Are Turkish companies ready for challenges in the Iranian market?

Are Turkish companies ready for challenges in the Iranian market?

Just next to Turkey, we have recently seen a huge development of historic proportions, with Iran becoming an open economy again. The landmark deal recently agreed between Iran and major world powers will change some of the dynamics of doing business globally. Many international and Turkish companies have already announced ambitious plans for this long-closed economy that has annual GDP of over $450 billion. 

What challenges and opportunities will this historic transformation bring for Turkish companies?

For sure, the return of Iran to the global market will be an economic positive for Turkey in the short-term as trade and business ties soar, mainly thanks to the geographical proximity of the two countries. Especially the textile and other retail sectors are likely to benefit from the opening of the Iranian market in the short-term.
However, the continuance of these booms days will depend on a couple of factors. 

Before going into the details, let’s accept this: The Iranian market is opening to competitiveness. In other words, the more competitive a company is, the more successful this company will be in Iran, which we hope will be open to all, regardless of whether from the West or the East. 

Turkish companies had long enjoyed benefits from exploiting several exceptions from Western sanctions on Iran. Under the sanctions regime, Iran was highly dependent on Turkish investors, businesses and lenders. But when the sanctions are removed, Turkey will lose these privileges and have to face other countries with competitive companies. 

Another point is that Turkey, which is highly dependent on foreign investment to finance its current account deficit, will now have a fresh rival neighboring it in the race to lure investment from abroad. Many global companies, especially in the energy and automotive sectors, have already announced their strong appetite for the Iranian market, which has a highly qualified workforce and tradition of local production. 

The steps that Turkish companies will make now and in the months and years ahead will be crucial. When the regional dynamics are considered, the steps of Turkish politicians will also make a great difference. 

In the short-term, key sectors for Turkish companies in Iran will be automotive parts manufacturing, retail, furniture and petrochemicals, of course as well as construction. 

It is well known that Iran is strong in local car production, so Turkish automotive parts producers may be able to find a good share in the Iranian market, which is estimated to produce around 2 million units a year. The Iranian middle classes will also be hungry for more choice in home decoration, clothing, or housing models.

Indeed, Iran’s construction market, which was $88.7 billion in 2013, is expected to rise to $154.4 billion in 2016. 

So Turkish companies need to learn the basics of the new Iranian market very well - by making in-depth investigations and building closer ties with their Iranian counterparts – in order to have a bigger say there in the long-run. However, in this process, the Turkish government’s Sunni-focused regional foreign policy of recent years may create problems for them.