MBA Research ProjectBUSI 5908Research Project Title:How Technology Road-mapping facilitate organizational Large-ScaleChang...
2ABSTRACTThe objective of this project is to evaluate Technology Roadmapping for providingappropriate electrical trains te...
3and rail experts opinions, the High Speed Train (HST) was determined to be the servicethat satisfied the identified goals...
4ACKNOWLEDGEMENTI would like to express my gratitude to all those who gave me the possibility to completethis project. I w...
5"Table of Contents P#ABSTRACT 2ACKNOWLEDGEMENT 4EXECUTIVE SUMMARY 17CHAPTER ONE( INTRODUCTION)1) Background of business 2...
6B-1-1) Organisation of Transport Sector 109B-1-2) Irans Key Transportation Policies 110B-1-3) Sustainable Development 111...
7A-3) Irans Railway Internal Corridors 173A-4) Irans Rail Network 174A-5) Summary of RAI’s Current Situation 177A-6) Futur...
8B-1) what is the conventional paradigm? 215B-2) Why new paradigm? 216C) An Overview to the Technology Roadmapping (TRM) 2...
9Phase 3) Identification of Technology Alternatives 276Phase 4) Technology Gap Analysis 293Phase 5) Service-Technology Ana...
10TablesChapter Two• Household-based technologies at Iran 58• Comparison of Irans 3rdplan targets and performance 62• Econ...
11• Refining Customer Requirements 256• Technical Requirements to Satisfy Customer Needs 257• Strong Negative Interactions...
12• Main Tasks Roadmap, Modification of current line 321• Main Tasks Roadmap, Execution of Dedicated HST Line (350 Km/h) 3...
13FiguresChapter Two• External Environment Components 40• Effective & non-effective factors 41• Selected countries compara...
14• OPEC total crude oil production 76• Irans liquid production and consumption 77• Irans interest and inflation rate 79• ...
15• Road and Railway comparison chart 139• Transportation Investments as % of GDP 140• Transportation investment by sector...
16• Conceptual Framework of Technological Renovation 247• Trip time by Technology 280• Technology Selection Diagram 291• T...
17Executive Summary IntroductionThis business case represents the significant effects of different modes of High Speed Tr...
18in a state of technological and cultural change. Furthermore, in the next decades,technology will hold the key to improv...
19to road section, rail transport volumes are low, they are growing. In addition because of thegeographic position of the ...
20The route (Tehran-Mashed) has a good passenger potential with around 12 millionpassengers at 2006 and will be expected t...
21On the other hand, to implement of this project RAI needs to make government moreconfident about the situation that will...
22technological resources of industry and government to meet the future demands ofestablished and emerging customers.This ...
23 Providing very high tech alternatives such as Maglev trains will not be feasible forthe route as different points of v...
24Chapter One(Introduction)
25Introduction:1) Background of business1-1) Rail transport historyThe role of railway transportation has grown steadily i...
261-2) Iran’s railway networkThe railway system in Iran has been started almost 75 years ago. Passenger and Freighttranspo...
27construction, which will increase the total length of the system by almost half, and there aremany more proposed extensi...
28On the other hand, because of current situation there is no proper safety atmosphere forproviding high-tech technologies...
29Development of railway transportation requires vast technological infrastructure andequipments in which all of them shou...
30On the other hand, modern life styles are based on using the available technology. What isused may not be ideal for many...
31needed for construction. Also the payback period for transportations mega projects is oftenmore than 15 years. As a resu...
32On the other hand making any change in an organization needs to manage change processesaccurately. As we know managing c...
33This range recognizes any change in an organization from newness of some elements(change) to make a new vision for firm ...
34 Environmental impacts (emissions of CO2) the route average speed for passenger trains is around 100 km/h and for frei...
35market, services and R&D activities can improve our technology planning in the project lifecycle. This is a flexible pla...
36In this way, Im going to find out how the implementation of a technology roadmap canimprove the competitive advantageous...
37 There has tended to be too great a concentration on the integratedcooperation and cross-functional teams. (none of us ...
38 Fourthly, the research examines QFD to make integration between market needsand technology providing. Finally, the re...
39Chapter Two(External Environment Analysis)
40External Environment Analysis (EEA):In this chapter, the external environment is defined as everything outside an organi...
41I have organized the chapter in three main categories; Macro-environment, industry andcompetitive analysis. We can recog...
42Part A) Macro-Environment Analysis (TESP Analysis):A-1) Global economy environment:I introduce this chapter with "the mi...
43New generation of science and technologies help companies to facilitate serving newproduct and services to satisfy custo...
44Furthermore, the global economy has changed as free markets have spread to more parts ofthe world than ever before. Duri...
45have become much more involved in international trade. For instance at 2005, Chinaexperienced B$ 8000 in terms of GDP th...
46G7 Group at 200602,0004,0006,0008,00010,00012,00014,000CanadaFranceGermanyItalyJapanUnitedKingdomUnitedStatesBillion$GDP...
47Source: IMF, World Economic Outlook, April 2007Source: IMF, World Economic Outlook, April 2007
48Although there are many socio-economic and political threats and barriers such asinternational and regional challenges, ...
49A-2) Middle East, a strategic region:Although the region has experienced intensive regional challenges and wars in recen...
50Middle East Economic Indicators02004006008001000120014001600180020002000 2001 2002 2003 2004 2005 2006YearBillion$GDP- c...
51Middle East in compare to G70.005,000.0010,000.0015,000.0020,000.0025,000.0030,000.002000200120022003200420052006GDP (by...
52A-3) Irans Outlook DocumentIn order to draw a clear picture of Iran during the next fifth of century (up until 2025) as ...
53A-4) TESP Analysis:A-4-1) Technological TrendsRapid advances in technology, especially information and communication tec...
54technologies which are more environmentally friendly than the functionally equivalenttechnologies dominant in current si...
55 Facilitate to produce a wide range of products, and It also increases competition
56Iranian current technological potential: Human Capital (as a technological aspect)Iran has the second largest populatio...
57Source: Economist.com, "More pain than gain", Sep 14th 2006More attentionto Science andEngineering indevelopingcountries...
58 Household-based technology:Percentage of Iranian Distribution of Households by Using Equipments andAppliances-2004Equi...
59 High-tech exports:High tech products export by each country is an important indicator to measure level oftechnological...
60 Scientific growth:Based on Irans 2007 annual budget report, 1.2% of GDP should be spent for R&Dactivities.5F6Iran is a...
61A-4-2) Economic TrendIran has experienced two important events since 1970s that caused the country to becomeless competi...
62A-4-2-1) Development plansLike most developing countries, Iran places great emphasis on long-term developmentplans. Desp...
63international and Iranian economy and with regard to the experiences gained from theimplementation of the previous five-...
64economic growth, in particular provision of economic justice, as the main priority of thegovernment, requires price stab...
65A-4-2-2) Major Macroeconomic Indicators:The Iranian economy is entering a transitional phase. The economy enjoyed sustai...
66a) Economic Freedom"Economic freedom is that part of freedom that is concerned with the materialautonomy of the individu...
67Source: Economist, Index of economic freedomEconomic freedom VS per capita GDPSource: Economist, Index of economic freed...
68Source: Economist, Index of economic freedomAccording to Economist 2007 assessment on "Economic Freedom", Irans economy ...
69In the same report, it is revealed that Irans economy is not free in different ways. Theeconomy is rather free in the "F...
70Source: Economist.com, Index of economic freedomVery badcondition inthese factorsdirectly affecton sustainableeconomicgr...
71b) GDPIrans economy relies heavily on oil export revenues. As you see in the next tables Iransreal GDP increased for 200...
72Source: Central Bank of Iran, Annually report of 2005-2006Irans GDP (constant & current price)0200,000400,000600,000800,...
73Gross domestic product based on purchasing-power-parity (PPP)share of world total0.780.80.820.840.860.880.90.920.942000 ...
74Irans Macroeconomic ComponentsOrigins ofgrossdomesticproduct 2004% oftotalComponents of gross domesticproduct 2004%oftot...
75c) Oil priceIran is ranked in second place for oil production as a member of OPEC. Oil is the mostimportant part of the ...
76worlds oil demand & supply8383.58484.58585.58686.58787.5882006 2007(s) 2008(s)Millionbarrel/dayTotal World DemandTotal W...
77Source: Energy Information Administration (EIA)Iran hasexperiencedfuelconsumptionmore thanworldsaverage as aresult ofsub...
78d) Interest RateIran has experienced high interest rates during last decade. There is an inverse correlationbetween infl...
79Interest* & Inflation rate05101520252002 2003 2004 2005 2006 2007PercentInflation RateAvg. Interest RateData Source (inf...
80e) Inflation rateIrans Inflation Rate010203040506019801982198419861988199019921994199619982000200220042006PercentageInfl...
81Irans budget deficit-200000-10000001000002000003000004000005000006000001963 1973 1979 1989 2001BillionrialsVolume of mon...
82f) Value of RialIn recent years, the interaction of the Iranian economy with the world economy posted asurplus in major ...
83Iranian Rial in compare to othercurrency050001000015000200002004 2005 2006 2007Rial1 USD ($)1 EUR (€)1 GBP (£)1CAD ($)Da...
84A-4-2-3) Future Outlooks for Irans EconomyIranian Economy Aims for Long-term Growth. In this way associating with WTO is...
85 The moderate recuperation in industrial (in particular petrochemical),agricultural productions and service section Th...
86A-4-3) Socio-Cultural TrendsIn the two past decades, Iran has experienced sustained effort involving cultural, social,po...
87A-4-3-1) Human Development Index (HDI)According to UNDP program at human development (annually report), perhaps one of t...
88Moreover, there are other indicators for evaluation of HDI that Calculated each year such aslife expectancy at birth, ad...
89Source: UNDP, Human Development Report 2004Another measurement is "Gender Empowerment Measure" (GEM) that reveals whethe...
90A-4-3-2) Populations:Periods Irans Annual Population Growth1946-1956 3.131956-1966 2.921966-1976 2.711976-1986 3.911986-...
91Irans Annully Population and HDIgrowth rate0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%19781981198419871990199319961999...
92A-4-3-3) Age distribution:Percentage Distribution of Households’ MembersBy Age Groups, 2004-05Age Groups Percent0-5 year...
93Threats: Need to spend huge investment on training and education Unemployment emerge as an social crisis for governmen...
