Thesis: Doing Business in Another Country

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¶ … Business in another Country

Iran Analysis

When deciding upon the option of opening a business in a foreign location, any company, no matter its size or field of activity, must conduct a thorough analysis of the factors that might influence the company's presence in the country in case. Cultural differences are very important factors that must be analyzed and taken into consideration. Even more, the entire strategy must be built on these cultural aspects.

The stability or instability of the economic, political, cultural environment may be decisive for the well-functioning of the company. In a country like Iran, characterized by such cultural and religious differences in comparison with Western civilizations, the environment is quite risky and may cause a series of turbulences for foreign companies opening businesses in the country. Therefore, the decision must be made in accordance with the results of the analysis of these factors.

Factors of influence

Iran history

The Republic of Iran was known as Persia approximately until 1935. In 1979 the country was declared Islamic republic. This status was achieved by exiling Shah Mohammad Reza Pahlavi. The monarchic system was replaced by a theocratic one, implemented by conservative clerical forces (CIA, 2009).

The Qajar Dynasty was replaced by the Pahlavi Dynasty in 1921, following a military force operation. Reza Kahn soon became the most powerful person in Iran. His power was instated by the fact that he managed to suppress any rebellious acts and to establish order in the region (Ghasemi, 2009).

Aside from establishing order in the region, Reza Shah was planning on building a modern Iran, by developing large-scale industries, developing infrastructure through ambitious projects, establishing a railroad system designed to traverse the entire country, implementing a modern national education system. His plans also regarded the modernization of the judiciary and the health care system. In his opinion, these plans could be implemented by establishing a centralized government managed by individuals with modern views.

Economic situation

Iran is generally characterized by an unstable economic situation. The state is involved in the private economic activity. Iran's economy mostly consists in exploiting the oil sector that is responsible for most of the government's revenues. The state sector is unstable and inefficient. Even more, this disturbs the private sector also, affecting the overall economy of the country.

Even so, the private sector is quite primitive. It is composed by farming, services, and small workshops. The development of the private sector is held down by government's strict policies. Iran is also characterized by a high level of corruption.

Important economic facts about Iran include: GDP - $859.7 billion, GDP real growth rate - 6.4%, GDP composition by sector - agriculture 10.8%, industry 44.3%, services 44.9%, labor force - 24.35 million, labor force by occupation - agriculture 25%, industry 31%, services 45%, unemployment rate - 12.5%, household income or consumption - lowest 10%: 2%, highest 10%: 33.7%, investment - 27.7% of GDP, Budget - revenues $51 billion, expenditures $103 billion, public debt - 25% of GDP, inflation rate - 28%, commercial bank prime lending rate - 12%, industrial production growth rate - 4.5%, current account balance - $27.47 billion (CIA, 2009).

Iran's agriculture products include: wheat, rice, other grains, sugar beets, sugar cane, fruits, nuts, cotton, dairy products, wool, caviar. The most important industries in Iran's economy are: petroleum, petrochemicals, fertilizers, caustic soda, textiles, cement and other construction materials, food processing, ferrous and non-ferrous metal fabrication, armaments.

Iran's exports account for $106.4 billion and are consisted of petroleum 80%, chemical and petrochemical products, fruits, nuts, and carpets. Iran's exports partners include: China 15%, Japan 14.3%, Turkey 7.4%, South Korea 7.3%, Italy 6.4%.

Iran's imports account for $67.79 billion and are consisted of industrial raw materials and intermediate goods, capital goods, foodstuffs and other consumer goods, technical services. Iran's imports partners include: China 14.2%, Germany 9.6%, UAE 9.1%, South Korea 6.3%, Russia 5.7%, Italy 5%.

Cultural aspects

Cultural differences between Iran and the Western world are enormous. Almost every aspect of lifestyle is completely opposite in Iran compared to Western habits. For example, the attitude that young people have in relation to the opposite sex in the West is considered to be too liberal compared to the situation in Iran, where this is forbidden (Osborne, 2006).

