International Business

Midterm Exam

Name: Urooj Mustafa

Reg #: 1939101

Class: MBAE-72 3-B

Intro

Iran is a close ally of China and as a country is full of opportunities. Iran has many strategic advantages;
as compared to oil rich middle eat countries; Iran has a diversified economy which attracts companies
across industries. Many companies like LG electronics has also maintained an iran presence, followed by
Novo nordisk a pharmaceutical company is also building on it’s iran prersence and investing $76 mn in a
new factory as the labor in iran Is very cheap and it serves as an advantage for many companies to
establish and grow their business in Iran.

Iran is also a potential global trade hub, A Chinese technology brand, “Xiaomi” has decided to analyze in
Iran to start a technology venture as China feels that Iran has a strategic advantage in terms of cost and
sees a potential so this report will help determine whether the Chinese company, Xiaomi should expand
their operations in Iran on the basis of various micro and macro analytical frameworks. In order to see
whether iran has a strategic advantage; we will perform SWOT analysis, PESTLE analysis, Porters
diamond model and analyze its geo political situation in order to determine iran’s potential.

Geopolitical analysis of iran:

Ian is the 17th largest country in the world; its territory is larger than that of Germany France and
Netherlands. Iran is 68 percent larger than Iraq and Afghanistan together, with 40 percent more
population. Iran is the route connecting the Indian subcontinent to the Mediterranean Sea thus it acts
as a major trade hub where oil and gas remains its most important and most strategic export thus
enjoying absolute advantage as it is the 3rd largest oil reserve in the world and 4th largest producer of oil.
Iran has strong relationship with China as Iran relies upon its oil sales to China and imports gasoline from
China and China considers Iran as a permanent partner for its exports.

Iran has a huge chunk of population in the mountainous area due to which the cost of transportation
makes the development and growth of industry difficult in the mountainous areas of iran.

The major problem for iran is its internal tensions, but even these are under control because of iran’s
security system. Iran is a self-contained entity which is poor, but it has superbly defensible borders due to
mountains and a disciplined central government with an excellent intelligence and internal security
system.
Swot Analysis of Iran

Strength:

one of the main strengths of iran is its location/ geography. Since it is located in between middle east and
central asia; it has major access to Persian gulf and Caspian sea. This is the reason it is known as global
trade hub and it enhances it’s geo political and geo strategic value in the middle east. Apart from that it
has richness in energy resources which makes it 25th biggest economy in terms of $1382 trillion GDP,
hence it is a major plus point that many companies like to establish their brand in iran. Iran is also rich in
human capital, it is a land of majority young and highly educated people , it has around 240000
engineering graduates which puts it fourth in the world after india, us and china. Rating 8/10

Weakness:

One of the major weakness of iran is its dual system of government that mixes elections with a powerful
supreme leader. It is plagued with extreme corruptions and mismanagement. Apart from that iran lacks
export diversification; it act as a one product economy and relies heavily only on Oil and Gas industry
which means it has absolute advantage only. Rating 6/10

Also, international sanctions discourages foreign investors to invest in iran as the banking sector is also
under developed because of monstrous sanction due to which it depreciates the currency of iran.

Opportunities:

Iran has a geo strategic location with geographic spread provides a great room for growth and
opportunity, and increase the revenue at its maximum. If the ongoing tensed situation between iran and
US gets normalized then iran is expected to see a boom in its economy by untapped gas potential and
export diversification. Iran has tackled unemployment by creating 600-800 jobs that can further stimulate
it’s economy by adding higher educated people in iran, furthermore they are making farming process
more profitable and sustainable. Rating 5/10

Threat :

One of the major threat to iran is ongoing increasing tension between Washington and Tehran, which
could make the situation worse. Apart from that, iran close neighbor Saudi Arabia is a close ally of America
which poses a great threat to iran. Rating 5/10

Conclusion: Overall SWOT rating of Iran turns out to be approx. 6/10 which is not a very favorable score
for Iran. It is unfavorable for the Chinese brand to open a new plant in Iran.
SWOT ANALYSIS of XIAOMI is done to determine the strengths, weaknesses, opportunities, and threats
of the company. It will help us you to build on and to address what we're lacking, and to determine the
greatest possible advantage.

STRENGTH

Xiaomi offers cell phones and other electronic devices at extremely low prices. It is budget friendly with
more features as compared to other brands and companies. Despite having low costings, their products
are of the best quality and they have maintained it since the beginning. They have low manufacturing
costs which helps them is selling at a lower price and getting profit from it. They invest heavily in R&D and
are market followers. Rating 8/10

WEAKNESS

The brand perception of Xiaomi is not good in many countries as their advertising and marketing spends
are very low which is a major drawback. The marketing and advertising are not up to the mark, the brand
image is not so good as their other competitors such as Samsung, OPPO, Apple etc. It is used as a budget
option by the consumers, not on the priority list. Rating 5/10

OPPURTUNITIES

Xiaomi can also invest in their brand building and can start new campaigns such as ales promotions, Trade
promotions, ATL and BTL campaigns. Xiaomi can also introduce a product with some uniqueness which
can be their main identity. They can target markets like Africa where is need of electronic devices with a
substantial budget, Xiaomi can target these markets because of their low-cost product. Xiaomi should
build more MI Stores which will give a luxury feel to their customers and will increase their offline sales.
Xiaomi can also embrace themselves as green band which is environmentally friendly, as the current
situation of the environment is getting worse day by day. Rating 6/10

THREATS:

Coming towards the threats we see that the major threats are the high competitors who are already
targeting almost every market. Xiaomi lack costumer services infrastructure which can acquire all the
recent consumers. Their brand differentiation is absent which results in customers deciding as more and
more products are coming from China. The interest of the people can be one of the major threats as they
can choose any brand nowadays with the help of internet. Rating 5/10

PESTLE ANALYSIS OF IRAN

In order to determine the potential of iran whether it has a strategic advantage we’ll conduct a macro-
analysis in this scenario for Iran and by using the PESTLE Analysis as it will helps us in highlighting the
market of Iran’s political, economic, social, technological, environmental and legal aspects enabling us to
determine the potential of iran.