94A-4-3-4) Unemployment, An emerging social crisisYear Population(Million)Unemployment Rate(%)1956 18.9 31966 25.7 91976 3...
How technology road mapping facilitate organizational large scale change
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How technology road mapping facilitate organizational large scale change
How technology road mapping facilitate organizational large scale change
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How technology road mapping facilitate organizational large scale change

  1. 1. MBA Research ProjectBUSI 5908Research Project Title:How Technology Road-mapping facilitate organizational Large-ScaleChange as a corporate strategic planning tool?(A case study of Tehran-Mashed new electrical railway project)A thesis submitted to:Prof, Ian LeebyMajid Babaie EbrahimabadiDate Submitted:April 9, 2008
  2. 2. 2ABSTRACTThe objective of this project is to evaluate Technology Roadmapping for providingappropriate electrical trains technology for Tehran-Mashed railway. TechnologyRoadmapping is a comprehensive approach to strategic management for the integration ofmarket, R&D and technology development into product/service and business aspects.In this project, special consideration has been given to sustainable development aseconomic, social and environmental parameters.The point of departure was a TESP analysis of Irans macro environment with its structuraland economic data (in Chapter 2). Taking all the given parameters into consideration, andon the basis of the economic analysis, it shows that Irans macro economy is growingrapidly and is producing increased demand for transportation that itself has considerableeffect on the economy.The next step in the project was a comprehensive performance analysis of a wide spectrumof transportation modes. In this step, the industry and competitors analysis was completedto analyze rail industry in comparison to other modes. Although rail industry hasexperienced increased support from government in recent years and it has manyadvantages over other modes and is known as environmentally friendly, more efficient tonational economy and more accepted by social groups, the analysis shows that rail industryhas an insufficient share of the transportation sector. There are many reasons for that butlack of adequate infrastructures and appropriate technologies could be the most importantreason.The technology selection process (in Chapter 5 and 6) shows that customers want servicesand technologies that reduce travel time and increase travel quality and safety. On theother hand the government as a specific customer is looking for those technologies thatoffer a more direct and indirect contribution to national economy. By using rail customers’
  3. 3. 3and rail experts opinions, the High Speed Train (HST) was determined to be the servicethat satisfied the identified goals. On the basis of the data, appropriate rail technologiesbased on existing and further technologies were analyzed. As a result, three availabletechnologies; Tilting trains, Conventional HST and Maglev trains were evaluatedconcerning technical and economic parameters.The analysis found that according to Irans railway situation a combination of the first twoalternatives could be adopted in a 20 year plan while Maglev train (technical, economicaland technological adaptation) cannot achieve the government’s objectives in the Tehran-Mashed railway.Finally, the research in this project suggests a significant new process, which resulted innew tools for acquisition of disruptive technologies in rail industry.
  4. 4. 4ACKNOWLEDGEMENTI would like to express my gratitude to all those who gave me the possibility to completethis project. I want to thank the Irans Railway for giving me opportunity to commence thisproject in the first instance, to do the necessary research work and to use departmentaldata. I have furthermore to thank the Mr.Ghorbanalibeyk chief executive of Irans railnetwork electrification project. I am deeply indebted to my supervisor Prof. Dr. Ian Leefrom the Sprott School of Business of Carleton University whose help, stimulatingsuggestions, valuable hints and encouragement helped me in all the time of research forand writing of this project. Also I would like to thank Prof. Dr. Uma Kumar from the SprottSchool of Business of Carleton University whose read my project and gave me manyworthwhile comments.Especially, I would like to give my special thanks to my wife whose patient support enabledme to complete this work.
  5. 5. 5"Table of Contents P#ABSTRACT 2ACKNOWLEDGEMENT 4EXECUTIVE SUMMARY 17CHAPTER ONE( INTRODUCTION)1) Background of business 252) My case study 333) "TRM" leads to optimize providing new technology 354) Managerial Questions 375) Research Objectives 37CHAPTER TWO(EXTERNAL ENVIRONMENT ANALYSIS)Part A) Macro-Environment Analysis (TESP) 42A-1) Global economy environment 42A-2) Middle East, a strategic region 49A-3) Irans Outlook Document 52A-4) TESP Analysis 53A-4-1) Technological Trends 59A-4-2) Economic Trend 61A-4-3) Socio-Cultural Trends 86A-4-4) Political/ Legal Trends 106Conclusion on Irans Macro environment 108PART B) Industry Analysis 109B-1) Overall Review of Irans Transport Sector 109
  6. 6. 6B-1-1) Organisation of Transport Sector 109B-1-2) Irans Key Transportation Policies 110B-1-3) Sustainable Development 111B-1-4) Key Modes of Transport 123B-1-5) Investments in Transportation Infrastructure 140B-1-6) Key Issues Identified in the Transportation 142B-1-7) The Way Forward 147B-2) Market demand for railway as a target industry 148B-3) Strategic Map 149B-4) Industry Analyses by porters five forces 152B-4-1) Rivalry among competitors 152B-4-2) Barriers to Entry 153B-4-3) Substitute Services 154B-4-4) Power of Suppliers 155B-4-5) Power of Buyers 155B-5) Driving Forces 157B-6) Overall Industry Attractiveness 160PART C) Competitor Analyses 161CHAPTER THREE(PROJECT DESCRIPTION)) A) Introduction 170A-1) 21stcentury challenges 170A-2) Irans Rail Transport Background 172
  7. 7. 7A-3) Irans Railway Internal Corridors 173A-4) Irans Rail Network 174A-5) Summary of RAI’s Current Situation 177A-6) Future Vision 177B) Project Description 178B-1) Tehran-Mashed, A potential route for high speed rail 178B-2) A Price-Time model 182B-3) Why High Speed Trains (HST) 184C) The problem and Methodology 196CHAPTER FOURTECHNOLOGY ROADMAPPING(A STRATEGIC WAY FOR CHANGE)Introduction 199A) Anticipating and Managing Change 200A-1) what’s the force behind change? 200A-2) Literature Review 201A-3) Different Perspectives to Change 203A-4) Managing change, A step-by-step approach 204A-5) Key Relative Areas 206A-6) Boosting Technological Change 207A-7) Do employees must be change? 213A-8) Look at the Past, Present and Future 214B) Distinction of Planning Paradigms 215
  8. 8. 8B-1) what is the conventional paradigm? 215B-2) Why new paradigm? 216C) An Overview to the Technology Roadmapping (TRM) 217C-1) Definition and literatures 219C-2) Differentiations of TRM & technology planning 225C-3) Evolution of technology roadmapping 226C-4) Why Technology Roadmapping 227C-5) what are the main benefits of TRM? 229C-6) Why R&D involvement? 230C-7) Why should be avoid from exist solutions? 231C-8) Different Modes & Approaches of TRM 231C-9) Technology Roadmapping Process 233C-10) which Challenges are in face of TRMs? 239CHAPTER FIVE(TECHNOLOGY SELECTION)Introduction 242Preliminary Analysis to Roadmap Creation 244Phase 1) Market Requirements, Visions and Objectives 246Phase 2) Service-Market Analysis 253Phase 2-1) Matching Visions with Costumer and Technical Requirements 2532-1-1) Using QFD for service development 253Phase 2-2) Project’s House of Quality 263Phase 2-3) Identification of Related Services 271
  9. 9. 9Phase 3) Identification of Technology Alternatives 276Phase 4) Technology Gap Analysis 293Phase 5) Service-Technology Analysis 304CHAPTER SIX(ROADMAP CREATION)A) Introduction 309B) Influence Matrix 310C) Roadmap Creation 314C1) Auxiliary Tasks 314C2) Main Tasks 318C3) Auxiliary Tasks Roadmap 319C4) Main Tasks Roadmap 321C5) Next Steps and Recommendations 326CONCLUSION 327APPENDIX 1: QUESTIONNAIRES 330REFERENCES 344
  10. 10. 10TablesChapter Two• Household-based technologies at Iran 58• Comparison of Irans 3rdplan targets and performance 62• Economic Indicators during the 4th FYDP 63• Irans Macroeconomic Components 73• Irans budget deficit 80• Irans Annual Population Growth 90• Irans labor force indices and indicators 96• List of selected countries by life expectancy 98• Irans Income distribution inequality indexes in urban areas 100• Share of Iranians states in GDP, Population and Consumption 102• Level of Education 103• Market share by modes of transport 115• Irans Road network development plan 125• Irans Rail development plan, quantitative targets 130• Irans railway performance 131• Irans fourth development plan (Railway Sector) 132• Irans Sea Transport Performance 134• Iranian Railway companies, Annual freight performance 163• Iranian Railway companies, Annual passenger performance 166Chapter Three• General Status of the Irans Rail Transport Sector 173• The Routes Current Traffic 181• The European Union Plans to improve Road and HST 188• Speed Records of High Speed Trains in different Modes 193• World Fastest Scheduled Train Services 195Chapter Five• Irans Railway SWOT Analysis 249• Tehran-Mashed new Electrical Railway, (Visions & Objectives) 252
  11. 11. 11• Refining Customer Requirements 256• Technical Requirements to Satisfy Customer Needs 257• Strong Negative Interactions among the Technical Requirements 258• Follow-up Actions 259• Iranian Railway companies, annual passenger performance 261• Competitor’s Market Share and Growth rate 261• BCG Matrix 262• Conclusion of Competitors Evaluation for Costumer Requirements 265• Conclusion of Competitors Evaluation for technical requirements 265• Effects of technical requirements on costumer requirements 266• Comparison of the relative importance 267• Final priority of Costumer Requirements 269• House of Quality 270• Rail Transport Market-Service Linkage 271• Tehran-Mashed new line, Choosing the Strategic Services 273• Comparison of different rail alternatives 273• Features Comparison Chart 284• AHP Results for Technology Selection 286• Tehran-Mashed new HST, Final priority of HST Alternatives 290• Current Technological Capabilities for high speed railway 297• Tracks Desired Capabilities 298• Equipments Desired Capabilities 298• Identification of the gap on the exist line 300• Follow-up Actions 301• Tehran-Mashed projects implementation alternatives 306Chapter Six• Influence Matrix 311• Identification of Auxiliary-Tasks 315• Categorization of Auxiliary-Tasks by Term 316• Auxiliary Tasks Roadmap 319
  12. 12. 12• Main Tasks Roadmap, Modification of current line 321• Main Tasks Roadmap, Execution of Dedicated HST Line (350 Km/h) 324• Projects Fast Facts 329
