfahan province, is considered one of the first industrial hubs in the ancient Near East. The land of Persia, then, has been and continues to be a cultural highway for the transfer of goods, people, ideas, and knowledge between Asia and Europe. In ancient and medieval times, the Silk Road traversed this vast expanse of deserts, rugged mountains, and coastline.
In 550 BCE, Cyrus the Great established the first Persian empire, known as the Achaemenid Empire, which expanded into ancient Greece until falling to the invading armies of Alexander the Great. Alexander the Great and his successors established the Hellenistic Seleucid Empire, further expanding the influence and fusion of Greek culture into Western Asia. This was followed by the native Parthian Empire and then the Sasanian Empire, which was the last Iranian empire until the Arab Muslims invaded and ruled the region for centuries. Around 1500 CE, Shah Ismail I established the Safavid Empire; up to this point, Sunni Islam had been the dominant faith, but the new empire forced its inhabitants to convert to the Shia faith.
In the centuries that followed, Iran was shaped by ongoing struggles with regional powers, especially the Ottomans and the Russian Empire. During World War II, the British and Soviets invaded Iran and replaced the ruler, Reza Shah, with his son Mohammad Reza Pahlavi. This shah continued to rule Iran as a strong Western ally until being driven from power by the 1979 revolution that produced the Islamic Republic of Iran.
Iran is a large country, with an area exceeding 1.6 million square meters. The Caspian Sea marks its northern boundary, with Armenia and Azerbaijan to the northwest and Turkmenistan to the northeast, Afghanistan and Pakistan to the east, the Arab (Persian) Gulf and the Gulf of Oman to the south, and Iraq and Turkey to the west. With a population of greater than 80 million, Iran is the third most populous of the so-called MENA (Middle Eastern and North African) nations (after Egypt and Turkey). The capital, Tehran, is also the largest city, with a population of more than 15 million population in the greater metropolitan area. Farsi is the country’s official language, and Persians are the largest ethnic group, living alongside sizable minorities of Azeris, Turks, Kurds, and Arabs.
Iran’s total gross domestic product (GDP) for 2020/2021 was $628 billion, making it one of the largest economies in the Middle East. In terms of natural resources, Iran has the world’s second-largest reserves of natural gas and fourth-largest crude oil reserves. Despite being an energy superpower and OPEC’s second-largest oil exporter, its economy faces enormous challenges mainly because of the current sanctions regime enforced by the United States, which greatly complicates the situation and has pushed the value of its currency to record lows, discouraged foreign investment, and produced an inflation rate of nearly 50% year-on-year as of February 2021. However, it is important to keep in mind that only a few Iranian companies and individuals have been the targets of the accusations about human rights abuses, support for terrorist organizations and the continued illicit nuclear activities that prompted the sanctions. In any case, partnering with the wrong partner can result in large fines and worse for those who fall afoul of the trade restrictions .
Four points to keep in mind when doing business in Iran
Iranians are very proud of their country, language, faith, and history, and they are eager to remind their foreign friends of their unique geographical position. They also often highlight their differences from their Arab and Turkish neighbors, stressing their ancient connections with civilizations in Europe and India as well as their Shia faith.
A Shia culture
Iran is by far the largest Shia country, and Shia Islam plays a key role in many aspects of Iranian culture. Shia Islam differs from Sunni Islam with respect to religious doctrine as well as rites, festivals, and other customs. Particularly important are the shrines where leading Shia imams are buried, which serve as the focus of pilgrimages for religious Iranians and other Shia worshippers.
The importance of maintaining face
Iranians, like Arabs and Turks, value highly the notion of pride and saving face in personal interactions. Any loss of face is regarded as a disaster for the individuals involved as well as their families.
The importance of building trust
In order to build a successful business in Iran, it is necessary to understand the history and the culture. Since Iranian culture is fundamentally collective, family and social groups are the foundation of social life in the country. This is also true of business relationships, so it is crucial to establish trust at the outset when engaging with prospective Iranian partners. Therefore, it is recommended to meet Iranian businesspeople in-person and on-site in the country if your venture there is to prosper, for a personal relationship must precede a business relationship.
What to look for in an Iranian business partner
When doing business or investing in Iran, it is crucial to perform due diligence thoroughly. This means researching all firms and individuals before considering doing business with them. That said, performing the necessary due diligence can be difficult due to the scarcity of market and other data, at least for those outside the country. Iranian business culture, in general, is not especially transparent in terms of ownership structure, financial statements, and similar information. Generally, as might be expected, relevant information about companies listed on the Tehran Stock Exchange is more readily available than information about unlisted ones.
The first step in your research into prospective Iranian partners is to request a list of directors and shareholders, whose names can be screened for association with problematic individuals and organizations. In general, choose a local partner with whom you can build a lasting relationship, who has a command of the language and culture, and who shares your firm’s values, mission, and goals. The following fundamental attributes are crucial in any Iranian business partner.
Strong connections: Iranian society is collectivist, built on relationships and personal loyalty. Therefore, your partner needs to be well-connected and respected within the business community and able to leverage these longstanding ties for the benefit of your business. Again, without the assistance of an Iranian contact’s personal network, your venture is likely to fail.
Experience: Your Iranian partner should have years of experience working with both government agencies and private firms and specific knowledge of the decision-making processes in the organizations with which you seek to do business. Another key capability is knowing how to expedite processes in a bureaucratic system.
Trustworthiness: Since the strength of a relationship with an Iranian is in large part based on familiarity, you need to begin developing mutual trust with your partner from your first meeting. It is necessary to invest heavily in relationship-building before trying to close deals or form a long-term partnership.
