Iran Innovation Opportunities

by: Tatjana Guznajeva, Technopolis Group

Why should I read this document?

When confronted with the differences between your own market and the market of Iran you will likely feel that you have to adapt your product/service significantly to make it fit the preferences and expendable income of local people. While many may see this as a challenge this can also proof to be a great opportunity for your company! Adapting to a new market, like Iran, will allow your company to innovate. Not only will operating in Iran lead to new insights to be more successful in Iran, you will most likely also pick up on ideas to be more successful in your home market.

This document provides a short overview of innovation aspects, business opportunities and challenges in Iran. It will also give advice on best practices for starting and developing an innovative business venture, considering Iran’s country context. May it help you to explore Iran and lead you to innovation and success.

Opportunities and tips for innovation and doing business in Iran

The large number of young people and the rising middle class ensure a great demand of technologies. Iran already successfully develops the ICT sector, however, the consumer market for technologies is bigger than what is currently produced in the country.
Iran has become the techno-hub in the Middle East, therefore very promising sectors for innovation and entrepreneurship are health care (pharmaceuticals, biotechnology), nanotechnology, nuclear technology, aerospace techinology and automotive industry.
Tourism is on the rise in Iran, as the country is becoming an accepted travel destination with much to offer. This sector requires a substantial development to accommodate all interested tourists.
Iran has a convenient trade location, allowing to access other (untapped) markets in the Middle East and Central Asia. It is advisable to design trade strategies, based on the network of Iranian allies, such as Iraq, Lebanon, Russia.
Iran has a large pool of influential Iranian people living outside Iran (and their children): make useful contacts, ensure support during the start of your business.
Iran has the largest consumer market among Middle Eastern countries and there is a strong demand in high-quality Western products and services, as during the period of economic sanctions foreign goods were scarce.
Iran has developed a substantial manufacturing capacity, in particular in the automotive, pharmaceutical and telecommunications industries, however, Iran still relies on foreign inputs for production in most industrial sectors. Therefore there are opportunities to upgrade or innovate existing facilities, instead of installing entirely new production plants, and to develop trade networks which will supply the needs of the manufacturing sector.
The number of Internet users in Iran is growing quickly, and changes in online payment methods already caused the growth of e-commerce and mobile startup companies. Currently, there are many opportunities to tap into Iran’s market through e-commerce.
Iran is rich in natural resources - the country ranks fourth in the world in oil reserves and has the second largest gas reserve in the world. Materials that are commonly available in Iran are zinc, lead, iron ore, copper and aluminium.
Considering the abundance of natural resources, market size, well developed science and technology sectors, diplomatic and cultural ties, Iran has the potential to become both political and economic leader in the Middle East.

On Level 2 you can find information about innovation climate in Iran, while Level 3 will tell you more about business activities in Iran.

Innovation climate in Iran

This page will tell you about innovation ecosystem, major technology sectors, innovation and business practices in Iran.

Innovation ecosystem

Since early 2000s, the Iranian government has been stimulating technical education and investing in science, trying to modernise industries and develop high-tech sectors. As a result, Iran’s growth rate in science and technology is more than 10 times above the world’s average. The scientific organisations in Iran are actively publishing research results, therefore the country is ranked the 7th in the world by the volume of scientific papers related to nanotechnology. Due to economic and financial isolation, innovation in Iran has been primarily revolving around its own resources and governmental strategies. Most R&D investments were directed toward companies or sectors with a high degree of state control, such as petroleum and agricultural sectors. Thus, the majority of high-tech companies in Iran are currently state-owned.

In recent years, Iran has experienced a growth of grassroot tech-focused events, emergence of social entrepreneurship and innovative business models, which aimed to address local challenges. Most innovations within the private sector are ICT-focused.

Tehran is the center of technological development in Iran, however, there are several science and technology parks, incubators spread across the country. Iran has started intensive collaboration on science with other developing countries.

Innovation sectors and technology

The biotechnology, nanotechnology, aerospace technology and pharmaceutical sectors have experienced an extensive development and innovation in Iran in recent years. Among new inventions within biotechnology and pharmaceutical sectors are molecular farming, genetic diagnostic tools, blood substitutes and Parseh surgical navigation system. Some of the low cost innovations have been designed within the telemedicine, such as mobile applications for the measure of blood sugar, blood pressure and oxygen levels.

The nanotechnology industry has been given a priority in the country, therefore Iran has 77 universities and research institutes which focus on its development. Within nanotechnology the major breakthroughs are scanning tunnelling microscope (NAMA-STM), thermoplastic acrylic resin modified with nano clay and hydro conversion. In the area of aerospace, Iran has manufactured IRAN-140 aircraft, launched a platform for Omid satellite and Kavoshgar, and designed other aviation products.

