Entering the Iraqi Market: A Guide for Swedish SMEs (Part-2)

 Entering the Iraqi Market: A Guide for Swedish SMEs

Identifying Potential Partners

When entering the Iraqi market, small and medium-sized enterprises (SMEs), possibly for the first time, will directly face the local business and economic environment. This contact with a new and different business environment shapes the future of business relations.

It is a tricky, challenging, and complex task for all SMEs because uncertainty will be part of the final decision. This uncertainty explains the low-cost, non-binding, quickly written, highly used paragraph of the Memorandum of Understanding in the first exploratory stage of market analysis and search for commercial agreements. Iraqi businesspeople have experience and strategies to gain from these features of SMEs. It is important to build up the research phase carefully.

The tools to gain information are, quite simply: the Embassy’s Commercial Service, contacts, the Trade Section, experts, and searching. This range of tools and sources indicates an uncertain situation in a deserted market at the beginning of reconstructing its business class.

This offers both the opportunity to select a businessperson or partner and the risk of working with a businessperson that the extended network would typically have dropped before getting a potentially harmful experience.

Using direct contacts implies building a wide, extensive, but potentially weak and fragile network. It is likely that all firms, the Embassy, other public agencies, and consultants gain from these features of the network by sharing the information obtained with weak ties. SMEs, however, have to pick and concentrate their strategies with the businesspeople while in an institutional context like the Embassy, where there are several strategies as well as several priorities among potential business partners in terms of the profitability of the partnership itself.

Finding Local Distributors

In Iraq, distributors can be individuals, manufacturers, or merchants. Manufacturers and merchants may act as principal sellers in addition to their original trade, which may include, for example, agricultural or industrial production.

The distributor can act on behalf of one or more suppliers both inside and outside Iraq. Moreover, each supplier has the sole right to select its distributor in Iraq. In order to be recognized within the Iraq distributor industry, it is essential that the individual or company has sufficient capital, is well established, and has proven merit, performance, and goodwill.

We would recommend companies, particularly SMEs, to utilize the services of reputable local Iraqi distributors for entering the Iraqi market. Distributors are the direct touchpoint with the buyer. A competent distributor will possess direct information, which is essential for any export marketing program.

They may actively support the supplier in securing orders, stocking merchandise, and exercising initiative in making sure that the goods are on view to potential customers. The supplier can have fewer worries about finding assets to meet demands for other time-consuming activities. This will allow the supplier to direct their resources to stay in line with their customers' demand.

Networking Opportunities

Networking opportunities in Iraq are abundant, provided you are in the right place at the right time. Sweden is represented in Iraq at the Embassy in Baghdad along with six other EU countries. There are also about 17 other embassies and consulates present.

A number of trade missions will visit Iraq over the coming months, to which you will be able to attach yourself. The Iraqi community in Sweden is both large and welcoming. They are happy to share experiences and to give advice and guidance. They are based mainly in Stockholm and often visit Iraq on business. It is wise to avail yourself of the ability to make use of the experience they have from their country of origin.

Baghdad was the host for the Rebuild Iraq Exhibition 2009. A number of Swedish companies were present. During the fair, the International Exhibitions Association held a luncheon to welcome all foreign companies exhibiting. The luncheon was attended by the organizers as well as members of the diplomatic missions present.

The Swedish Embassy in Baghdad, supported by Team Sweden, issued about 280 invitations to identified potential customers. Similarly, at the recent Oil and Gas Conference, organized by Team Sweden, Deputy Oil Minister Taha Hmud spoke, as did nine Swedish companies. Encouraged by the above, the Arab-Swedish Chamber of Commerce has identified two furnishing exhibitions in Iraq with the potential to introduce Swedish companies to the Iraqi buyer and specifier world before the scheduled exhibition later in the year. Why not a fashion exhibition in Baghdad?

