Entering The Iranian Ecommerce Market: Strategies For Amazon

Overview of Amazon

Amazon Inc. is a behemoth player of ecommerce industry and it was founded in 1994 by Jeff Bezos and its headquarters is situated in Seattle, Washington. In past few decades, organization have marked its presence in most parts of the world and in consideration to this, organization have reached on the peak position in terms of the largest online retailers in the world in terms of revenues and market capitalisation and the last year’s revenues for the organization were $177 billion. Along with this, organization continues for expanding its presence as brick-and-mortar retailer by setting up Amazon Go stores, acquiring Whole Foods and with their book stores (Fiegerman, 2018). Apart from the online shopping, organization has also marked its presence in several other industries like cloud storage, web services, online entertainment industry, etc. (Enright, 2016).

Amazon has moved towards Iran by analysing the statistics and it has been found that Iran is the thirteenth country for the number of internet users. Approximately 68% of the total population of Iran have access to internet and these numbers are rising rapidly. It will not be easy for Amazon to enter into Iran and performing their activities as Iranian government has set several strict rules and regulations for ecommerce industry in order to protect the rights of consumers (Rahmani, 2017).

Amazon generally uses their primary strategy for expanding their business in the international market irrelevant to the nature and size of the market. This strategy is “GLOCAL” which states ‘go global and think local’. With the help of this strategy, organization has been able to establish its effective presence in the target market. Amazon has also developed huge brand loyalty amongst their existing and potential customers which have made the organization to move towards their primary vision. Amazon operates with a vision of “being earth’s most customer centric company” and with regards to this vision, they have also modified their strategies in order to fulfil customers’ needs and wants (Johnson, 2016).

Ecommerce is the next big sector in Iran after retail industry as Iran has all the potential and favourable conditions like GDP, number of internet users, population of millennials, tech enthusiast, etc. These all elements are required for the success of ecommerce. Iran is the 18th largest economy of the world and the country has maintained per capita income of USD 16,463 through which Iran is counted in the Upper Middle Class Nations (The Heritage Foundation, 2018). At present, only 3% transactions are being done online but this number is continuously increasing due to which the demand for the online retailers is increasing (Crane & Matten, 2016). This could lead the organization to attain its desired goals and objectives in relation to being the most customer centric company along with expanding its market share in the global market (Fischbach, 2016).

Expanding into Iranian Market

In order to match up the rules, regulations and other factors in the Iranian market, organization could have used following strategies:

• Deep customer understanding: This is the biggest factor of Amazon’s success in the international market as the company invests their time, money, energy and various other resources in order to understand their target audiences’ behaviour, demands and wants. In this regard, it has been observed that Iranians are not much aware about the online shopping and they are not comfortable in buying online due to lack of education of due to weak policies of the government which never attracted international ecommerce companies. With regards to this, organization has decided to enter into Iranian market for the objective of understanding target audiences’ demands and wants along with spreading awareness amongst them regarding online shopping and the benefits linked with online shopping to match up with market conditions of the Iran (Abbasi, 2007).  
• Accommodating bandwidth challenges: Iranian country has imposed certain regulations on the business enterprises to operate. One of the major challenges for the business enterprises in Iran are getting license to operate. Union System Act 1971 states that business license is issued by the competent union or legal authority and this act was amended on the basis of requirements in 1980, 2003 and later on in 2013. As Amazon only deals in qualitative and legal goods, thus, organization would easily be able to get the license to operate in the Iranian market (Rasoolian & Rasoolian, 2010).
• Local R&D: Amazon believes in customer satisfaction and they also believe that this is the only key to success and growth in the domestic as well as in the international market. With regards to this, organization regularly conduct market research for analysing the demands, wants, consumer behaviour and other attributes of the target market. In relation to this, organization has established their R&D centres and their largest R&D centre are situated in Seattle and the second largest R&D centre is situated in Bangalore, India. Thus, organization would easily be able to create their users’ experience better with the organization along with establishing brand loyalty amongst them (Nourbakhsh & Poursaeedi, 2012).      

