International Business Report: Amazon's Strategic Expansion in Iran

This report provides a comprehensive analysis of Amazon's potential expansion into the Iranian ecommerce market. It begins with an executive summary and introduction, followed by a literature review that evaluates relevant business tools and frameworks, including the 'GLOCAL' strategy. The report assesses potential risks in Iran, such as perceived risks, consumer attitudes, and the impact of overnight policy changes. A detailed discussion and analysis section explores Porter's Five Forces, country attractiveness, and strategic planning for implementation. The report also examines challenges, including PEST analysis, and proposes relevant management responses, incorporating cost leadership and differentiation strategies. Finally, the report concludes with recommendations for Amazon's successful entry into the Iranian market and provides references for further reading.

Running Head: INTERNATIONAL BUSINESS 0
International Business

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Executive Summary
Ecommerce is said to be the activity of buying and selling of products and services over internet.
Electronic Commerce is drawn upon technologies such as electronic fund transfer, supply chain
management, mobile commerce, online transaction processing, internet marketing, automated
collection systems, etc. In the wide category of ecommerce, online shopping has become a trend
in most economies and companies running on the ecommerce platform are using websites,
mobile applications and various other techniques for executing their sales operations and to reach
to the customers. In this wide industry, a mammoth player exists i.e. Amazon Inc. It is a
multinational online shopping company which offers millions of products and services in more
than the 80% of the world. Company has separate websites for the countries like United States,
China, India, Japan, United of Kingdom, etc.
This report will include the expansion of Amazon in Iran as the company is not yet present there.
In relation to this, relevant business models and frameworks will be adopted as per the market
conditions in Iran. Further, risk factors will be evaluated in order to implement relevant strategies
to gain positive and desired outcomes. In addition to these concepts, management of functions
like human resources, marketing, operations and cross cultural issues will be addressed through
which the available opportunities could be consumed in order to attain desired goals.

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Table of Contents
Introduction.................................................................................................................................................3
Literature Review........................................................................................................................................3
Evaluation of relevant business tools and frameworks...........................................................................3
Actual or potential risks in Iran................................................................................................................5
Discussion and analysis................................................................................................................................6
Porter 5 Force factor...............................................................................................................................7
Country Attractiveness............................................................................................................................8
Planning...................................................................................................................................................9
Implementation.......................................................................................................................................9
Challenges Feed.....................................................................................................................................10
PEST Analysis.........................................................................................................................................11
Relevant management Responses.............................................................................................................12
Conclusion.................................................................................................................................................13
Recommendations.....................................................................................................................................13
Cost leadership......................................................................................................................................13
Differentiation.......................................................................................................................................13
References.................................................................................................................................................14
Figure 1 Porter 5 Force factor......................................................................................................................7

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Introduction
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).
Literature Review
Evaluation of relevant business tools and frameworks
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

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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).
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

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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).
Actual or potential risks in Iran
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

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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).
Discussion and analysis
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.

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Porter 5 Force factor
Source:
(Osland, Taylor & Zou, 2001)
Figure 1 Porter 5 Force factor
 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
53rd 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

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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.
Country Attractiveness
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).

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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.
Planning
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.
Implementation
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.
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

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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.
Challenges Feed
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.

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PEST Analysis
 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.