Evaluating Partnerships

• If the report from your visit proves positive, you can be sure you have more chances to find a partner, which is good for you. A visit is important for the foundation of your information. Your choice of partner needs to be evaluated carefully.
• Your partnership should enhance value options for your company and be based on mutual needs and desires. Do not enter lightly into a partnership, as it requires commitment and discipline to manage.
• Success in your partnership depends on the ability of you and your partner to work together on joint actions. Check the partnership's capabilities.
• Check the firm where you found the person. How does the company present itself as a firm that may be useful for partnership to you?
• Go as a team. You do not know the local business terrain well enough. You do not understand the various operational specifics, so go with a team.
• Ensure that it reflects the various disciplines you will need for the joint effort. A team with legal, sales, distribution, and accountancy characteristics are likely to be better than one with only purchasing.
• If you are provided with information, you can use the data effectively while working together with your partners and not infinitely delay later progress in joint planning.
• Use your visit to ask partners to provide the information you need. Each partner should appoint a key individual who will work with and be a success to make sure he or she has the day you want to have.
• Build relationships as you go around the team. Their various department counterparts will become your ultimate contacts, so work hard there.

Marketing Strategies

The process of building good relations with foreign buyers is time-consuming and costly; thus, it should be conducted systematically. It is important for a Swedish company to build a good reputation for itself and its products.

To maintain a good reputation, a company must be concerned about quality and delivery, because in the long run, these aspects will determine the existence of the company. The company's reputation will also be influenced by advertising and the customer relations it maintains with all market participants.

Doing business in Iraq or any other part of the world necessitates first and constantly creating satisfying buyer-seller relationships favorable to both parties. The creation and maintenance of these relationships take time, planning, and effort.

The buyer-seller relationship should create a win-win situation for both parties where mutual understanding and respect create a satisfactory environment. Fostering good relations with local authorities is also highly recommended.

In order to communicate with prospective Iraqi buyers, the exporter generally must first establish an intermediary, then communicate through the intermediary. Usually, an Iraqi company acts as an intermediary or agent between the Swedish exporter and potential Iraqi buyers.

The intermediary commonly seeks the exclusive rights to sell the foreign product in Iraq or a specific region of Iraq. Iraqi companies may at times demand too much, including asking for huge price discounts, long payment terms, or even giving Iraq exclusivity for the product.

If an Iraqi company is particularly large, or if it has significant operations in another country, it may request an exclusive agency agreement for several countries, possibly specifying other products. To protect the exporter's interests, the exclusivity of the appointment should be granted only if the intermediary reaches the agreed-upon sales targets. It is always important to keep the lines of communication open and clarify potential problems at the outset.

Understanding Local Consumer Behavior

Consumer behavior corresponds to the choice, purchase, and consumption of a product or service. The main elements that should be identified and analyzed in order to better understand consumer behavior are the following:

• What types of goods or services do people buy?
• Why do people choose or purchase certain goods or services?
• When do people buy or consume products or services – what prompts the need or desire for a product or service and what determines when a product or service is purchased or consumed?
• How do people buy or obtain products or services?

Purchase behavior is influenced by a number of factors, such as:

• personal,
• psychological,
• product, and
• demographic.

Determining who purchases a product or service: The demand for a product, which addresses the issue of who is buying the product or service, is the starting point for a market analysis. Producers must determine who the potential customers are in terms of demographics and psychographics.

To realize the potential and if demand is high, the business must develop a marketing strategy aimed at the identified customer segments. Identifying inherent needs of a product’s potential customers and then fulfilling them profitably is the essence of conducting a business, and doing so effectively is necessary to gain and maintain a competitive edge.

This in turn requires constant probing and research, which necessarily includes an understanding of consumer buying behavior.

Digital Marketing Approaches

Social media marketing, such as Twitter, Facebook, Instagram, and YouTube, is becoming increasingly popular, and the video format is growing rapidly.

B2B companies can also increase the reach of their activities, as entrepreneurs are active on social media, so issues related to business life will also find their audience. The framework for achieving success in social media marketing is no different from e-commerce or retail businesses.

Sharing content of interest and awareness, in other words, increasing visibility and traffic on the internet, is the end goal. Making these platforms an important tool for introducing, advertising, and customer relations is the fastest way to evaluate the advantages of social commerce and social media.

These platforms help attract new customers and strengthen existing relationships, as well as other communication channels, by creating new regions of influence and offering strategic flexibility to better exploit them. Through social media, Swedish SMEs can make valuable communications, engage in customer service activities, and respond to opinions and feedback.

Varying marketing activities to ensure that proper marketing campaigns continue results from tracking data and customer preference data relative to social media activity. Social or digital marketing activities are ongoing and customer-focused, making interactions increasingly valuable.