Every market has unique or common type of risk factors for the business enteritis as every country is blessed with certain  natural resources while some are not, some countries are blessed with effective human resources, machinery power, etc. while some countries export these resources from foreign markets (Burns, 2016). Following risks are involved in the ecommerce industry in Iran:

• Perceived risks: These types of risk describe the consumer behaviour in terms of making a decision regarding purchase. Iranians are not much aware about the online shopping so influencing them to purchase products and services from internet would be bit difficult task as the penetration of online business is very less in Iran. According to the market research outcomes, Iranians do not prefer to shop from online websites, as people are not much aware about the online shopping websites, thus, they prefer to buy from local shops. This could result in the failure for Amazon until and unless, organization would be able to transform their target audiences’ behaviour towards online shopping websites (Bernal, et. al., 2015).
• Attitude: Consumers’ attitude is directly linked with the consumers’ buying behaviour and according to the model of attitude change and behaviour, consumer attitude changes and affected by intention. Although, the growth of online shopping in Iran is increasing at fast speed but still only 3% of the total population is shopping from online websites, thus, it is required for the Amazon to change consumers’ attitude by spreading awareness amongst them regarding the benefits of online shopping (Hatefi, Haeri & Fasanghari, 2017).
• Implementation of overnight policies:It has been seen that Iranian government has rapidly amended their Union System Act, 1971 thrice in past few years which holds the responsibility for issuing licenses to the business entities. Thus, it can be expected that Iranian government could impose overnight policies and regulations in relation to the functioning of ecommerce industry and this could directly affect the companies’ involved in the industry. Thus, it is necessary for the organizations to be prepared for these overnight changes by designing flexible strategies in order to match up with the rules and regulations of Iran in order to setup effective position in the target market (Agheli, Salmani & Hosseini, 2017).

There are numerous modes of entries available for an organization for expanding its business in the foreign markets such as licensing, joint venture, partnership, acquisition, etc. (Kim & Mauborgne, 2014). The company can also use several frameworks and management tools to analysis the international market.

• Potential Entrants –New entrants join the industry in Iran only when profit limits are high enough with fewer obstacles. There are various entry barriers in the industry according to the Porter. These are like accessing to channel of distribution, government standards, distinctive products, high switching costs. Although there is no global e-commerce company in IRAN but Amazon have a threat from Alibaba as in Iran, it is the 53^rd most visited website in Iran as per the Alexa ranking.
• Suppliers– They are also an important part of the supply chain system in providing value to the customers (Peng, 2016). They are responsible to deliver various necessary raw materials and resources to the organization for the production of respective products and services. For making strategic planning, the business enterprise needs to focus on the role of raw material suppliers. In cases of Amazon, an e-commerce company, they needs of small business owners in Iran to be their suppliers that can compete with speed, easiness and reach of Amazon. Amazon can give tough competition to other national e-commerce companies such as Digikala, which is one of the biggest start up in Iran.
• Buyers– Customer have a direct impact on the present and future practices of an organization. According to various strategies, it can be stated that, customer satisfaction is an important aspect and source of competitive advantage and it also leads to the customer loyalty as well as repetition of purchase (Meyer & Peng, 2016). The e-commerce in Iran shows the transaction of US$ 18 billion in 2017. More than 25% of Iranians are shopping online at least once a month and 16% at least once in a weak. Most of the online shoppers in Iran lives in urban areas.
• Substitutes– The existence of a product can be a substitute for another product in any industry and this can result a threat to the existing product due to highly creative competitive conditions. The most important substitute for Amazon will be – Advancement in IT technology, internet and e-mail communication tools and distribution system.
• Rivalries- Every company try to win their rivals by using different method and tactics. These rivals have a significant impact on the profitability and growth of a company. In Iran, various national biggest rivals create a threat for Amazon. These numbers of competitors are Digikala, Bamilo, Esam, Modiseh and Alibaba, which is also posing a serious threat to the company.