  13. 13. 13FiguresChapter Two• External Environment Components 40• Effective & non-effective factors 41• Selected countries comparative GDP 45• G7 Groups GDP 46• G7 economic indicators 46• Global indicators 47• Global productivity performance 47• Risks to the global outlooks 48• GDP at Middle East 49• Middle East economic indicators 50• Export and government revenue of OPEC 50• Middle East in compare to G7 51• Science and Engineering students 57• Distribution of economic freedom 66• Economic freedom, world average vs. regions 67• Economic freedom VS per capita GDP 67• Global distribution of economic freedom, results 68• Irans Economy Freedom 69• Irans ten economic freedom indicators 70• Irans GDP & GDP per capita 71• Irans GDP growth rate 71• Contribution to GDP growth, Iran 72• Irans GDP (constant & current price) 72• Irans GDP (share of world total) 73• Irans GDP by sectors 73• OPEC basket prices 75• Worlds oil demand & supply 76
  14. 14. 14• OPEC total crude oil production 76• Irans liquid production and consumption 77• Irans interest and inflation rate 79• Irans inflation rate in 26 years 80• Iranian Rial in compare to other currencies 83• Irans HDI scores 87• Irans HDI trends 88• Irans population for 20 years 90• Population and HDI trends in compare together 91• Irans Age distribution 93• Irans Gini Index 101• Irans Misery Index 104• Irans misery Index in compare to G7 Group 105• Iran’s GDP by economic sector 111• Iran’s GNP by economic sectors 112• Value Added by Transportation sectors 113• Share of railway in transportation value-added 114• Iran’s value-added growth rate by sectors 114• Governmental assets by transportation sectors 115• Contribution of different fuel on total consumption in transport 120• Gasoline consumption growth trends in different region of the world 121• Energy intensity of GDP in different mode of transport 122• Iran’s registered vehicles 124• Vehicles to main roads 125• Iran’s road network 125• Public investment in road network 127• Freight and Passenger by road 128• Railway Transportation 132• Share of freight and passenger in railway 132• Iran’s Aviation Performance 136
  15. 15. 15• Road and Railway comparison chart 139• Transportation Investments as % of GDP 140• Transportation investment by sectors 141• Strategic Map at railway industry 150• Iran’s railway industry attractiveness 156Chapter Three• Irans Railway Internal Corridors 174• Irans railway critical routes 176• Map of Rails Passenger volume 180• Price–Time Model 183• Effect of Train Journey Time on Air and Rail Travelers 183Chapter Four• Lewins Force Field Analysis Model 202• Key Areas of Change Management 207• Technological Change Life Cycle 209• Looking at the Past, Present and Future 214• Linking between TRM and Business Strategies 218• Technology Life Cycle 220• Evolution of technology roadmapping 227• Public & Private sectors in R&D investment 230• TRM in different modes 232• TRM Process 234• Dynamic effect of different dimension 236• The Projects Process Algorithm 238• Roadmapping Challenges 239Chapter Five• The projects Roadmap Phases 244• Roadmap Hierarchy 245
  16. 16. 16• Conceptual Framework of Technological Renovation 247• Trip time by Technology 280• Technology Selection Diagram 291• Technological Gap Process 296Chapter Six• Influence Map 313• Integrated Relationships in both of internal and external 325
  17. 17. 17Executive Summary IntroductionThis business case represents the significant effects of different modes of High Speed Train(HST) technology in Iranian railway system. The project aims to assess how to structure theongoing collaborative technological advancement, the exploration of the opportunities andthe threats over the next twenty years. In addition it analyses how to manage the transitiontowards knowledge based technology and a more sustainable rail industry. This vision isbeing translated into a set of technology development destinations and a total of distinctinitiatives for targeted project.Railway transportation has direct and indirect cost to society and may reduce competition.By use of HST in Iranian Railway system, there are many advantages to society, economyand environment. Also, we are going to find out how the implementation of HSTtechnology can improve the competitive advantageous of the railway industry comparing toother alternative transportation networks such as Road ways and airways in order to providea better and more efficient services to the customers. Meeting tomorrows challengesNowadays new generation of science and technologies help companies to facilitate servingnew product and services to satisfy customer expectations. Despite of all opportunities, thenew global market has several threats for the firms. In addition to the new markets, newcompetitors are emerging. The global competition is becoming more intense and firms faceserious challenges in order to survive. Customers in the new global market do not acceptthe standardized products and they prefer goods or services that satisfy their individualrequirements.In addition businesses are under tremendous pressure to make tangible productivity gainsand to hold costs in check, just to stay even with their competition. Modern companies are
  18. 18. 18in a state of technological and cultural change. Furthermore, in the next decades,technology will hold the key to improving the quality of our lives and resolvinglongstanding conflicts between economic goals and resource constraints. In response,costumer expectations for technology have increased dramatically, placing greater demandson the application and performance of services. Also sustainable development is vital toprovide new technologies and the triangle of society, economy and environment are neededto evaluate simultaneously.On the other hand the Iranian economy is entering a transitional phase. The economyenjoyed a sustained growth, partly due to policy decisions and extensive deregulations toenhance private sector contribution to economic activities and partly to positive movementsof crude oil prices in international markets. Foreign trade system moved toward furtherliberalization through revision in trade tariffs and granting more flexibility to exporters inmanaging their exports proceeds. Also like to the global market that the most part ofworlds trade has more focused on services than products, 48.2% of Irans Gross DomesticProduct (GDP) is come from service sector. In recent years Iran has changed sometraditional approaches to make country more attractive for global economy and particularlyto increase foreign investments.Due to implementation of structural reforms in the 3rd plan, most of economic indicatorsshow a better performance as compared to the previous periods. According to positivetrends of Irans macroeconomic criteria such as GDP and GDP/per capita the country willbe faced with a huge demand for transportation services in both of freight and passenger. Background of BusinessTo response desired demand the railway network currently operated by the IranianRailways Co. (RAI) that is 8565km of main track. All tracks are standard gauge. Tehran isthe hub of the railway network, which consists of four main corridors. Although in compare
  19. 19. 19to road section, rail transport volumes are low, they are growing. In addition because of thegeographic position of the country and the long distances involved, rail transport hasconsiderable potential for development, and a favorable comparative advantage (such asenvironmentally friendliness, lower fuel consumption, lower fatalities, lower price,…) overroad and air transport.Although investment in the rail transport has experienced special growth in recent years butshare of rail transport from GDP is decreased. It means governmental investment in the railtransport hasnt been effective to improve its market share or other modes of transportgrowing faster. Statistics shows that in recent years Iran has experienced around 5% byaverage in its GDP and also government has spent considerable investment ontransportation sector. Moreover share of transportation sector from countrys value-addedhas been increased during two decades ago. So it can be estimated that transportation sectorwill be facing with a huge demand in the next years. On the other hand railway with a widerange of advantages that mentioned before can play a strategic role in transportation sectionin both of passenger and freight modes.City of Mashed is an important religious city in the country and the second Islamicreligious city in the world. Millions of pilgrims plan to travel there every year. Around 50%of total rails passengers travel there. The route is 926Km and is known as long distanceroute. Although there are operated many semi high speed trains with maximum 160 Km/h,but average trip time for the whole of route is around 12 hours. In recent years the route hasno experienced any passenger train accident and fatalities. As a technical point of view theroute is doubled track and in recent years many substantial projects such as signaling andtracks long welding are done. Also the existence route is ready to operate trains with speedof 200Km/h.
  20. 20. 20The route (Tehran-Mashed) has a good passenger potential with around 12 millionpassengers at 2006 and will be expected to increase in future. In addition rail transport has51% of the route market share, road and air transport with 36% and 13% are the next modesof transport respectively. It means rail transport is the main mode of transport in the route.As a result, it can be predicted that any rails network development and in particularproviding high speed trains technology will be effect on the rail transport market share. Providing High Speed Train technologyElectrification of Irans rail network is an essential solution for productivity improvementand sustainable development. On the other hand high speed railway is vital to productivitygrowth in transportation sector. As such, it lies at the heart of the sustainable developmentand technological transformation projected through 2025 and beyond.Development of High Speed Trains (HST) in last decades makes it more attractive incompare to car. Many direct and indirect advantages such as low travel time, loweremissions and safer trip are discussed by governments to implement new HSTinfrastructure around the world. Generally, High speed rail is defined as where trains run ata maximum speed of at least 250km/h. Capable of traveling at speeds of 250 to 350 km/h orhigher, HST would offer an efficient, attractive and convenient alternative for passengersbetween large urban areas for trips of up to 1000 kilometers. HST is economically efficientand respectful of the environment; its a major asset in efforts to ensure sustainabledevelopment in transport.According to the high passenger traffic in the Tehran-Mashed route that still is going uprapidly and also the critical capacity of the route, the RAI is going to provide an electrifiedhigh speed railway there. Previous feasibility study shows that the route has the mostpriority to implement an electrified high speed railway. The project is mostly technology-based and estimating around $15 billion and will be implemented in 15 years.
