The Internet has largely proved to be a boon for business, as it breaks down transaction costs and creates market opportunities. This is especially true in Iran, where the online market has expanded significantly over the last three years.
The introduction of an easily accessible 3G network in Iran has accelerated the widespread penetration of Internet, Global Risk Insights reported.
Because most people first experience the Internet through their smartphone, the government’s recent decision to grant 3G/4G licenses to two major mobile network companies MCI and MTN-Irancell has led to large increases in Internet usage and a country-wide reduction in the digital gap between urban and rural areas.
According to the published report, the Iranian e-commerce sector still lags roughly 25 years behind that of the United States. It has since become apparent that the underlying logic for e-commerce in the country is strong: the offline market is fragmented and dominated by distributors who play with prices.
E-commerce has managed to bring some transparency with it, allowing customers to circumvent offline retailers and identify what the actual market price of a given product should be.
At the same time, it has also given rise to a horde of profiteers who deceive customers and get away with it because of a lack of strict state regulation. This, in fact, is impossible, given the sheer number of entities and scale of operations involved.
The fact that Iran’s population primarily consists of online youth–over 60% of Iranians are under 30 years old–is likely to play a role in the industry’s success.
As gaining access to a variety of products at a reasonable cost can be quite challenging in the Persian market, buying products online is becoming increasingly popular.
The Iranian government’s nuclear agreement with major powers, known as the Joint Comprehensive Plan of Action, has had an important impact on Iran’s internal business climate. The visibility of e-commerce firms has increased for newly interested financiers.
According to an official at Bamilo, one of the major Persian e-commerce players, investor interest in the company has noticeably increased since the nuclear accord was signed last year.
Yet the fact that sanctions relief has not yet trickled down (market perception is negative) has meant that consumer demand for products that e-commerce firms distribute has not yet increased dramatically.
With high visibility and still unrealized growth potential, the liberalization process driven by the government is, therefore, likely to greatly benefit Iran’s e-commerce companies in the medium to long term. Iran’s e-commerce firms have had another decisive advantage. Because many international providers have been (or are still) effectively shut out of Iran, some companies have been able to capture the lion’s share of a promising sector in an important emerging market.
It remains illegal for American companies like Amazon to invest in the country, though they could operate and market their products via a third party. Investor interest, space for expansion and limited competition by major foreign distributors are potential ingredients for continued success.
Yet a significant caveat exists. Even with the recent suspension of proliferation-related sanctions, prospective investors still see significant risks and await concrete US assurances to the contrary.
