$6 million Iranian consulting market has $850 million potential

01 November 2017 Consultancy.uk 7 min. read

The Iran consulting market is presently worth $6.4 million, as the nation remains isolated within the global market, thanks to a legacy of international sanctions and diplomatic crises. However, as relations warm, an updated assessment suggests that the sector could reach values of up to $850 million in the future.

The economy of Iran is a mixed and transition economy with a large public sector. Some 60% of the economy is centrally planned, with a notable state presence in the manufacturing and financial service sectors in particular. While Iran's economy is seeking to diversify into the hydrocarbon sector, along with bolstering agriculture and services sectors, it ranks second in the world in natural gas reserves and fourth in proven crude oil reserves – materials the nation remains heavily dependent upon.

The Iranian economy experienced a 1.8% contraction in 2015 – in part due to this reliance on fossil fuels for income, as oil prices in particular suffered from over production and lack of demand in that period. The Iranian economy has since made a  strong recovery in 2016 as a result of sanctions relief, and a warming of relations with the rest of the world. However, with the change of US Whitehouse administrations, that seems to have been short-lived, with the Trump Presidency determined to pick Iran as an alleged threat to strong-arm, along with North Korea and Cuba. This threatens Iran’s growth prospects once more, which in the medium term were expected by the World Bank to be modest at best, at slightly over 4% due to near capacity oil production and weak non-oil sector activity.

The management consulting market of Iran

Due to the heavy amount of central planning in the economy, during a period where oil prices were unlikely to fall, the Iranian consulting sector had previously seen little opportunity to gain a client-base in Iran, as there had been little perceived need to transform business models there. The management consulting market therefore currently sits at around $6.4 million, and to put that into context, the relatively small management consulting sector of Bulgaria is currently worth roughly $58 million. However, according to new figures from Source Global Research, there is a significant opportunity present in the region, judging by the previous flourishing of consultancy in the GCC. While it is important to note that the absence of readily available information on Iran means that sizing its consulting market is more of a challenge than open, Western nations, Source noted that they were confident of their accuracy – in spite of the suggestion there could be a margin of error of 20% in either direction.

Obviously it would be remiss of researchers to ignore the large social and political differences between Iran and the Gulf states – but their economies are likewise characterised by state involvement, and a heavy dependence on oil. Despite slumping oil prices, the consulting market of the Gulf Cooperation Council (GCC) – consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – performed well last year, growing 9.4% to $2.7 billion. This is partly because the regimes of the region are keen to invest in new markets, as they seek to preserve their economic dominance without being beholden to the oil industry, which is set to come under further strain as improving technology and green energy mean peak energy demand may soon become a reality – which would send oil prices crashing. In order to achieve that economic transformation, management consultants have become a major commodity in the region.

In line with this, researchers suggest that were the same situation to occur in Iran, the management consulting sector could be worth up to £844 million – and while this is expected to be a gradual rise over the coming 30 years, some experts are already anticipating major upticks in demand as the large, well-educated population look to scale their companies.

Suggestive of this change, at present, the Iranian consulting industry is dominated by state contracts. As previously mentioned, a large segment of the economy is centrally planned, including a governmental presence in the financial services sector. Financial services are the largest industry to involve management consultants in the region, at $1.5 million in revenues, followed closely by the public sector – again, state controlled – at $1.4 million. The energy and resources sector, meanwhile, looks set to push its way into being a million dollar sector for Iranian consultants in the next few years, currently sitting at $0.9 million, as the industry looks to push into innovative new areas to decrease its reliance on non-renewables.

The Iranian management consulting market

In terms of the most popular services asked of consultants, Iran fits into a global trend. Technology consulting is a $2.7 million service, the largest in Iran, followed by operational improvement on $1.6 million, and strategy at $1.3 million. As with the (albeit much more developed) UK market, among others, technology consulting has become an integral part of services provided across all sectors, as businesses look to avoid becoming victims of digital disruption. In order to avoid being overtaken by new, innovative competitors, market incumbents are investing in consultants to assist with operational overhauls and business strategy redesigns, leveraging new technology as a key weapon in this battle.

Consulting firms in Iran

The total market is currently divided between around 50 legally registered firms, most of which are small outfits by international standards. Despite the reluctance of Iran to engage with companies tied to America, a number of Western firms, including New York headquartered McKinsey & Company, are present in the region. Other familiar names include German-founded firm Roland Berger – a long-term fixture of the Iranian industry – Bain & Company, Accenture, and Big Four firm EY. There are likely to be a number of tiny one-man outfits which would likely make the unofficial consulting market much larger, however Source cited them as being notoriously hard to pin down in mature markets, let alone somewhere as shrouded in secrecy as the economy of Iran.

Western consulting firms may well be considering the market as a major opportunity in the future, due to the smaller count of large firms currently in the region. This may prove difficult, to say the least, thanks to a number of such firms either being based in, or doing major business with, the US. While Iran’s relationship with the world has begun to open up and evolve, the rapport between the country and the US has come under increasing strain in recent months, having hardly been cordial previously. The federated nature of the Big Four remains the consulting giants’ best bet to overcome this – as it may give them a method of presenting a more autonomous, less American, presence in the region. However, this is tenuous, as Source themselves noted when releasing the research, “However much you try to tell an Iranian client that Deloitte isn’t American, you’re going to struggle to convince them.”