  21. 21. 21On the other hand, to implement of this project RAI needs to make government moreconfident about the situation that will be emerged in projects life cycle. As a result thecrucial questions are:1. Which kind of high speed railway is more efficient to implement in the route2. How related technologies should be chosen3. How related departments should be involved in an integrate decision processIn conclusion, it’s very important for RAI to know what the best plan to implement projectis. Previous experiences for the same projects show that usually there has been a lack ofintegrated strategic planning to use all of the potentials that each part of project has aloneand usually there is no synergy between departments. Furthermore in most of previousprojects providing technologies were being insufficient or over design. It means afterimplementing of those projects the results will not be completely adapted to the targetstrategies. Technology Roadmapping(TRM), Thinking StrategicallyOver the last 20 years, Technology Roadmapping (TRM) has become a popular method forstrategic planning in science and technology. Generally, a roadmap provides a consensusview or vision of the future landscape available to decision makers. When conductedproperly, a roadmapping effort provides a way to involve critical stakeholders as well as toidentify, evaluate and select alternatives that can be used to achieve a desired objective. Ituses to integrate between firms business strategies and market requirements. Also by usingroadmapping the R&D tasks will be canalized to the desired visions and objectives. On theother hand the Irans rail industry has undertaken a bold technology planning initiative toposition itself to compete effectively in Irans transportation market. This business caserepresents technology roadmapping as a strategic tool to respond to new marketopportunities and challenges in Irans rail industry. The roadmap will help align the
  22. 22. 22technological resources of industry and government to meet the future demands ofestablished and emerging customers.This roadmap is an initial effort to provide the critical link between the broadly definedstrategic goals and the detailed research portfolio that will be pursued through cooperativeR&D partnerships. It is meant to be a dynamic document that is reevaluated at regularintervals to incorporate new market and technical information and to ensure that theresearch priorities remain relevant to customer needs. Conclusion & FindingsFinally, the conclusions and findings of this business case for implementation of TRM toprovide new rail technology for Tehran-Mashed route are as follows: Although there are many negative economical and political points, but Iranseconomy indicators shows that the country will be faced with the better situation inthe next decades that helps it to provide pioneer technologies for rail transport. In recent years the government has spent considerable investments on rail projectsthat show the importance of railway transportation for decision-makers. To keep pace with the countrys rapidly growing population, rail transport mustreach the equivalent capacity for around 100 million people per year by 2025. Costumers are looking for services to make their travel safer, shorter and moreconvenience. Macro economic goals of, technological advancement, internationalcompetitiveness, and oil conservation would be supported by the development andbuilding of HST systems. A critical priority for Tehran-Mashed railway is the development and deployment ofan advanced portfolio of related technology options; Tilting and Conventional HST.
  23. 23. 23 Providing very high tech alternatives such as Maglev trains will not be feasible forthe route as different points of view; technology adoption, high cost, Safety, nointernational acceptation and so forth. Integrated partnership of different stakeholders in the government, industry and firmis needed to ensure that the projects roadmap will provide the best technology forthe route. There is no necessary experience to integrate R&D tasks with the main projectsactivities. Related R&D tasks should be identified as secondary roadmap. Although privatization in rail transport has started for many years, but there is nosufficient effort by government to facilitate the process of private sectionsreplacement. High-speed trains and high-speed trains network are beneficial from a socio-economic point of view and that they probably alleviate the major environmentaldisadvantages of cars and airplanes. By using HST, technology innovation will be emerged as the primary driver foreconomic growth. The project results shows that creating a sustainable future will requireimprovements in a number of areas, including economic productivity, energyefficiency, and emissions reduction over at least the next 20 years. As key to energy efficiency, high speed railway will increasingly shoulder societysburden for energy-related environmental control.
  24. 24. 24Chapter One(Introduction)
  25. 25. 25Introduction:1) Background of business1-1) Rail transport historyThe role of railway transportation has grown steadily in both scope and importance over thepast century. Developments in key technologies such as high speed locomotive andvehicles, tilting bogies, mechanized maintenance equipments and telecommunications,continuously reshaped our life as well as the productivity of its commercial and industrialfoundation. These technology advances have steadily extended the precision and efficiencyattributes of railway. As a result, railway has gained a progressively larger share of the totaltransportation use.In the coming decades, railways share to the total transportation is expected to continue togrow, as more efficient and intelligent processes are introduced into industry, transportationand business.Although sometimes identified as a mode that enjoyed its heyday during the 19thcentury,rail transport is enjoying resurgence because of technological advances in the latter part ofthe 20th century. In passenger transport this has come about through significantbreakthroughs in speed. For instance, in Europe and Japan high speed rail systems reachspeeds up to 515 km/hr. This gives rail in a competitive advantage over road transport andeven with air transport over short and medium distances. Unit trains, where trains are madeup of wagons carrying one commodity-type only, allow economy of scale and efficienciesin bulk shipments, and double stacking has greatly promoted the advantages of rail forcontainer shipments. Rail transport is also enjoying resurgence as a mode for commuters inmany large cities.
  26. 26. 261-2) Iran’s railway networkThe railway system in Iran has been started almost 75 years ago. Passenger and Freighttransportation is the main target of Iran railway system.The air and maritime transportation system within the country have small ratio of the wholetransportation network in the country. The air transportation system is mainly focused onpassenger transportation and high prices of jet fuel are not cost benefited for consumers tosend their merchandize with air transportation unless there is urgency. On the other hand,Iran is only connected from south to open waters for transportation out of country. There isno sea inside the country to make the transportation available between cities. As a resultthese two other transportation systems are not considered as a competitors for railwaytransportation system. The only remaining competitor in the field is the road way systems.Because of the geographic position of the country and the long distances involved, railtransport has considerable potential for development and a favourable comparativeadvantage over road transport. The competitive advantageous of the railway industry overthe road ways are: Cheaper price. Capability of transporting bulk raw materials Lower external cost for the government (Environment, fuel consumption &Accidents) More safety for the carried goods & passengersGovernmental support of expansion of the railway network is planned for the next 20 yearsin order to maximize the portion of railway transportation to 50%, compared to the wholetransportation net work of the country (at present the portion is about 15%). The nationalrail network in Iran is growing rapidly. An additional 3300 km of routes are currently under
  27. 27. 27construction, which will increase the total length of the system by almost half, and there aremany more proposed extensions under study.For freight traffic, the differences between road and rail are even more pronounced. Railremains nearly constant over the period at an average of 14 billion ton kilometers, whileroad transport increases three times over the same period.Iranian Railway requires tracks along which the locomotives and rail cars move. The initialcapital costs are high because the construction of rail tracks and the provision of rollingstock are expensive. Historically, the investments have been made by the same source(either governments or the private sector). These expenditures have to be made before anyrevenues are realized and thus represent important entry barriers that tend to limit thenumber of operators. It also serves to delay innovation, compared with road transport, sincerolling stock has a service life of at least twenty five years.1-3) Key Issues Identified at Iran railway sectorLack of Price IncentivesThis issue may be characterized as a threat. Transport users are not aware of the true costsof transport. All transport modes are heavily subsidized.Lack of Efficiency in Investment SpendingThree issues are of concern under this heading: Project justification Successful project completion Successful achievement of the desired benefits from the projectSafetyAlthough rail safety in Iran is matter of concern but as a comparative point of view,railway is many times safer than road transport
  28. 28. 28On the other hand, because of current situation there is no proper safety atmosphere forproviding high-tech technologies. (Standards, trained human, work culture, disciplines …)Poor Quality ServicesQuality problems affect every transport user in Iran. Some examples of poor quality of railtransport services include: Slow services Infrequent services Lack of information Overcrowding Uncomfortable vehicles Low standards of safety and security Unreliability and delays Inattentive staff Untrained staff;1-4) Technology managementFirst of all I chose a definition for technology management that creates by the EuropeanInstitute of Technology Management (EITM):"Technology management addresses the effective identification, selection, acquisition,development, exploitation and protection of technologies (product, process andinfrastructural) needed to maintain [and grow] a market position and businessperformance in accordance with the company’s objectives".Managing any technology for business benefit requires effective and systematic processesand systems to be put in place to ensure that investment in new facilities, knowledge andskills is aligned with market and industry needs, now and in the future. In other wordstechnology management deals with all sides of integrating technological issues intobusiness decision making.
  29. 29. 29Development of railway transportation requires vast technological infrastructure andequipments in which all of them should be match with internal factors such as;organizational culture, technology adoption, skills and proficiency, capital investment andalso external factors such as business aspects ( market needs and trends, market share,profitability, competition,…) , environmental impacts (air and noise pollution, land use,utilization of natural resources), and social aspects(safety and accessibility). It means if thefirm needs to make appropriate decisions for providing new technology in the project; theyshould manage the whole of factors that I mentioned above.1-5) Sustainable transportation (provide a win-win strategy):Sustainable development is one of the greatest long-term challenges facing the entire planetand transportation represents an important part of the challenge everywhere.Sustainable Transportation is talking about finding and maintaining a dynamic equilibriumbetween three forces that are seldom synchronized and often opposing each other. They are:• Economic needs of a safe and efficient transportation system,• Environmental impacts on the quality of our air, water and land,• Social priorities of the people (access and choice)In this matter the question that should be answered every time is: What the appropriatetransportation technology is? A major constraint on future sustainable transport systemswill be how various environmental, social and economical challenges are met. Majorrestructuring of social, economic and environmental values is urgently needed, and thescope of changes must transcend performance of transportation providers by alsoinfluencing the factors that motivate decisions and preferences of carriers and travelers. Inother word providing new technology must be done by analyze three different mentionedaspects.