Political:

Iran ranks second in the world for natural gas reserves and fourth in proven crude oil reserves.

Iran was the country to introduce Islam as a form of governance in 1979 and continues to follow that.
Iran’s mass protests were carried out in November 2019 for fuel price hikes and resulted the death of
100 people. There are many tensions between Iran and United States have been high for some time. US
imposed sanctions on Iran and in return Iran announced that it has significant amounts of enriched
uranium. These tensions further escalated when Commander Qassem Suleimani was killed by a U.S.
airstrike in January 2020. Due to which these tensions has given other countries to become allies with
Iran and form a block of their own against the U.S. block. Rating: 5/10

Economic:

The economy of Iran is going through recession for the past 3 years and Iran’s GDP in 2020-21 is now
estimated to contract at 4.5% due to a shorter lockdown period.

Whereas, the Gross Domestic Product (GDP) of iran is estimated at US$440 billion for the Iranian calendar
year 2019/20. And Iran’s GDP contracted by 6.8% in 2019-20 after US imposed sanctions on oil trading of
Iran. But then the GDP decline continued in Q1 2020/21 as COVID-19 containment measures contributed
to GDP contracting by 3.5%

Oil and natural gas are most important to Iran’s exports. However, some other exports include chemicals,
plastics and fruits. The economy of Iran is characterized by its hydrocarbon, agricultural, and service
sectors, as well as a noticeable state presence in the manufacturing and financial services. The current
account surplus declined as trade restrictions led to real net exports falling by 26.9%

It mainly exports to Taiwan, China, Turkey, South Korea and India and mainly imports machinery, cereals,
iron and steel and chemicals. Iran imports from UAE, China, South Korea, Turkey and Germany.

As a result of this economic pressure, the Iranian currency has depreciated and there has been an
increase in the inflation to 41.2% in 2019-20. Inequality amongst the rural and urban and rich and power
is vastly visible. The standard corporate income tax rate in Iran is 25%. Registered companies with the
SECP are supposed to pay a reduced 22.5% income tax. Whereas, a 3% withholding tax is applicable to
payments made by service providing companies and rental payment companies. Rating: 7/10

Social Factors
Tas far as the social factors are concerned , iran has internal tension amongst the government and the
people which could result into civil war as there is a stronghold of Taliban within rural areas of the
country. Iran’s social structure followed is primarily of joint family and females are restricted to stay at
home and wear hijabs which leads to strong familial ties and high level of loyalty. There is a vast
difference between the standard of living in urban areas and rural areas and even people living in urban
areas believe that their standard of living is declining. Rating: 4/10

Technological Factors

Iran has a strong research and development sector and therefore it has a strong technological sector.
Iran has made noticeable advances in science and technology as it is a developing country it has done a
lot of research. Iran was reported that Iran’s scientific output was the fastest in the world. There are 40
science and technology parks officially operating in Iran while there are more than 100 unofficial
technology parks. Iran has a strong IT market and the mechanization trend is on the rise in the country.
Rating: 5/10

Legal Factors

Iran’s legal system is structured as a civil law and follows the political structure as already discussed in
the above. The international sanctions make it difficult for companies to do business with or within Iran.
There are currently now limitations on capital movement in Iran. Most of banks in the world do not
work with Iranian banks though, and this may create problems when repatriating dividends from Iran.
But Iran has a complicated legal framework which makes foreign investments difficult and Iran is
modernizing its laws to enhance its legal sector and create foreign investment opportunities by
providing ease of business. Rating: 6/10

Environmental Factors

The UN ranked Iran at 117th from 133 countries in terms of environmental indexes. There are number of
issues related to environment in Iran for instance they have air pollution, from vehicle emissions and
industry wastes, the soil is degraded and is becoming infertile, nuclear bomb tests have affected the
country’s environment. Rating: 3/10

PLEST rating of Iran turns out to be approx. 5/10 which is not a very favorable score for Iran. It will be
quite difficult for the Chinese brand to open a new plant in Iran.
Porters Diamond Model: Technology companies in Iran

Factor conditions: Resources required for the production of technological products which are easily
available in Iran. such resources include labor force, infrastructure, knowledge expertise etc. Moreover,
these resources are conveniently available as well due to trade in Iran.

Rating: 8/10

Demand conditions : Increasing demand for technological products in Iran is on the rise thanks to their
youth-based population. People of Iran have high demand for latest smartphones, smart watches and
other related gadgets. Moreover, this demand is constant year-round and has a stable demand pattern.
Lastly, people of Iran also have the ability to purchase these products as they are not that expensive and
is almost a necessity in today’s modern era.

Rating: 7/10

Related and Supporting Industries and rivalry: 9/10 . hemce not favourable.

Conclusion

Coming towards the conclusion, after studying the current situation of iran through various models, it is
concluded that iran is a developing country with huge number of cheap labor, it has major exertise in
engineering as that can help a company like Xiaomi to establish in Iran as iran is also a major hub for
export, it is linked to various countries so that could also help Xiaomi to establish as a growing brand. Iran
is a suitable country to invest in as GDP in Iran is expected to reach 410.00 USD Billion by the end of 2020.