SCHOOL OF INDUSTRIAL AND INFORMATION ENGINEERING MASTER OF SCIENCE IN MANAGEMENT ENGINEERING 2015/2016 ACADEMIC YEAR Analyzing B2C e-commerce export from Italy to Iran Supervisor: Prof. Riccardo Mangiaracina Prepared by: Hassan Mohammadi 823574 Golnaz Bagheri 818587 1 Acknowledgment Our years as MSc. student at Politecnico di Milano have been one of the most invaluable and significant periods in our life which would not be possible without the support and assistance of our friends, colleagues and professors in times of need through our education. We are fortune to have had many inspiring professors during our MSc. In Politecnico di Milano. We would like to thank all of them. Foremost, we wish to express sincere thanks to our supervisor, Riccardo Mangiaracina, who read our numerous revisions and helped us through this work. We are grateful to him because of his great support in our academic career and developing our thesis. We would like to warmly thank our families who taught us to be steadfast, assiduous and curious throughout the years. Golnaz and Hassan 2 Executive Summary I. Introduction: Italy has always been one of largest trade partners of Iran. In 2005, Italy was the third largest trading partner of Iran with 7.5% of all exports to Iran. It was also the top trading partner of Iran in the European Union in early 2006. From 2006 onwards, a series of restrictive measures and sanctions was enacted against Iran aimed at discouraging Iran’s nuclear program. As a consequence, not only Iran but also its main partners suffered a lot during this period. The sanctions have cost Italy more than €15 billion in lost exports since 2006 with more than 60% of this loss occurring in the 2011-2013. As sanctions lifted after compliance with nuclear deal in early 2016, there will be a huge opportunity for both countries to restart their former relations. If Italian exports could repeat growth like that in the pre-sanctions period (2000-2005), the level of exports could exceed € 2.5 billion in 2018, returning to a level more than the pre-sanctions peak reached in 2005. On the other hand, Iranian e-commerce industry has witnessed a tremendous growth in the past couple of years. Online shopping is becoming more common amongst the various classes of the society. Over 39 percent of Iranians are shopping online at least once a month, according to studies. So for foreigners looking to enter the country, it’s clear that e-commerce could be a huge target for investment and they can meet a thriving Iranian e-commerce industry. II. Objectives: The objective of our study is to provide Italian companies who are active in B2C e-commerce with all required information and finding the best logistic, marketing, payment solution to facilitate and exceed their export to Iran. III. Methodology: At the beginning it’s necessary to know what are the main potentialities and opportunities of export from Italy to Iran. Achieving this goal is not possible without, completely analyzing export strategy pillars which consist of trade channels, logistics channels (distribution networks), marketing strategies, payment systems and legal issues. 3 In the first pillar, trade channels, we evaluated all alternatives channels in Iran, both direct and indirect, to be used by Italian companies, to connect them with Iranian market and customers in order to sell their stuff through these channels. Then as the main focus of our work are online channels, we analyze B2C ecommerce models (direct and marketplace), and the pros and cons of each one depending on different strategies of companies and their priorities. Introducing main online market places in Iran is the next essential step for companies who want to enter Iran market for the first time and through marketplace model. Digikala is the largest e-commerce website in Iran which owns more than 85% of online market and considered as the biggest online shop in the Middle East with over 850 thousand visitors per day. In the second pillar, logistic channels, the goal is analyzing the most appropriate distribution network through which the foreign company can deliver its stuff to Iran considering costs, quality, service level and other main influencing issues. According to specific geographical situation of Iran, the country has many different types of water, air, rail and road transportation modes that were described completely. To have a successful business, a fast and reliable distribution network is essential because customers must be able to get products and services when they want them, so in choosing the best distribution option, besides selecting the best transportation modes and number and places of warehouses, the company should also make a balance in the order cycle time that can be promised by them and the order cycle time that’s acceptable for its Iranian customers. We studied alternative distribution networks that the Italian company can face in terms of external and internal transportation modes and number and places of central and regional warehouses. We have considered 3 different alternatives the company facing, the first two alternatives are to have a warehouse in Iran but transport product in different ways, use road transportation or intermodal ones. Last alternative is sending orders directly from central warehouse in Italy to end users in Iran. We’ve compared the cost faced in these alternatives. 4 In the third pillar, having good marketing strategies, can be the main difference between having major profits and having many unsold products. According to this issue, we studied all alternative channels that a foreign company can use in Iran to promote brand awareness in order to increase its potential customers, both traditional and online marketing. By traditional we mean banners, billboards, printed advertising and so on. But as the internet and social media became our mail concern in each society, the online marketing plays more crucial role. In Iran there are plenty of websites and social networks which counts as best platforms for online marketing including Facenama and Aparat. Then we analyzed marketing strategy of largest online market places in Iran, Digikala and Bamilo, with 4P model (product, place, price and promotion) and also found some quantitative data related to their performance in main social media platforms. We also found some misconception for foreign companies to entry Iran market which leads to failure in establishing business in Iran. In the fourth pillar, payment systems, according to inaccessibility of Iranian people to international payment systems, we described all possible solutions and services that are accessible for Iranian customer to buy their desired product through online websites. In the last pillar, legal issues, we go through Iran legal system that has to be considered carefully to make the trade possible. Tariffs and regulations, foreign investment laws, investment licensing process, trade laws and taxation systems of Iran are among the issues that we clarify in this part. IV. Results: Iran is one of the largest economies in Middle East and has great potential for investing. After Iran Deal and lifting all sanction related to Iran’s nuclear activities, it’s expected that Iran’s economics will improve and many investors decide to enter in this market. In addition, by the increase of penetration rate of internet and mobile devices in Iranian 5 people especially young people, ecommerce has become interesting field for both Iranian investors and foreigners. Many startup companies have been formed during these years and still there are great opportunities for new comers. Cost of import especially transporting cost is most effective matters for foreigners to enter Iran’s market. The alternatives explained in methodology are analyzed and in following the results will come. Warehouse in Direct Warehouse in Iran + transportation Options Iran + Road Intermodal from Italy’s transportation transportation warehouse Transportation cost 79,569 78,200 - [€/year] Inventory Carrying Cost 24,750 26,042 - (Cycle Stock) [€/year] Inventory Carrying Cost 4,341 15,625 - (in Transit Stock) [€/year] Last mile delivery 150,000 150,000 3,000,000 [€/year] Total Costs 258,660 269,867 3,000,000 [€/year] Table 1 Having a warehouse in Iran decreases the cost of distribution network by more than 90%. In addition to cost, delivery time will be declined from more than 2 weeks to just 2 or 3 working days, it leads customer satisfaction. How to transport the products from central warehouse to regional warehouse in Iran is important for any company. By this cost analyzing, the best option and cheapest is using road transportation method. Another issue for foreigners is payment method because of lack of international bank and credit cards in Iran, but it should be solved in future months due to Iran Deal. 6 Furthermore, not only there is no legal issue or problem to enter Iran’s market for foreigner investors but also there are many supportive activities done by government to attract investors. By considering and analyzing these important items, entering Iran’s market especially in ecommerce is highly recommended to any company. 7 Contents 1. Introduction to Iranian demand and Italian export ............................................................................ 10 2. TRADE CHANNELS ............................................................................................................................... 15 2.1. Direct Export ..............................................................................................................................