  30. 30. 30On the other hand, modern life styles are based on using the available technology. What isused may not be ideal for many reasons. Progress tends to eliminate inappropriatetechnology. For instance, over the last several decades environmental sustainability playeda small role in transportation planning and operations but at present this situation haschanged. The future of the transport industry is likely to be compromised without anunderstanding of environmental sustainability.Moreover, Win-Win transportation solutions are cost-effective and technically feasible thathelps solve transportation problems by increasing consumer options and removing marketdistortions that encourage inefficient travel behavior.Win-Win solutions consist of strategies that have only positive or neutral impacts oneconomic, social and environmental objectives. Win-Win strategies also provide multiplebenefits; they offer opportunities for cooperation and coordination between interest groups.1-6) Creation of a new visionThe challenge in transportation to guarantee the growth that the global economy requires totransport more goods and passengers, faster and reliably.In addition investments in the transportation sector are long-term and capital-intensive.Vision, good planning and good policy are therefore required if optimal vehicles,infrastructure, corridors, organization and information management systems are to bedeveloped.Back-casting from the year 2007 to 1970, it is apparent that there have been enormoustechnological changes in railway and it is rather clear that the growth and changes in thecoming decades will be even faster.As a result there is an urgent need for a vision of the future. New concepts for anytransportation systems require 4 to 6 years from design to realization and 5 to 10 years is
  31. 31. 31needed for construction. Also the payback period for transportations mega projects is oftenmore than 15 years. As a result the vision should be shaped for the several coming decades.In this condition, as a win-win strategy point of view, the most appropriate vision for Iranrailway in the new project (my case study) is sustainable high speed electrical railway thatmeets the needs of society, industry and the environment for the coming decades.1-7) "Technology" work as organizational change factorThe acquisition of new technologies continues to be important to both public and privatesector organizations, especially larger organizations.According to the above mentioned the most important question is: "why technology isimportant for Railway Transportation as a special change factor"?A) General view:Technological change is important because it mostly leads to organizational changefor the following reasons: Technology and markets are changing more and more rapidly Often it has seen as a most competitive advantage Technology is usually seen as a specialized field of development policy The evolution of technology is a complex process Technology bring Modernity and Values that both of them can changeorganizationB) Business view:Providing a proper range of technology for railway industry is important because: Railway is a technical based business New expectations by customers can be done by providing related technology As a strategic planning point of view, "Technology" is the most importantelement that influence on the whole of internal and external expectations
  32. 32. 32On the other hand making any change in an organization needs to manage change processesaccurately. As we know managing change is a very important factor in the success of everybusiness. To achieve success in today’s global economy, companies must be able toproduce the right product/service at an appropriate time and with necessary specifications.So it leads companies to have more competition together for providing sustainableresources.Moreover there are many drivers for change in organization such as Customer expectations,Technology, Competition, Legislation, and Economy. Depends on organizational situationsuch as Urgency/Pressure, Organisational climate, Culture, and Management style,companies needs to recognize Critical Success Factors (CSF) for prioritizing all of driversto managing change properly. As we know in most of technical-base companies such asrailway, technology issues mostly are part of the main problems that organizations arefacing to solve them. Therefore, the process of technological change (market needs,competitors situation, organizational culture, and other internal and external factors)influence on technological planning that should be consider by any company.Also there are many obstacles to implement any change in an organization such as: Lack of related knowledge Power of existence systems Lack of integration between departments Lack of transparency in objectives from managers Cost of installing new systemFurthermore every organization depends on its different situations needs to make differentlevel of change those are named as tree key concepts: Change, Transition, Transformational
  33. 33. 33This range recognizes any change in an organization from newness of some elements(change) to make a new vision for firm (transformation).2) My case study"Development of exist Tehran-Mashed route to new Electrical high speed railway"Mobility and transportation infrastructure are essential pre-condition for the industry andthe national economy. They are providing the basis for trade, goods and passenger trafficand consumption. Moreover mobility and transportation infrastructure are a primary needfor the population. They guarantee a high grade of quality for the citizens, for their workand leisure time.In spite of these facts, infrastructure is hold responsible for many negative impacts;especially environmental pollution, disturbing noise and land use are complained.On the other hand in todays business there are two important factors for evaluating oftransportation efficiency, they are: speed and reliability.In Iran railways network, the Tehran-Mashed route constitutes one of the main routesbetween other corridors in terms of traffic demand which have two unique aspects:1) The route has a special role for connecting Central Asian Countries to EuropeanCountries2) More than 50% of whole of passenger traffic around the country are carried inthis routeFurthermore there are many problems to operate the exist line, they are: the operation system is based on non-electrical infrastructures (track & vehicles) Although fuel consumption in compare to road way is around 20%, but usingfossil fuel that is more expensive than other alternate energies can be a threat infuture.
  34. 34. 34 Environmental impacts (emissions of CO2) the route average speed for passenger trains is around 100 km/h and for freighttrains is 70 km/h Although the route is double track but depends on trains speed, lines capacitycant cover whole of market demands Big part of the exist technologies are obsolesced Safety is a big managerial concernAs a result make a strong change in the infrastructure as I mentioned above can affectextremely on the whole of Iran railway.By this condition, Iran railway has a new plan for development of exist line from non-electrical system to a high speed electrical system. This project is one of the most importantprojects for Iran railway, because: Its the first high speed railway More than 2 billion dollars investment for the whole phases is estimated It makes a new set of technologies and knowledge Create a set of organizational behaviors (cultures, structures, standards…)The main goals for implementation of this project by Iran railway are as follows: Increasing freight and passenger capacity Decreasing travel time for both of freight and passenger trains Decreasing environmental impacts Decreasing project life cycle costThe whole of project is expected to come into new service by 2015 as a phased process inwhich cover the whole of 900 km between Tehran and Mashed.This thesis tries to analyze the impact that preparing a Technology Roadmap (TRM) haveon technology providing for the project. I also try to explore how integration between
  35. 35. 35market, services and R&D activities can improve our technology planning in the project lifecycle. This is a flexible plan that can be modified in accordance with the needs of any givenmoment. It works also as a window to the future in which the firm manages its capitalinvestment with appropriate risk and challenges.3) "TRM" leads to optimize providing new technology:As I understand there is a strong correlation between using new technology and making aset of changes in an industry such as railway. For example in this case, providing highspeed railway technology extremely affects on whole of railway industry stakeholdersbehavior (government, customers, employees, experts, managers...).By using of this newtechnology in Iran Railway system, it can reduce the cost of transportation and travel timeby increasing network capacity. Both of above factors affects on industry, market &customers needs. Perhaps the most important obstacle in this way is lack of long termmaster plan for providing new technology as a phased process.Also at the moment there is no any proper integration between market, services andrequired technology in Iran railway. So any part of decision-makers work as an island. Inthis situation, choosing any technology often start by present solutions instead of analyzingthe stakeholders needs.Moreover, good design, management, and planning for providing new technology requirean understanding of: Where we are? Why we are here? Where we may be going? What is the gap?It is very important to anticipate what probably will, and reject what probably will nothappen.
  36. 36. 36In this way, Im going to find out how the implementation of a technology roadmap canimprove the competitive advantageous of the railway industry and how it makes a longterm plan for providing required technologies in order to provide a better and more efficientservices to the customers. Also recognizing the main obstacles in the implementation phasesuch as resources, training and communicating is needed.Technology Road-mapping (TRM) has known as an analytical tool with the capacity tochart future market directions, forecast technological change and help to determine thestrategic choices that companies need to make. Through this process, TRM provide impetusfor research and development, technological innovation and technology transfer. It helpscompanies to identify, select and develop technology alternatives to satisfy future service,product or operational needs and also helps companies to think strategically, decideintelligently and collaborates strongly to deliver the critical solutions they need to succeedin tomorrow’s markets. Technology road-mapping works as a master plan that can bridgesgaps. In this situation no departments in organization is an island, selecting and integratingrailway technology must be a collaborative process.In addition a Technology Roadmap can effect on organizational change behavior because: It helps an industry to predict the market’s future technology andproduct/service needs Defines the "road" that industry must take to compete successfully intomorrow’s markets Guides R&D decisions Increase collaboration, shared knowledge and new partnerships Reduces the risk of costly investment in technologyFurthermore, before considering the use of TRM, there are a number of challenges thathave to be considered: Starting up the TRM process
  37. 37. 37 There has tended to be too great a concentration on the integratedcooperation and cross-functional teams. (none of us is as smart as all of us) Keeping the TRM process alive Developing a robust TRM processAfter the roadmap is produced, the participants works together to launch developmentprojects with the aim of providing technologies that will help them capture future markets.Also the risks and benefits are shared, and the whole industry grows stronger.4) Managerial Questions1) How to improve technology providing process for the project as a maincompetitive privilege?2) How Iran railway can chart future market directions, forecast technologicalchange and determine the strategic choices that need to make in the project?3) Is there any capacity (know-how, skills, processes & systems…) in theorganization to adopt new technology (maybe as a disruptive technology)?4) How prevent investment on the inappropriate technologies5) Research ObjectivesIn summary, in this business case Im looking forward to doing following: First of all, the main objective of this research is to identify requiredtechnologies as a systematic way for future.( using TRM) Secondly, explore how preparing a Roadmap can influence the improvement ofproviding proper technologies for Iran new electrical railway. Thirdly, the research focused on the evaluating of technology road-mapping as astrategic planning tool by making a strategic plan through analyzing firm andindustry factors.
  38. 38. 38 Fourthly, the research examines QFD to make integration between market needsand technology providing. Finally, the research explains how technology roadmap uses as stimulate fororganizational change.