Amazon can also assess the country attractiveness in order to start their venture in full substantial manner. Companies can start planning for Iran as the slow thawing of diplomatic relations with the nation can open the door to foreign investment. Moreover, Tehran stock exchange lists 339 companies on its websites with a combined market capitalization of $104.21 billion. As per the reports by World Bank, Iran is comprises of 77 million people population in the Middle East and North Africa region (three times of regional average).

In addition, online shopping does not have a long story in Iran. There were only few shops there and where but no big player on the scene. However, in recent years, Iran has seen exceptional growth in eCommerce as many Iranian now preferring to buy online stuff and online stores to making respective purchase.

As a global company, Amazon mission and vision both was to be earth’s most customer centric when people can come and buy anything they need online in a reliable way. However, Iran is a country, which have seen this online e-commerce few years ago with its own country based start-tup i.e. DigiKala. Therefore, not all the aspect of Iran business environment will be familiar for Amazon and thus they will be needs to again analysis the market of Iran which includes customers’ needs, various trends in the population, availability of resource and thus do undertake effective planning.

In Iran, E-commerce is somewhat backward and still benefit from the industry has not provided the necessary substrates. Moreover, from a long period of time, the country is related to lack of awareness of the benefit of e-commerce adoption as well as the organization issues related to its application.

Strategies for Entering the Iranian Ecommerce Market

Amazon can successfully established its venture by analysing the market in the international operations evolution. For this purpose, the company can use EPRG framework developed by Wind, Douglas and Perlmutter. This framework includes four stages in the international operation evolution and these are – Ethnocentric, Geocentric, Polycentric and Regiocentric.

In Regiocentric orientation, Amazon needs to find economic, culture or political similarities among the regions in order to fulfil the similar needs of substantial consumers. For instance, Iran and Armenia culture have similar one and so this can help Amazon to expand its online operation in Iran by using the same strategy they used in Armenia. In Polycentric orientation, Amazon will do operations in Iran solely and also individual strategies will be carried out. This orientation is helpful when there are several constraints in terms of political, financial and cultural aspects. For the company, Iran will be a new country to operate with different believes of people, their perception and preferences. Therefore, for the domestic market in Iran, Amazon needs to give equal importance to every aspects.

In Ethnocentric Orientation, Amazon will seek to perceive various similarities to their home country when they are relying on operation in Iran or any other countries. With this approach, Amazon will not give due importance to the overseas subsidiaries or offices in the international market and thus they will operation in Iran just because of the name as “global company”. The last approach in this theory is Geocentric, which combine various factors of ethnocentric, and polycentric and it displays “thing global, act local” ideology. 

With the lifting of various sanctions, Iran has been approached by various foreign companies in which Amazon is also the one to seek several opportunities in the market of opportunities. However, there are several challenges can be faced by Amazon during the marketing of their e-commerce business. Marketing in Iran will be complicated for Amazon due to cross discipline task and due to several restrictions and limitations, the marketing aspect get tight.

Amazon will also face various challenges in the controlling aspect. Most of the Iranians do not have access to the intentional payment cards; however, they still get the way to access the services of websites such as Alibaba and Amazon. Amazon will not be able to control every aspect of the production, marketing, labour and distribution system and in Iran; they are only a small portion of many other successful e-commerce platforms.