Due to ICT development and a growth of the online business sector, the gaming, online trade, mobile payment, news, advertising and social media industries have emerged in a great number in Iran.

Innovation culture and practices

Iran’s isolation during the period of sanctions allowed businesses to reproduce successful Western ideas, products and models, creating analogues of Amazon or Google. Currently, most profitable Iranian companies are those which utilised foreign ideas. Iranian companies are however also very inventive, for example, in order to overcome the barrier of closed banking system, a range of virtual currencies and mobile payment methods have been introduced.

Iranian entrepreneurs have organised various business communities to support each other, such as the NGO Iran Entrepreneurship Association or Iran Startups. In addition, Iranian people living outside Iran (and their children) have been assisting entrepreneurs in the country by supplying ideas and resources.

Business activities in Iran

This page highlights major economic sectors and iconic products, shows business trends and explains how easy it is to do business in Iran. In addition, you will find the list of websites, which provide some hands-on information.

What is the country known for?

Sectors
The biggest sectors are: mining, steel, oil, health care, tourism, biotechnology, nanotechnology and pharmaceutical.
The service sector is the biggest in Iran, as it accounts for 51% of GDP, in contrast to 40% of industrial and 9% of agricultural sectors.

Iconic products
Telecommunications equipment, industrial machinery, rubber products, paper, wood and leather products, food products, textiles and pharmaceuticals, hand-woven carpets.

How easy is it to do business in Iran?

Based on the World Bank ranking:

	Iran	EU average	Emerging markets average
Overall - ease of doing business	120	30	83

Iran’s economic sanctions and protectionism, complex bureaucratic regulations have been negatively affecting stable development of business and economic modernisation. The banking, financial and legal systems in Iran still need to undergo further transformation towards openness and effectiveness. As a result, the processes of getting credit, protection of investors, resolving insolvency and trading across borders are quite complex. Thus, it is relatively difficult to start and to run a business in Iran, in contrast to European countries.

Iran has a complicated visa policy and work permit procedures, therefore it is advisable to consult with the expert if you plan to live, work or to hire employees from other countries. Local financial institutions may introduce changes, which could shortly disrupt financial transactions, therefore it is recommended not to solely rely on the Iranian banking system. Note that the online banking is still problematic in Iran. Foreign companies should regularly check if their activities comply with the changing regulations, and they should be well-informed about permitted actions in relation to sanctions. Be aware that many Iranian companies are partially or fully state-owned, therefore some industries experience monopolistic or oligopolistic competition.

Business trends in Iran

As a result of Iran’s periodic economic isolation, B2B in Iran occurs predominantly among domestic companies. The pharmaceutical, automotive and petrochemical industries have well-developed domestic supply chain networks, while other industries partially rely on foreign inputs for production.

The Internet revolution and the rise of e-commerce gradually contribute to the development of B2B in the country and promote integration into the global supply chain. However, this process is slower than in other emerging markets. State interventions and excessive regulation of the market is another factor which demotivates foreign companies to build strong commercial and trade ties in Iran. However, the removal of sanctions contributed to the growing interest of foreign companies in Iran.

Most foreign companies in Iran are involved in the sectors of oil and gas, transport, industry and mining, ICT, agriculture, health and tourism. The free zones and special economic zones (SEZs), which offer import customs exemptions or tax holidays, have a more intensive presence of foreign companies.

Despite that the Internet is booming in Iran, there are still a lot of Iranians that prefer to buy their goods at the bazaar. Boutiques and malls are also becoming common. Despite the existence of ATMs and financial cards the consumer credit is uncommon in Iran, therefore most financial transactions are made with cash. The current generation of Iranians seeks to have modern and urban lifestyles, therefore cosmetics, non-alcoholic drinks, relatively non-expensive personal luxury goods, new technologies, child-specific products are likely to have a large demand in Iranian market in the next years.

More hands-on info

Organisation for Investment Economic and Technical Assistance of Iran (in 2017: http://www.investiniran.ir/en/home)
Iranian Embassy in your own country
Techran Chamber of Commerce, Industries, Mines and Agriculture (in 2017: http://www.tccim.ir/english/)
How to invest in Iran (in 2017: http://www.howtoinvestiniran.com/)
Iranian Business Council (in 2017: http://www.ibc.ae/)
Iranian Entrepreneurs Association (in 2017: https://foursquare.com/v/iran-entrepreneurship-association--%DA%A9%D8%A7...)
Trade promotion organisation Iran (in 2017: http://eng.tpo.ir/)

Bibliography

Level 1:
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Level 2:
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Level 3:
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For additional information on Iran’s internet availability, online anonymity, content blocking and cybercrime, go to: https://comparite.ch/iranprofile