In addition to managing and repurposing content, Swedish SMEs can track perceptions, make systematic contact, obtain customer preferences, gather customer insights, use tools for platform analytics, and gather data on opinions to evaluate reactions to various types of content and adjust the content accordingly.

Enter new and established social advertising media on the different platforms only 2-3 times a week, and then promote the events only on weekends. Finding content that is relevant and localized to specific locations to get timely and local information is key in establishing the creative content and social media influences of these articles and posting conscious advertisements.

When social media networks partner to engage on platforms, they must have a voice and an understanding of customer preferences.

Maintaining consistency over a longer period of time with social media campaigns tailored to specific customers ensures that social media advertisements and social media investments are made only on active, search engine-optimized social advertisement and social network strategies, such as click qualification, lead generation, and reservations, to ensure that the best reach is achieved while eliminating random traffic.

Swedish SMEs also need to identify their target audience, understand the channels that this audience actively uses, and, if possible, offer diverse content and activities, even given budget restrictions, to attract and retain potential customers.

By engaging and offering localization services to increase the customer pool and reduce competition incentives, opportunities for unique personalized customer service and customer engagement incentives can be utilized. Establish a social media culture and train personnel in order to create a recognizable and coherent brand and to expand the brand's reputation online.

Traditional Advertising

Present legislation includes many general prohibitions of advertising, especially towards minors, in the interest of public health. Direct tobacco advertising is also prohibited. Because of the limited access the majority of Iraqis had to other forms of printed media during the recent embargo, outdoor advertising became, and for certain groups in the population still is, an efficient method of reaching out with both commercial and informational messages.

The potential for advertising in both vehicle and pedestrian areas is significant and noteworthy. There is a marked public openness to advertisements in these environments, primarily because of the competitive distractions from television commercials.

Various religious organizations frequently express their concerns regarding such advertisements, arguing that they promote indecency. Their criticisms generally focus on the depiction of nudity and the presentation of women in revealing clothing on billboards, along with realistic representations of human bodies. These portrayals are seen as possibly challenging the authority of religious scriptures, especially in Islamic contexts.

Given the significant role that outdoor advertising plays in the contemporary Iraqi market, the industry can take an initial step by acknowledging the cultural and religious dimensions while introducing technologically advanced solutions. The approach aims to establish a framework that is based on consensus and readily embraced by the community.

From the perspective of traditional media, the primary objective remains intact and is not compromised. Technological solutions can be utilized to substitute outdoor advertisements considered inappropriate with alternative billboards that respect religious and cultural values.

Interactions between advertising entities and different religious authorities are influenced by social relationships, challenges related to specific categories, and distribution patterns. Furthermore, local advertising agencies and multinational corporations might utilize these approaches in other areas of the Arab world, provided that their clients are receptive to such implementation, thus promoting this change. It is essential for strategies to be culturally and religiously aware, showing respect and a commitment to engaging with the community.

Financial Considerations

Banking Options; If you want to transfer money between Iraq and Sweden, you should preferably use a Swedish bank with a result virements contract with a bank in Iraq or alternatively use a forfaiting agreement. The most usual payment terms are:

1. Cash against documents,
2. Letter of credit,
3. Documents against acceptance for goods payment, and
4. Together with the bank, sometime can be given on the terms of payment.

Iraqi Banking Practice; You have to go through an Iraqi bank to get a resident permit, and it is recommended that you keep all financial and banking contacts through it. You can open a bank account in Swedish krona or other convertible currency and can deposit excess money.

In Sweden, you can find out about the possibilities for opening an account in their branch in order to pay taxes or import fees. You can be given a checkbook and a credit card. To be able to draw money from the bank, you have to give notice some time in advance. Only cash checks in traveler's or business forms are valid in Iraq. Credit checks on your Iraqi partner or customer can be made through selected agencies.

It is recommended that you prepare by entering into an agreement with a bank with offices in Iraq, preferably also with a bank that has offices in Sweden. Such a bank will be able to give you a series of banking export services. During your first visit to Iraq, you can open an account. The opening hours are usually from 8:00 A.M. until 1:00 P.M., and sometimes on Saturdays, from 8:00 A.M. until 11:00 A.M.

