Economy, Domestic Economy

Iranian Industries No Pushover for Foreign Brands

Iranian Industries No Pushover for Foreign Brands
Iranian Industries No Pushover for Foreign Brands

Multinationals looking to swoop into Iran as most sanctions lift will find important sectors of the 80 million-strong market already conquered by domestic brands.

While most domestic industries are uncompetitive by global standards, they are strong enough to create both risks and opportunities for all players, wrote the Guardian in a recent article, excerpts of which follow:

Ninety-five percent of Iran’s food market and 80% of its pharmaceutical market have been “captured” by Iranian companies, according to a poll mapping the frequency with which Iranians mentioned the brands they use in daily life.

Iranian brands also dominate the sales of hair products, clothing and vehicles, according to the poll, which was conducted in October 2015 by Toronto-based in partnership with Tehran Bureau.

The strength of domestic brands results in part from the way Iran has been forced to fend for itself by the stiffening of international sanctions. Governments have made economic self-sufficiency a priority, following policies of import substitution and imposing high tariffs on most imported goods to nurture domestic industries.

Iran’s food industry is crowded with domestic manufacturers like snack-food producer Maz Maz, ketchup maker Delpazir and dairy producer Kalleh. “One of the biggest advantages of Iranian food brands thus far has been their much lower price relative to foreign brands,” said Ebrahim Mohseni, a research associate at the University of Maryland, who studies public opinion in the Middle East. “In many countries neighboring Iran, international brands like Pepsi, Coca-Cola, Nestle, Kraft and Heinz face little or no competition. This is not the case in Iran.”

Mohseni said the strong presence of domestic competitors makes Iran unique in the Middle East and North Africa.

“What has happened in other countries is that they have simply not even tried to compete with western brands. In Iran, for almost every foreign brand, there is an Iranian substitute,” he said.

Among food producers, Kalleh has grown into an empire since it was formed in the 1980s. Market research firm Euromonitor International ranks it among the world’s top 50 brands, just two places behind Nutella and two above noodles-producer Maruchan.

With factories across Iran, Kalleh exports 600 tons of dairy products per day to Iran’s neighbors, earning $205 million in the Iranian fiscal 2014-15. They also have factories in Iraq, including Karbala and Najaf.

Gholamali Soleimani, Kalleh’s CEO and founder, is targeting $300 million for the current Iranian year, ending in March.

Kalleh may not have been able to purchase new specialist cheese equipment because of sanctions, but the company has imported secondhand machinery and is producing cheddar, parmesan and gouda as Iran’s middle class develops more adventurous tastes.

Aside from the food sector and a handful of traditional Iranian exports, however, most Iranian brands have struggled to reach international standards, with industries lacking modern equipment.

Protectionist policies have lowered their ability to compete in an open market because they sheltered them from the international competition that could have driven them to improve and innovate.

Some multinationals have managed to retain a presence in Iran despite sanctions.

The poll found Samsung, LG and Sony dominate the audio and video systems market (93%), mobile phones (97%) and small home appliances (63%). It found that 58% of Iranians thought importing more foreign-made goods would benefit the economy.

Respondents expressed a preference for German, Japanese, French and American goods, and viewed those from China as substandard. At the height of the sanctions in 2013, China exported $13.7 billion to Iran, becoming the country’s single largest source of imports.

“People are tired of a non-competitive market,” said Amir Farmanesh, co-founder.

He pointed to Iran’s vehicle industry, known among Iranians for pollutant-spewing gasoline guzzlers like the domestically made Kia Pride. “What they’re thinking is that more competition will push Iranian products to increase their quality.”

“An influx of foreign firms would bring serious challenges for all involved,” added Mohseni.

Even if new brands had to struggle against red tape and a lack of market intelligence, they would bankrupt a number of Iranian companies and so hike an already high unemployment rate.

All of which leaves the government with the task of promoting growth while tempering the impact of shock therapy.