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Iran tensions

Iran sanctions threaten Samsung and LG's grip on local market

Domestic brands poised to seize chance if South Korean electronics giants are forced out

Samsung and LG dominate the Iranian market for appliances and smartphone.

TEHRAN -- Amir Kabir Street in central Tehran is a well-known hub for home appliances. On a recent Monday evening, it was bustling with customers and passersby heading home from work.

It was a typical weekday scene, but there were also signs that it is not entirely business as usual.

A few hundred meters up the street stands a shop selling refrigerators, stoves, microwaves and other kitchen appliances. Until a few days ago, a banner above its glass entrance carried the LG logo, indicating that this was an authorized retailer for the South Korean consumer electronics giant.

Now, the space is empty, and will soon be replaced by a sign for G Plus, a brand made by Goldiran Co., an Iranian company which has been representing LG in the country for years. Like many other changes affecting Iranian businesses, the move is a reflection of tightened sanctions by the U.S.

"There has always been a push and pull to find a way to import the South Korean goods," Pooria, the 33-year-old owner of the store, who preferred not to disclose his last name, told the Nikkei Asian Review. "Now imports through official companies are cut off," he said.

Both LG and compatriot Samsung Electronics have assembly factories in Iran, where their imported parts are turned into final products -- a strategy to avoid the heavy tariffs on imported finished goods and also fulfill Iran's desire to boost domestic production and create jobs.

But on Feb. 14 Iran's state-run news agency IRNA reported that signs and advertisements for LG and Samsung are being taken down following the companies' decision over the past months to stop cooperating with Iranian companies due to U.S. sanctions.

LG insists nothing has changed.

"LG Electronics is still conducting business as usual in Iran despite the sanctions," Ken Hong, senior director at LG Electronics, told Nikkei. "The reason for the erroneous coverage is due to the changing of some LG signage to Iranian brands but we are still very much involved in the market."

Samsung declined to comment.

At the same time, retailers, appliance and electronics industry insiders and consumers in Iran are bracing for disruption.

Seyyed Morteza Miri, the head of the Union for Distributors of Home Appliances, told IRNA that LG and Samsung are "unfairly" refusing to supply products and raw materials.

He said the companies' representatives -- including Goldiron in LG's case and Sam Electronic in Samsung's -- are now using their infrastructure and technology to manufacture their own brands: G Plus and SAM.

LG and Samsung together control 55-65% of Iran's market for home appliances, which is valued between $3.2 billion and $3.8 billion, according to various unofficial estimates.

They also have a strong presence in Iran's market for smartphones and tablets, with Samsung enjoying a commanding 60% share.

Samsung notified its Iranian users in January that paid apps on its store will not be available to them due to financial restrictions, though the handsets, which are imported through numerous channels, will still be available in the market.

At the Charsou shopping mall In Tehran's downtown electronics hub, dozens of banners still advertise Samsung's Galaxy Note 10 family. But at an official store selling the South Korean company's TV sets, fridges, dishwashers and microwaves, change is coming.

"Most items will be unavailable soon ... though warranties and after-sales services will continue," a salesperson told Nikkei on condition of anonymity.

Across the mall, in a similar LG store, a salesperson said the local alternative is gradually finding its place in the market.

"G Plus prices are half of those of LG," the person told Nikkei. "The two latest models of TV sets especially are performing very well in terms of sales."

Concerns over quality and prices, however, are prevalent.

"Most stores that I have visited recently said they have limited numbers of foreign products left in stock," Fatemeh Bahapour told Nikkei, adding she was concerned the scarcity will push the prices higher.

The 24-year-old resident of Tehran said she is in the process of buying appliances for the apartment where she and her fiance will live after they are married this summer.

"I have decided to hold off some of my purchases for now," she said, adding she was uncertain about the reputation of the new brands replacing LG and Samsung.

The two South Korean companies were reported to rethink their Iran activities in April 2019 after Washington said it would end sanctions waivers for importers of Iranian oil, including South Korea.

This was only one of many steps the U.S. has taken under President Donald Trump to pressure Tehran both politically and economically and force it to negotiate its nuclear and missile programs as well as its regional policy.

Referring to the recent reports of the South Korean companies leaving Iran, Deputy Foreign Minister Abbas Araghchi said the country "will certainly not forget" the companies that abide by the U.S. pressure policy and "leave the Iranian nation during these hard times."

Pooria, the shop owner in Amir Kabir Street, said LG and Samsung products might still remain available, though they will be smuggled rather than produced domestically or officially imported.

Even this availability might be short-lived, however. "We need to wait and see when the smuggling channel will also be closed," he said.

Additional reporting by Nikkei staff writer Kim Jaewon in Seoul

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