• Political factors- The political system of Iran is based on the Islamic republic on 1979 constitution. Amazon as a foreign company for Iran can find the taxation environment highly risky, however, the corporate taxes rate lower to a flat 25% from the previous maximum of about 60. Moreover, there are different types of taxes which will be need to followed by Amazon such as Income tax, Islamic taxes, Capital gain tax, indirect taxes, Real estate taxes and many more.
• Economic Factors – It is in the list of largest economy as per purchasing power parity. Moreover, it is the transition economy with large public sector where combined budget of various religious is more than 30% of the central government. As various sanctions are lowered down, it will be an opportunity for Amazon to expand their e-commerce business in Iran with the various nationals local players like DigiKala and Raja (Jafari, 2016).
• Social Factors – Large portion of the population are not working with government. Iranians see themselves as having two distinct identities – “zaher” (public) and “batin” (private). There will be various challenges for Amazon to understand the religion and certain social aspects due to the different culture and beliefs of the people (Kamalul Ariffin, Mohan & Goh, 2018). The company also need to consider these as a primary governing factor while doing operations in Iran as this may cause huge loss to them if they underfollow any religion or aspect in Iran.
• Technological factors – Up to few years backs, Iran was lacking of technological advancements, IT companies, inventions and innovation rates and Mechanization trend in the economy. However, Amazon as a global e-commerce organization have various necessary systems and technologies to expand their operations in Iran and build a distinct image in the minds of Iranian people.

Internationalization Strategies of Amazon

In relation to the organizational functionalities and its objectives of expansion of business in Iran, it is necessary to address the requirements of the internal organization in terms of human resources, managerial functions, marketing along with addressing the cross-cultural issues.

• Human resources: Human resources act as the primary element for organization as they are the people who actually deal with the clients on behalf of the organization. They are responsible for accomplishing tasks as per the planning done by the top level management. Thus, it is required for the organization to manage their human resources in an effective manner along with fulfilling their requirements in order to align their efforts with the organizational goals and objectives (Hamilton & Webster, 2018).
• Marketing: This is another crucial functionality for an organization as it helps in spreading awareness amongst the target audience along with generating demand for the products and services of the organization through the use of various marketing and promotional tactics. In order to attain the desired goals and objectives in Iran, organization needs to design their marketing activities as per the market conditions and the consumers’ behaviour. Although, internet users in Iran are more but still they are not much active on the social media and other types of digital mediums, thus, organization needs to integrate both traditional as well as non-traditional mediums of marketing with the objective of attaining desired goals and to gain competitive edge over the existing players of online shopping websites.
• Cross-cultural issues: When an organization expands its business in domestic or in the international market, the primary concern is managing the employees with different cultural background. Where two or more than two employee works together with different cultural background, chances for conflicts and disputes are more and it directly affects organizational performance. Thus, it is required for the organization to provided adequate training to its employees for enabling the effectiveness of workforce diversity along with gaining desired goals and objectives (Hollensen & Schimmelpfennig, 2015).

Conclusion  

From the aforesaid discussion, it can be concluded that expansion is the only factor through which an organization could move towards sustainable growth and overall development. In relation to this objective, this report has concluded internationalisation strategies of Amazon as the company is contemplating to enter Iran for the objective of expansion of their business in order to enhance their market share in the global ecommerce industry. As per the Amazon’s functionalities and its strategies, organization has acquired appropriate experience of expansion into international market which could be used for the purpose of further expansions in the foreign markets as well as in the current expansion in Iranian market.

This strategy is the most common and effective strategies to gain competitive edge over the existing as well as over new players of the target market. In this strategy, Amazon will lower down its cost of production by eliminating unnecessary costs and by minimising waste management. This will decrease the cost of production and ultimately, it will create impact over the final prices of the products. This will help the organization to gain competitive advantage in the target market along with gaining the leading position in the online shopping industry (Zahra, Ireland & Hitt, 2000).

This is another effective strategy to gain competitive advantage. The objective of this strategy is to make their products and services unique by adding certain features from its competitors. By this manner, organization would be able to gain their target audiences’ interest towards their products and services which will ultimately result in enhancing demand for the products and services offered by organization. Thus, attaining competitive edge over the existing players will become an easy task (Davis, Desai & Francis, 2000).

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