  39. 39. 39Chapter Two(External Environment Analysis)
  40. 40. 40External Environment Analysis (EEA):In this chapter, the external environment is defined as everything outside an organizationthat is capable of affecting the survival or success of the business. Everything from macro-environment trends, related industry and competitors are included in the externalenvironment. Competitors are also a part of an industry which itself is part of the externalenvironment. In addition there is a common area between three sections that is allocated tothose of factors with greater influence on the business.MacroEnvironmentAnalysisIndustryAnalysisCommon areaIn the modern era, the rapid of change in the global economy is expected to continue. Itmeans businesses that facing the future need to be more strategic. They must become muchmore responsive. So firms need to use up to date information concerning the externalenvironment of the business.Mostly wecan findmoreeffectivefactorsthatinfluenceonbusiness
  41. 41. 41I have organized the chapter in three main categories; Macro-environment, industry andcompetitive analysis. We can recognize those kinds of factors which have the mostpositive or negative effect on the business with high probability (most effective factors).Moreover, we will understand non-effective factors that do not any considerable effect onthe business.Dont spendmoney andtimeMostly islocated inthe commonarea,SpendMoney andTimeWe arentsufficientlysure to spentMoney andTime
  42. 42. 42Part A) Macro-Environment Analysis (TESP Analysis):A-1) Global economy environment:I introduce this chapter with "the millennium development goals" 0F1that are emphasized byWorld Bank as follows:a) eradicating poverty and hungerb) Achieving universal primary educationc) Promoting gender equalityd) Reducing child mortalitye) Improving maternal healthf) Combating diseasesg) Ensuring environmental sustainabilityh) Developing a global partnershipIn the latter decades of the 20th century, the general business environment has experiencedmajor changes. Physical boundaries have declined in importance and an enormous globalmarket is emerging. Emerging markets and developing countries are expected to continueto grow strongly. There have also been significant improvements in global technology andother broad measures of well-being, including life expectancy and education. Traditionalsmall stores have changed to huge chain retailers (one stop shopping). Informationtechnology is serving the globalization process as a powerful tool. Information technologyand globalization are changing the history of the world. An increasing number of firmsinvest a significant part of its income on R&D activities.1World Bank at http://devdata.worldbank.org/atlas-mdg/
  43. 43. 43New generation of science and technologies help companies to facilitate serving newproduct and services to satisfy customer expectations. Presently, in the global economy, asteadily increasing percentage of worlds trade is in services rather than products. Forinstance 48.2% of Irans Gross National Product (GNP) is from service sector.1F2Despite these opportunities, the new global economy poses several threats for firms. Inaddition to new opportunities, new competitors are emerging. Global competition isbecoming more intense and firms face serious challenges in order to survive. Customers inthe new global market do not accept standardized products and they prefer goods orservices that satisfy their individual requirements. Companies must cope with productdiversification while offering the best goods and services taking into account the differentneeds of diversified customers (mass customization). On the other hand, there are differentthreats from governments from new regulations, monetary policies, environmentallimitations and international organizations such as WTO.Moreover, there are many disparities closely linked to the human impact on theenvironment. This game has two sides, one of them are people in the developing & non-developing countries that produce raw materials for global economy. They use theenvironment in an inefficient manner e.g. land use, water and natural resources. On theother side, developed countries are the greatest consumers of natural resources, and alsohave much greater power to shelter themselves from environmental impacts such aspollution, scarcity and climate change. So the immediate challenge for policymakers is tocontinue to steer the global economy on a sustainable path that is consistent with lowinflation and global expansion.2Central Bank of Iran, Annually Report, Statistical appendix 2004
  44. 44. 44Furthermore, the global economy has changed as free markets have spread to more parts ofthe world than ever before. During the past two decades international trade and investmenthave sharply increased and global economy has grown steadily. Nowadays, countries aretrying to increase their share of produced goods and services. On the other hand there aremillions of Chinese and Indians that can make the same goods and services at much lowerprices. Although some developing countries such as China, India and even Iran haveexperienced high growth rate in a recent years, the economic growth has slowed inadvanced countries.According to the World Economic Outlook report annually prepared by IMF, the globaleconomy volume steadily increased during the most recent decade. World real GDP growthincreased significantly for three decades. Although most developing countries experiencedgrowth rates higher than advanced countries, some of them e.g. China, achieved more than10% annual growth. In this way they have learned to produce goods and services in a moreproductive manner. Global productivity performance in recent years in China & developingcountries has surpassed advanced countries in terms of growth rate.So far, advanced countries (mostly the members of G7 group) are the most importantplayers in the global economy and represent a large share of global GDP.As demonstrated in the next figures, 25 years ago global trade was experienced differently.At the beginning of the 1980s most of global economy was produced by western countries(North America and Western Europe) but starting in the 1990s there was a revolution inglobal partnership and due to an increase in communications technologies the worldeconomy became more globalize. During this period, firms looked for goods and servicesthat were more reliable, and cheaper than others. In this situation, emerging and developingcountries such as China, India and southeast countries entered the global market with adifferent set of competitive advantages. As a result, in recent years the emerging countries
  45. 45. 45have become much more involved in international trade. For instance at 2005, Chinaexperienced B$ 8000 in terms of GDP that is rather equal with four advanced country totalGDP (UK, Germany, France and Italy).Countries Comparative GDP(by PPP)0.005,000.0010,000.0015,000.0020,000.0025,000.0030,000.0035,000.0040,000.0045,000.001980 1985 1990 1995 2000 2005Billion$Total United States China Japan GermanyFrance India United Kingdom Italy CanadaAustralia Iran Linear (Total)Data Source: IMF, World Economic Outlook, April 2007
  46. 46. 46G7 Group at 200602,0004,0006,0008,00010,00012,00014,000CanadaFranceGermanyItalyJapanUnitedKingdomUnitedStatesBillion$GDP, current priceGDP, by PPPData Source: IMF, World Economic Outlook, April 2007G7 economic indicators at 2006051015202530Canada France Germany Italy Japan UnitedKingdomUnitedStatesPercentageInvestment, % of GDPInflation, Annual percent changeUnemployment rateData Source: IMF, World Economic Outlook, April 2007
  47. 47. 47Source: IMF, World Economic Outlook, April 2007Source: IMF, World Economic Outlook, April 2007
  48. 48. 48Although there are many socio-economic and political threats and barriers such asinternational and regional challenges, unemployment, wars and resource limitation, thereare also many positive signals, potentials and opportunities that contribute to the globaleconomy to ensure increased performance in a persistent growth rate. As demonstrated inthe next figure, global economy growth decreased drastically between 2004 and 2005 withIraq and Afghanistan wars and the drastic increase in oil prices the main reasons forflattening the world GDP growth rate curve.Source: IMF, World Economic Outlook, April 2007Considerablefail as a resultof Iraq war
  49. 49. 49A-2) Middle East, a strategic region:Although the region has experienced intensive regional challenges and wars in recentyears, most countries in this region experienced high economic growth strongly influencedby oil price.Gross domestic product, current prices, 2005188.479309.945130.25680.7842.46313.37830.83512.71221.428050100150200250300350Iran,IslamicRepublicofSaudiArabiaUnitedArabEmiratesKuwaitQatarBahrainOmanJordanLebanonMiddle east countriesBillion$Data Source: IMF, World Economic Outlook, April 2007Iran isranked asa secondeconomyin theregion
  50. 50. 50Middle East Economic Indicators02004006008001000120014001600180020002000 2001 2002 2003 2004 2005 2006YearBillion$GDP- current priceGDP- PPPData Source: IMF, World Economic Outlook, April 2007Source: IMF, World Economic Outlook, April 20071-OPECmemberseconomycompletelydepends ontheir oilexports2-theeconomies aremostly public
  51. 51. 51Middle East in compare to G70.005,000.0010,000.0015,000.0020,000.0025,000.0030,000.002000200120022003200420052006GDP (byPPP)middle EastG7 GroupData Source: IMF, World Economic Outlook, April 2007In summary, the global economy is facing gaps between different countries. Some of themare too rich and have larger shares in global economy. The rest includes developing andnon developing countries that are preparing themselves to achieve better situation in thefuture. But there is no single recipe for success; each country needs to identify prioritiesand appropriate solutions to the national context.The gap is tooconsiderable
  52. 52. 52A-3) Irans Outlook DocumentIn order to draw a clear picture of Iran during the next fifth of century (up until 2025) as thecountry emerges following structural reform initiatives. Iran prepares itself to become thefirst power in the fields of economy, science and technology in the region at 2025.2F3Theoutlook document was prepared by government in different fields of economy, social andpolitical. It shows a long term vision for the country. The other midterm and annual planssuch as the five years plans must be prepared based on forecast indicators.3The Expediency Council at: http://www.irec.ir
  53. 53. 53A-4) TESP Analysis:A-4-1) Technological TrendsRapid advances in technology, especially information and communication technology(ICT) are accelerating the pace of change in production and service activities. ICT, and theInternet in particular, is today a key business enabler, and has contributed significantlytowards a borderless global economy by removing physical distance as an obstacle to trade.Moreover access to information and the mobility of capital and talent have also beensignificantly enhanced by technological progress.In recent decades our socio-economic activities have been influenced by science andtechnology. We live in an era of increasing use of diverse technologies in all aspects of ourlife; as a result life style is extremely changed as a technological replacement and most ofsocio-economic indicators such as life expectancy and communication are improved. Theworld is undergoing a global technology revolution that is integrating developments inbiotechnology, materials technology, and also information technology at an acceleratingpace.Today, technology not only plays a role stimulating invention and innovation, but workssimultaneously as a product. On the other hand there are many problems to implement anykind of technologies. For instance, capacity to acquire a new technology (particularly adisruptive technology) does not necessarily equal capacity to implement, because the latterrequires a threshold level of physical, human, and institutional capacity; financial resources;and the social, political, and sometimes even cultural environment necessary to maintainand sustain widespread use of the technology.On the other hand, there are usually limitations for using current technologies that haveenvironmental and economical impacts such as air pollution, land use and energyconsumption. A term used in recent decades is alternative technology that refers to
  54. 54. 54technologies which are more environmentally friendly than the functionally equivalenttechnologies dominant in current situation.This kind of technology has more focus on resources and wasteful industry, aims to utilizeresources sparingly, with minimum damage to the environment, at manageable cost andwith a possible degree of control over the processes. According to this new concept,industries should move toward development of an appropriate range of technology thatcreates a difference in our lives and work. An appropriate technology, in this sense,typically requires fewer resources, as well as lower cost and less impact on theenvironment. Some famous examples in transportation are hybrid fuel vehicles andelectrical trains as both are cost-effective and environmentally friendly.The railway technology which is only 100 years old is developing very quickly. Trains arebeing equipped with new tracking technologies as GPS & RFID. Many safety tools arebecoming common in every train. Electrical trains have made travel more secure, faster,reliable and economical for both of freight and passenger end-users.Besides these improvements, revolutionary technologies have been commercialized. Highspeed trains with around 400 km/h operational speed (e.g. France TGV, JapaneseShinkansen and German ICE) are the innovative response of wagon and locomotivemanufacturing technologists to increasing customer expectations. As any other industry, therailway will face major changes in the new future and there is a threat that the existingtechnologies will become obsolete in the next decade. Also there is a big challenge thatprivate sector has no effective role as a competitor for public sector.As a result Science and Technology development play the most important role for thesignificant growth in railway because: It facilitates cost reduction It increases productivity It creates more quality
  55. 55. 55 Facilitate to produce a wide range of products, and It also increases competition
  56. 56. 56Iranian current technological potential: Human Capital (as a technological aspect)Iran has the second largest population, after Egypt, in the Middle East and North Africa region. Most ofits 65.5 million people (70 million in 2007) are young, with increasing hopes and expectations of a betterfuture. Larger numbers of increasingly well-educated women seek opportunities to participate at alllevels of Iran’s labor market and civil society. The country’s health and education indicators are amongthe best in the region. 3F4The most common source of technology development in countries is educated people. As aresult it has an important role for providing new technology and sciences to enhanceeconomic growth. In other words the skill and training level in each country createscompetitive advantages for their economic. The above statement by World Bankemphasizes Iranian human capital potentials that can play a considerable role ontechnological development.For instance by 2004, for each 1000000 Iranian there were 560 researchers in which theindex for some other countries are as follows4F5: Japan- 4909 researchers United States - 3776 researchers Germany- 2831 researchers England- 2448 researchers South Korea- 2193 researchers Egypt- 459 researchers Indonesia- 182 researchers Malaysia- 117 researchers4World Bank at http://web.worldbank.org5Central Bank of Iran, annually report 2004
  57. 57. 57Source: Economist.com, "More pain than gain", Sep 14th 2006More attentionto Science andEngineering indevelopingcountries is aresult of hugegrowth intechnologytransfer fromindustrialized todevelopingcountries inrecent years
  58. 58. 58 Household-based technology:Percentage of Iranian Distribution of Households by Using Equipments andAppliances-2004Equipments and Appliances PercentPersonal Car 25.1Motorcycle 18.9Bicycle 22.4Sewing Machine 72.2Radio Cassette Recorder 73.8Television 98.4Video and CD Player 52.3Personal Computer 20.6Refrigerator 79.9Freezer and Fridge – freezer 51.1Gas Cooker 98.4Vacuum Cleaner 78.2Washing Machine 66.1Mobile Phone 15.8Data source: Irans Central Bank, Household Budget Survey 2004-05
  59. 59. 59 High-tech exports:High tech products export by each country is an important indicator to measure level oftechnological potential of country. In 2004, only 2% of Irans total exports came from high-tech products. But at the same time the index is 80.8% for Japan, 74.9% for Singapore,67.4% for Malaysia, 66.7% for South Korea and 16.9% for Australia. In each country,there is a strong correlation between the level of technological potentials and the amount ofhigh-tech exports in percentage of GNP. According to the cited statistics, those countriesthat have greater ability to produce new technologies have greater ability to export them toothers. As a result it means that Irans technological potential is very low compared to someselected developed country. Transportation TechnologyTo satisfy the increase of market demand for transportation during the next decade, thewhole Iranian transportation network has to be radically improved. In this waytechnological process should suggest solutions and methodologies that could improve thequality handling of the transportation systems. In recent years, Irans transportation systemhas experienced a set of new technologies in a wide range of services. For instance usingRFID to trace wagons and trucks, implementation of Intelligence transportation systems(ITS) such as streets monitoring, contact less toll pay system and streets green wavesystem.