Cost Analysis

When you draw up budget plans, your financial considerations may be limited to investment decisions and the initial start-up phase. Investments, registrations, rents, and so on are usually seen as a one-off expenditure in a cost analysis.

However, you must also create a framework for sustainable operations from a financial point of view. In Iraq, there are relatively steep fixed costs for premises and other expenditures that you will incur as long as you are in Iraq, irrespective of how well business is going. In your budget planning, you must therefore also analyze variable and recurring costs that will differ according to business capacity over the long term.

The following are fees or costs that will impact your business operation continuity in Iraq:

1. Fee for entity incorporation.
2. Fee for patents and trademarks.
3. Premises and costs for administrators, HR manager, and reception.
4. Rents.
5. Electricity, water, heating, cleaning, and other services and infrastructure costs.
6. Stationery costs.
7. Salaries (you should not forget that your best staff can be easily lured away by competitors if you keep salaries low to cut your costs).
8. Employees’ insurance, work clothes, etc.
9. International consultants.
10. Marketing.
11. Transport of goods and warehouse storage.
12. Financial administration and auditing; and
13. Taxes and dues.

Funding Options

The majority of Swedish firms are deemed too small to go through an IPO, especially on a foreign exchange, and most do not want to forfeit a significant part of the return from succeeding when the company is eventually sold.

Therefore, bank-on-bank finance seems to be the primary choice of SMEs, irrespective of the market they operate in. Consequently, the need for different types of bank products and services by SMEs is very important.

For example, a significant percentage of small firms in Sweden have a financing relationship with a bank. Only a small percentage of SMEs are financed by venture capital; a portion use traditional banks, and nearly a third of larger SMEs look into non-bank solutions.

Family-owned businesses might have easier access to capital for a longer time and might also be willing to invest more before obtaining the anticipated higher reward at the cost of owning a lesser share of their company, but these companies also show a need for bank financing.

In fact, the proportion of equity financing increases as the size of the company increases and is highest for public companies. A very small percentage of the companies valued at more than €2 million are financed with grants in Sweden as a whole, but one could expect the percentage to be higher among SMEs. Grants are an often-forgotten form of financing that can provide very valuable support for entering a new market. Sweden is the country in the EU that has the highest share of firms that have been individually awarded a grant.

Currency Exchange Risks

A significant challenge in conducting business in Iraq is the instability of currency exchange rates, which can have a profound effect on financial operations. The Iraqi dinar (IQD), the nation's main currency, has experienced notable volatility against the US dollar (USD) over time. As of early 2025, the exchange rate has fluctuated between roughly IQD 1,306 and IQD 1,331 per USD, with projections suggesting a gradual decrease to about IQD 1,322 per USD by the end of the year.

The US dollar is the primary currency used for trade transactions, while the euro is also commonly utilized, especially in government transactions involving international partnerships. Due to Iraq's significant reliance on oil exports, the value of the dinar is closely linked to changes in global oil prices.

The recent downturn in oil prices, coupled with a notable surge in government expenditures, particularly in anticipation of the upcoming 2025 elections, has created considerable fiscal pressure on Iraq as the country navigates these economic challenges. Consequently, it is estimated that the nation’s budget deficit will inflate to approximately 7.6% of its gross domestic product (GDP) by the conclusion of the year, a figure that reflects the growing fiscal strain.

An in-depth analysis of historical economic data showcases that Iraq exhibits significantly larger financial variances when compared to more stable economies such as Sweden, which accentuates the critical necessity for implementing effective financial management strategies within the unique Iraqi economic environment. These strategies will play an essential role in stabilizing the economy and addressing the challenges posed by both external factors and internal budgetary pressures.

The projected downturn in the dinar's overall value, coupled with the increasing economic instability prevalent in the region, suggests that conducting transactions in euros or Swedish kronor (SEK) may offer a more secure and dependable financial structure for international businesses operating in Iraq. Furthermore, companies contemplating entry into this market ought to implement strategic hedging measures to mitigate potential currency risks, which would substantially bolster their financial resilience amid the enduring economic challenges faced by the country.

Note: Arabic Version of this Article is Available on (دخول السوق العراقية: دليل للشركات الصغيرة والمتوسطة السويدية (الجزء-2))