Business culture and etiquette
Iranian culture is relatively high in power distance. Thus, the structure of Iranian businesses is, like that of Iranian society, hierarchical. In business meetings, the highest-ranking person leads the discussion and makes the final decisions. However, members of the younger generation tend to be more egalitarian.
Business meetings usually start with tea and small talk—but not about the matter at hand. Common topics of discussion in these situations include family members, health, and current business, economic, and world affairs. When meeting a potential partner for the first time, the objective is to break the ice. Not until the second meeting will business be discussed.
Always use formal ways of addressing people, especially when first meeting someone. This would be ‘Agha’ (or “Mr.”) for men and ‘Khanoom’ (or “Mrs./Ms.”) for women, followed by their surname. Academic titles are respected and used widely in Iran, so it is normal to address anyone who holds a PhD as a “Doctor.”
Exchanging business cards is a key ritual at the beginning of a meeting.
Unless you are fluent in the language, it is essential to hire a Farsi speaker as a legal counselor or assistant when conducting business in Iran. Further, since many documents are only available in Farsi, when you are ready to sign contracts, be sure to have bilingual versions that include your firm’s main language in addition to Farsi and always have a lawyer who is fluent in that language to check the translation.
When it comes to personal interactions, Iranians are generally sociable, emotional, and tactile, and they tend to stand and sit closer to others than Westerners do. However, there is no physical contact between unrelated adults of the opposite sex.
Iranians are generous to guests, regularly inviting business partners, and potential business partners to meals.
Be especially careful with
Criticism. Direct criticism is often perceived as hostile, so never criticize an Iranian in public. Doing so creates the perception of a loss of face. If it is necessary to correct misinformation, do so privately and politely.
Negotiations. Iranians have limitless patience, and it can be difficult to see behind their curtain of politeness. Therefore, negotiations can take a long time. The decision-making process is slow because decisions must move up the hierarchical ladder of authority. Hence, the most effective strategy is usually to present your project to the highest authority whom you can access. During meetings, communicate your ideas both verbally and visually with charts, graphics, and maps as well as a carefully crafted pitch. Also, it’s a good idea to set your bottom line in advance and start higher; since concessions are expected, you need to leave room for compromise.
Offhand comments. As mentioned, Iranians are very proud of their nationality, history, and country and protective of revered national and Islamic republic figures. In general, never joke about Iranian history or society or Islam or religious leaders and avoid off-color comments.
Corruption. Iran is ranked high in corruption according to the results of the most recent (2020) Transparency International Annual Corruption Perception Index . Corruption manifests in multiple ways in the country, from patronage to nepotism and preferential treatment for certain businesses and individuals to outright bribery. While an array of laws criminalizes various forms of corruption in both the public and private sectors, these laws have not been enforced effectively.
Currency exchange volatility. Iran’s economy has remained volatile since the revolution due mainly to US sanctions. Hence, foreigners doing business in the country need to plan carefully for the possibility of currency devaluation.
Interpersonal interactions. Again, trust is a fundamental part of Iranian society since it is collective and built on relationships and personal loyalties. You may notice that Iranians keep mentioning trust in discussions, which is why a well-connected Iranian businessperson is a necessary partner in any successful venture.
Case Study: Making Contact
A leading Swedish medical instruments producer is planning to introduce its products to the Iranian market as the next step in its plan to expand its Middle Eastern footprint. Oskar is the firm’s manager responsible for its exports to MENA and Asian countries. He visits the Swedish Iranian Chamber of Commerce and receives a list of the Iranian leading importers of medical instruments. Following a strategy that has proved successful for his firm in other parts of the world, Oskar emails all of the companies on the list, being careful to research these potential clients and tailor the content of his communications to each. He waits eagerly for several days, and then a week, but he receives no replies to his inquiries. Confused and disappointed, Oskar begins to wonder if it is even possible for a Western firm like his to make inroads into the Iranian market.
Iranian culture is, as discussed, collectivistic. One consequence of this collectivist orientation is that Iranian businesspeople usually will not even consider working with foreigners outside the context of personal and trusting relationships. This being the case, cold emails won’t be answered and even suggest that the sender is ignorant about how deals are made in the country. For Oskar’s proposals to be considered by Iranian importers, he must communicate them through a trusted intermediary from within the Iranian business community.
Rethinking his strategy, Oskar approaches the Swedish Iranian Chamber of Commerce again and, this time requests an introduction to representatives of the leading Iranian medical instruments importers. He then travels to Iran and meets several prospective partners in person. Gradually, he begins building relationships with them. He increases his chances of success by working with a local intermediary who already knows the key players. Oskar learns that, since Iran has a relatively high power distance compared to Sweden, he needs to identify and become acquainted with the actual decision-makers in the Iranian import firms to make the most of his time and efforts. He also realizes that, in these interactions, he needs to demonstrate his expertise and present his company as an industry leader, for Iran scores relatively high (59) in Hofstede’s uncertainty avoidance dimension, which means that Iranians feel uneasy by ambiguous and unknown situations, this is why an expert opinion can ease their stress in these cases and make them more confident in their decisions based on an expert recommendation.
References and useful links
 The World Bank https://www.worldbank.org/en/country/iran/overview#1
 Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and Organizations, Software of the Mind (3rd edition). New York: McGraw Hill.
 Transparency International (2020). Corruption Perceptions Index 2020. https://www.transparency.org/en/cpi/2020/index/irn
 Hofstede Insights. Country Comparison Tool. https://www.hofstede-insights.com/country-comparison/