The notion of freedom has complete meanings in the two cultures. Iranians immigrate to the West in search of true freedom. However, they also find there an anti-Iranian attitude that may be fueled by prejudice and poor understanding of the Iranian culture.

In Iran's largest cities, Western culture has managed to establish a slight presence and to influence a little certain matters. But in small cities, villages, rural locations, tradition still makes the rules.

Demographics

In 2009, Iran's population reached 66,429,284. The age structure is the following: 0-14 years: 21.7%, 15-64 years: 72.9%, 65 years and over: 5.4%. The median age reaches 27 years for the total population, 26.8 years for the male population, 27.2 years for the female population. Population growth rate is 0.883%. The net migration rate reached -2.62 migrant/1,000 population.

The urban population accounts for 68% of the total population. The ethnic groups present in Iran are: Persian 51%, Azeri 24%, Gilaki and Mazandarani 8%, Kurd 7%, Arab 3%, Lur 2%, Baloch 2%, Turkmen 2%, other 1%. Iranians' religions are: Muslim 98%, of which Shia 89%, and Sunni 9%, other 2%.

Languages used in Iran are: Persian and Persia dialects 58%, Turkic and Turkic dialects 26%, Kurdish 9%, Luri 2%, Balochi 1%, Arabic 1%, Turkish 1%, other 2%. Literacy only reaches 77% of the total population.

Educational system

Education expenditures in Iran reach 5.1% of GDP. Following the 1979 revolution, Iran's education system was characterized by a series of changes. Such a system cannot be a stable one. The administrative organization in Iran is similar to Western ones. Private schools are allowed to charge tuition fees for their services.

Political system

Iran's political system is very different from Western ones. Democratic political parties are not very frequent in Iran and do not represent a majority. Politics are conducted by political pressure groups in Iran. The political system is another unstable part of Iran. The system is not characterized by continuity. Political alliances that form here at some point in order to reach common objectives are often dissolved prior to established date.

Infrastructure and technology

Iran's telephone system is one of the aspects that are currently in a development, expansion, and modernization period. The state is aiming at increasing its efficiency and volume. Modernization mainly focuses on urban areas, but certain villages will also be included in the project.

Iran's airports with paved runways reach a total of 129, while the airports with unpaved runways reach a total of 202. Railways reach a total of 8,367 km. Roadways reach a total of 172,927 km. Waterways reach 850 km.

Role of religion

As mentioned above, 98% of Iranians are Muslim. Religion plays a very important role in Iran's administrative sector, as it mixes with culture and politics. Even more, the president of Iran must by constitution be a Shiite Muslim (Bruno, 2008).

The role of Islam and its influence over the Iranian politics suffered modifications over time. For example, reforms in the political and diplomatic sector diminished the influence of Islam in the country's political system

Analysis of the factors of influence

The instability of the Iranian economy is not a favorable factor for opening a business here. This does not mean that any business located here would fail, but the circumstances are very risky. Also, the state has a very strict control over the economy and the prices, leaving little room for maneuver for foreign entrepreneurs. As mentioned in the economy presentation, corruption is a frequent phenomenon in the area.

Given the outsourcing trend that characterizes more and more companies that locate their production in countries like India or China due to cheap labor force, one may conclude that Iran would also be a suitable destination for outsourcing. In my opinion, this is a representation of reality. Even if the Iranian labor force is cheap, it is also unskilled. The country also suffers from the brain drain phenomenon. Therefore, such a low initial investment might prove to increase over time because of emerging problems related to unskilled labor force.

Recommendations

In my opinion, opening a business in Iran at this moment is not a justified investment. The economy is unstable, the state is too much involved in the economic sector, and the economic policies are too strict. There are too many risks and uncertainties regarding the Iranian economic environment. And the effects of opening a business here are not quite certain also.

The Cultural differences between Iran and the Western world are too important. Therefore, they must be taken into consideration when analyzing whether such an investment in Iran would be opportune or not. First of all, there is the language barrier. The educational system in Iran is not a developed one, and foreign languages are not the priority… [END OF PREVIEW]

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