  60. 60. 60 Scientific growth:Based on Irans 2007 annual budget report, 1.2% of GDP should be spent for R&Dactivities.5F6Iran is a good example of a country that has made considerable advances byfocusing on education and training. Despite sanctions in almost all aspects of researchduring the past few decades, Persian scientists have been producing cutting-edge science.Their publication rate in international journals has quadrupled during the past decade.Although it is still low compared with the developed countries, this puts Iran as one of themost important Islamic countries. Considering the countrys brain drain and its poorpolitical relationship with the USA and some Western countries, Irans scientificcommunity remains productive, even while economic sanctions make it difficult foruniversities to purchase equipment or send people to developed countries to attendscientific activities.Irans university population has swelled from 100,000 in 1979 to 2 million in 2006.6F7Theoretical and computational sciences are quite developed in Iran. Despite the limitationsin funds, facilities, and international collaborations, Iranian scientists have been veryproductive in several experimental fields as pharmacology, pharmaceutical chemistry, andorganic and polymer chemistry. Recently in last months of 2006, Iranian biotechnologistsannounced that they, as a third manufacture in the world, have sent CinneVex (recombinanttype of Interferon b1a) to the market. Also, Royana, which is the first live cloned sheep inIran, has passed the critical months of his life.6Central Bank of Iran, Annual report 20067Ministry of science, research and technology
  61. 61. 61A-4-2) Economic TrendIran has experienced two important events since 1970s that caused the country to becomeless competitive in the world.The first one occurred after a shock in the oil prices in 1975. As a result Irans revenueincreased considerably. It led the country to emphasis an open door approach for imports.In addition, this change made the country more dependent on the oil economy anddecreased the importance of other sectors.The second one was Irans revolution in 1979. After the revolution, Irans economy wasaffected by the new political, social and economic policies. These policies caused somemajor problems in the countrys economy such as: Decreasing the role of supply and demand in the market Decreasing competitiveness between economy players most of the economy regulated by government Prices completely controlled by government Productivity (in both of efficiency & effectiveness) has decreased in all of factorsOn the other hand, in recent years Iran has changed some previous approaches to makecountry more attractive for global economy and particularly to increase foreigninvestments. As a result the economy started to grow during the past 5 years. We willdemonstrate these changes from different aspects as follows:
  62. 62. 62A-4-2-1) Development plansLike most developing countries, Iran places great emphasis on long-term developmentplans. Despite regional tensions, the Iranian economy performed relatively well during the3rd FYDP (Third Five-Year Development Plan- 2000/01-2004/05) ending 1383(2005).During the 3rd Plan, the economy enjoyed sustained growth, partly due to policy decisionsand extensive deregulations to enhance private sector contribution to economic activities.Foreign trade system moved toward further liberalization through revision in trade tariffsand granting more flexibility to exporters in managing their exports proceeds.Due to implementation of structural reforms in the 3rd plan, most economic indicatorsshowed improved performance compared to the previous periods.COMPARISON OF TARGETS AND PERFORMANCE OFTHE IRANIAN ECONOMY DURING THE 3rd FYDPIndicators Averageperformance ofthe 2nd Plan(%)Annual growthtargetof the 3rd Plan(%)Averageperformance ofthe 3rd Plan (%)Annual GDP growth(at basic price)3.2 6 5.5Investment growth 8 7.1 5.5Inflation rate 25.6 15.9 14.1Unemployment rate 12 10.7-12.6 12.5Data Source: Central Bank of Iran, Economic Research & Policy Department, July 21, 2005,"ECONOMIC REPORT AND BALANCE SHEET 1383 (2004/05)"In addition, despite intensive regional tensions, the 4th FYDP (Fourth Five-YearDevelopment Plan- 2005/06-2009/10) was formulated, with a view to realities of the
  63. 63. 63international and Iranian economy and with regard to the experiences gained from theimplementation of the previous five-year development plans. Creating an appropriateframework for rapid economic growth, establishing proactive interaction with the globaleconomy, enhancing economic competitiveness, restructuring the government, improvingstandards of living, maintaining social justice, and providing national security are amongthe main objectives of the 4th Plan.Some of the most important indicators during the Iran 4thFYDP ¹are as follow:Economic Indicators During the 4th FYDP (percentage change)2005 2006 2007 2008 2009 Period averageGDP (at constant 1381 prices) 7.1 7.4 7.8 8.4 9.3 8.0Gross fixed capital formation 11.3 11.0 11.7 12.9 14.1 12.2Aggregate consumption expenditure 4.8 5.5 5.9 6.4 7.4 6.0GDP (per head) 6.6Inflation 14.6 11.5 9.1 7.9 6.8 9.9Non-oil exports 10.7 10.7 10.7 10.7 10.7 10.7Imports 5.0 6.5 6.2 8.9 6.6 6.6Unemployment rate (percent) 8.4Productivity of labor 3.5TFP 2.5Iranian economy performed relatively well in the first year of the 4thDevelopment Plan,1384 (2005/06). In line with the economic policies drawn up in the Fourth Plan on the basisof constructive interaction with the global economy as well as the expansion ofcompetitiveness, the government attempted to prepare the ground for economic growth anddevelopment through further participation of the non-public sector, enhancement ofproductivity, facilitation of trade regulations, establishment of fiscal discipline,implementation of decentralization policies, and reduction of disparities among variousregions of the country. The continued price rise of oil in international market also played apivotal role in creating growth environment in this year. Achieving a sustainable long-term
  64. 64. 64economic growth, in particular provision of economic justice, as the main priority of thegovernment, requires price stability and curbing inflation.Irans five-year economic plans emphasized a gradual move towards a market-orientedeconomy, but political and social concerns, and external debt problems, have hamperedprogress. Faster movement, however, occurred under the third five-year plan (2000-04),which advocated a more ambitious program of liberalization, and privatization.
  65. 65. 65A-4-2-2) Major Macroeconomic Indicators:The Iranian economy is entering a transitional phase. The economy enjoyed sustainedgrowth, partly due to policy decisions and extensive deregulations to enhance private sectorcontribution to economic activities and partly to positive movements of crude oil prices ininternational markets. Foreign trade system moved toward further liberalization throughrevision in trade tariffs and granting more flexibility to exporters in managing their exportsproceeds. The successful implementation of exchange rate unification and deregulatingforeign trade procedure were among the salient achievements of the Iranian economyduring the 3rd Plan period. Also, investors were further encouraged to invest in Iranianfirms via the stock exchange. Due to implementation of structural reforms in the 3rd plan,most economic indicators showed a better performance as compared to the previousperiods. Here I try to explain some important indicators in the Iranian macroeconomic field.
  66. 66. 66a) Economic Freedom"Economic freedom is that part of freedom that is concerned with the materialautonomy of the individual in relation to the state and other organized groups. Anindividual is economically free who can fully control his or her labor and property".Definition by: Economist, the index of economy freedomIran hasunfreeeconomy(Repressed),It isimprovingslowly
  67. 67. 67Source: Economist, Index of economic freedomEconomic freedom VS per capita GDPSource: Economist, Index of economic freedomCountrieswithhigherGDP havemostlyhighEconomicFreedomScore
  68. 68. 68Source: Economist, Index of economic freedomAccording to Economist 2007 assessment on "Economic Freedom", Irans economy is 43.1percent free which makes it the worlds 150th freest economy. Iran is ranked 16th out of 17countries in the region of Middle East/North Africa, and the whole score is considerablylow—almost one-third below the regional average.The government acts as an intermediary. As a result, businesses need to get permission forall of internal and foreign trades processes. Business licensing and closing are regulatedheavily by an intrusive and highly inefficient bureaucracy. High tariff rates and non-tariffbarriers impede trade and foreign investment alike. Also property rights in a court of lawcannot be guaranteed.
