Franchising in Iran - a land of opportunity?

The start of the New Year has brought a substantial easing of the Iran sanctions. However contrary to the impression given by the press, several important trade restrictions still remain in place. Businesses are well advised to review carefully the new EU (and US) sanction regimes before heading off for new adventures in Iran.

On 16 January 2016, the International Atomic Energy Agency confirmed that Iran had fulfilled its nuclear-related commitments under the Joint Comprehensive Plan of Action. 16 January 2016 was therefore Implementation Day, the day on which the United Nations, the European Union and the United States eased sanctions against the Iran.

However, while reports by the general press often give the impression that the Iran sanctions have been completely lifted, the EU and in particular the US still maintain a significant number of restrictions.  In general the lifting of EU sanctions has been much more wholesale (subject to some restrictions) as compared to the US. The US sanctions continue to restrict the ability of US persons to engage in trade with Iran and remain a minefield given the scope of the sanctions to impact upon those even outside the US.

Nevertheless, the lifting of sanctions has put Iran back on the radar for a number of international businesses. The attractions are clear; Iran has a population of around 80million, almost half of which is under the age of 35, and the economic forecasts predict strong annual growth in the coming years. Despite the anti-western rhetoric from the Iranian authorities, a common truth lies amongst the Iranian people; there is a strong and growing demand for western brands.

Franchising offers a route into this potentially lucrative market but western brands should do their homework first, not just from the perspective of ensuring that the easing of sanctions creates an opportunity for their particular business, but also in terms of in-depth market due diligence. The sanctions may have prevented a number of western brands from entering Iran, but an effect of Iran's isolation has been the rise  of a number of local "bootleg" versions of popular western brands, particularly in the food and beverage sector. Mash Donald's, Pizza Hat and Raees Coffee (Starbucks copycat) are but a few examples of local brands which have attempted to satisfy the local appetite for western brands. This is not therefore a "clean" market, and brands will need to develop a strategy for obtaining registered rights, dealing with pre-existing infringers, (re-)educating the market on the genuine branded products and services and finding a local partner to grow and safeguard the brand.

For further information on the scope and impact of the easing of the Iranian sanctions, please refer to the full briefing note from our Export Controls and Sanctions Team.