  69. 69. 69In the same report, it is revealed that Irans economy is not free in different ways. Theeconomy is rather free in the "Fiscal freedom" that Iran has a high income tax rate (35percent) and a moderate corporate tax rate (25 percent) and "Labor freedom". Irans score inthis factor is above the world average.On the other hand, there are other factors in which Irans economic freedom not onlymeasured as an un-free but also there are many factors that reveal a large gap between Iranand world average score such as Investment Freedom, Financial Freedom and PropertyRights.Source: Economist.com, Index of economic freedomIran haschanged someof rules andregulationstowards moreeconomicfreedom duringthird five yearsplan (2000-05)
  70. 70. 70Source: Economist.com, Index of economic freedomVery badcondition inthese factorsdirectly affecton sustainableeconomicgrowthLack ofPRdestroyCreativity&Innovativeprogress
  71. 71. 71b) GDPIrans economy relies heavily on oil export revenues. As you see in the next tables Iransreal GDP increased for 2004, 2005 and 2006 by around 5.1, 4.4 and 4.3 percent,respectively.Irans Macroeconomic Indicators010020030040050060070019801982198419861988199019921994199619982000200220042006Billion$GDP, Current pricesGDP (by PPP)GDP, per capita02,0004,0006,0008,00010,0001980198419881992199620002004$GDP Per capita,Current PricesGDP, per capita (byPPP)Data Source: (IMF), world economic outlook, April 2007Source: Central Bank of Iran, Annually report of 2005-2006The gap betweenresults of GDPcalculationmethods(Nominal and PPP)in developingcountries is higherthan developedcountries. Itsmostly accrue as aresult of lowerprices, wages andraw materials
  72. 72. 72Source: Central Bank of Iran, Annually report of 2005-2006Irans GDP (constant & current price)0200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,0001,800,0002000 2001 2002 2003 2004 2005YearsBillionRialGross domestic product, constant pricesGross domestic product, current pricesData Source: International Monetary Fund, world economic outlook, April 2007The gapscreates as aresult ofinflation
  73. 73. 73Gross domestic product based on purchasing-power-parity (PPP)share of world total0.780.80.820.840.860.880.90.920.942000 2001 2002 2003 2004 2005YearspercentageGross domestic product based onpurchasing-power-parity (PPP) share ofworld totalLinear (Gross domestic product based onpurchasing-power-parity (PPP) share ofworld total)Data Source: International Monetary Fund (IMF), world economic outlook, April 2007share of important sections in GDP0.00%5.00%10.00%15.00%20.00%25.00%2000 2001 2002 2003 2004PercentageAgricultureTransportation,communicationIndustryEducationMiningData Source: Iran Statistical Center
  74. 74. 74Irans Macroeconomic ComponentsOrigins ofgrossdomesticproduct 2004% oftotalComponents of gross domesticproduct 2004%oftotalServices 51.8 Private consumption 54.2Agriculture 13.7 Public consumption 10.9Industry 34.5 Gross fixed investment 35.2Maindestination ofexports 2005% oftotalMain origins of imports 2005 %oftotalJapan 17.3 Germany 14.2China 11.4 France 6.2Italy 6.2 Italy 7.5South Africa 5.5 China 8.3South Korea 5.2 UAE 6.7Major exports2004% of total Imports 2004 % oftotalOil & gas 82.8 Raw materials & intermediate goods 47.7Chemicals &petrochemicals4.1 Capital goods 34.2Dried fruit &nuts1.8 Consumer goods 18.0Leadingmarkets 2005% of total Leading suppliers 2005 % oftotalJapan 17.0 Germany 14.0China 8.3 France 7.1Italy 8.4 China 8.3Source: Economist.com, economic structure, May 30th2007Indicators 2002 2003 2004 2005 2006GDP (US$ bn) 116.4 134.0 161.3 188.5 202.6Real GDP growth (%) 7.5 7.1 5.1 4.4 4.3Consumer price inflation (av;%)14.3 16.5 14.8 13.4 12.0Total external debt (US$ bn) 9.2 12.3 13.6 12.5 12.3Exchange rate (av) IR:US$ 7,958.1 8,281.5 8,719.0 9,026.0 9,227.1FDI inflows (% of GDP) 2002-2006 (av. 0.2)
  75. 75. 75c) Oil priceIran is ranked in second place for oil production as a member of OPEC. Oil is the mostimportant part of the countrys export. At 2004, the major Iran export is oil & gasaccounting for 82.8% and 4.1% by chemicals & petrochemicals products. To implementinfrastructure plans, Iran completely relies on oil revenue but recent growing of oil priceincrease the countrys potentials for investment in other parts of economic sectors such asintermediate industry (specially in oil industry) and related services.When the second Iraq war started in 2003, economists predicted oil prices would increase.Indeed, now the market has achieved a new record of $78 per barrel. In 2003, the OPECbasket was around $27 per barrel but during the past 4 years the price has reached around 3times the 2003 price. On the other hand there is another shock to oil market as a result ofsupply shortage at 2007.Source: Energy Information Administration (EIA)
  76. 76. 76worlds oil demand & supply8383.58484.58585.58686.58787.5882006 2007(s) 2008(s)Millionbarrel/dayTotal World DemandTotal World SupplyData Source: EIA / Short-Term Energy Outlook – July 2007Source: Energy Information Administration (EIA)Continuesincrease inthe oil pricecan be resultof surplusdemand andalsoregionaltensions
  77. 77. 77Source: Energy Information Administration (EIA)Iran hasexperiencedfuelconsumptionmore thanworldsaverage as aresult ofsubsidizepolicy
  78. 78. 78d) Interest RateIran has experienced high interest rates during last decade. There is an inverse correlationbetween inflation and interest rate. High inflation rate requires high interest rates to reduceinflation. Low interest rates make it less attractive to deposit funds with banks forinvestment. But on the other hand it makes financial cost lower for manufacturers. As aresult Irans government has a policy of low interest rates as a monetary policy.Interest Rate Inflation Rate Economy RecessionInterest Rate Inflation Rate Economy RecessionThe above diagram reveals different outcomes for each policy. The point is that countriesshould make policies to optimize economys growth. Each policy has negative and positiveresults simultaneously. For instance, although expansion policies accelerate economygrowth and reduce recession but it fosters inflation growth. On the other hand, if aneconomy is constricted by government it means they are willing to reduce inflation rate butit causes a reduction in economic growth.ExpansionMonetaryPolicyConstrictionMonetaryPolicy
  79. 79. 79Interest* & Inflation rate05101520252002 2003 2004 2005 2006 2007PercentInflation RateAvg. Interest RateData Source (inflation): IMF, world economic outlook, April 2007Data Source (interest): Central Bank of Iran
  80. 80. 80e) Inflation rateIrans Inflation Rate010203040506019801982198419861988199019921994199619982000200220042006PercentageInflation rateLinear (Inflation rate)Data Source: IMF, world economic outlook, April 2007Irans budget deficit(Billion Rial)Year Volume of money Budget Deficit1963 56.11973 296.3 -57.11979 2097 -365.51979 2578.9 -508.51989 18753.3 -1135.32001 526596.4 -81241.5Data Source: Central Bank of IranIranexperiencedhigh inflationrate as a resultof expansionmonetarypolicy afterwarEnd ofIran-Iraqwar
  81. 81. 81Irans budget deficit-200000-10000001000002000003000004000005000006000001963 1973 1979 1989 2001BillionrialsVolume of moneyBudget DeficitData Source: Central Bank of IranIranstarted itsexpandingmonetarypolicyafter war
  82. 82. 82f) Value of RialIn recent years, the interaction of the Iranian economy with the world economy posted asurplus in major accounts of the balance of payments. The noticeable growth in oil price isthe main driving force behind the surplus in trade balance and remarkable rise in the foreignreserves, albeit a surge in imports.Relaxation of foreign trade, along with the stability of exchange rate, resulted in thecontinued upward trend of imports in the review year. The value of Iranian Rial hasdecreased continually in the latter period in compare to some other important foreigncurrencies. It means there is a powerful potential to continue this trend but result ofgovernment policy to implement unique currency rate is keeping the pace of change.Iranian Rial (IRR) in compare to other currencyForeignexchange2004 2005 2006 20071 USD ($) 8729 8991 9095 92701 EUR (€) 10715 11082 11715 128071 GBP (£) 16115 15990 17350 189401 CAD ($) 6665 7394 8070 8794Data source: XE.COM, all of rates at 06thof august
  83. 83. 83Iranian Rial in compare to othercurrency050001000015000200002004 2005 2006 2007Rial1 USD ($)1 EUR (€)1 GBP (£)1CAD ($)Data source: XE.COM
  84. 84. 84A-4-2-3) Future Outlooks for Irans EconomyIranian Economy Aims for Long-term Growth. In this way associating with WTO is animportant strategy for the country. At the moment Iran is an observer member of WTO.This suggests Iran is going to become formal member of WTO in the next decade. Thereare different opinions by economists. Some believe that admission to WTO will force Iranto open its market to other stronger countries and brands and this will destroy internalindustry and make economical, political and social problems. On the other hand, somebelieve the most important problem in Iran trade is competitiveness. Low quality, lowerproductivity and higher price are the results of a closed economy and they are the mainIranian product and services obstacles in competition with others. As a result, if Iranbecomes a member of WTO it can help to increase competition and then Iranian firms try toimprove their abilities at the global economy. But there are many problems in the Iranstrade framework that create delays in that goal. Some of the most important obstacles inthis way are as follow:o Countrys trade completely is dependent to oil marketo Countrys trade strategies are unknowno share of non-oil exports are low in comparison to total exportso There are very limited target markets for exportso Iran has a low share of global marketso trade is affected by considerable weaknesses in banking systemIn summing up there are many forces driving and also pressures on the Irans economicdevelopment. Forces driving the Iranian economyThe forces that are assumed to drive the Iranian economy forward include the following: Stable growth of the world economy leads to make more consumption fornatural resources
  85. 85. 85 The moderate recuperation in industrial (in particular petrochemical),agricultural productions and service section The sharp rise in crude oil prices The accelerating of the pace of involving private sector in economy The accelerating pace of ICT leads whole of sectors to become more productive.b) A downward pressure on the economic development: Large governments could have a negative impact on economic activities throughpublic sector inefficiency Decline in corporate profits because of difficulties in implementing price-shifting(tariff limitation by government) Two digit unemployment rate International political pressures Iran located in a risky region that limits foreign direct investment Tariff policy is considerably towards to limit competition between Iranian andforeign corporations
  86. 86. 86A-4-3) Socio-Cultural TrendsIn the two past decades, Iran has experienced sustained effort involving cultural, social,political and economic transformation that has wrought considerable achievements inhuman development. Also execution of three development plan represented the pursuit andexpansion of those reforms."In our view, desirable development is comprehensive, balanced and sustainabledevelopment, guaranteeing the participation of all individuals, social groups andsectors, including women and youth, in the process of growth and progress. Thisdevelopment is centered on human beings and is directed towards the enhancement oftheir ability to enjoy the material and spiritual benefits life has to offer."President Seyed Mohammad Khatami, 1996Since 20 years ago, the social environment has changed such that Iranians choices haveexpanded considerably, but even more progress could be made. Here I will emphasizesocial indicators that are more influenced by Iranian social, economical and politicalsituation in recent years.
  87. 87. 87A-4-3-1) Human Development Index (HDI)According to UNDP program at human development (annually report), perhaps one of themost important elements that has influenced on socio-cultural development in each countryis economic growth. For instance, countries with high GDP per capita usually experiencedhigh HDI rate (Human development Index, The HDI measures the average progress of acountry in human development). On the other hand, there is a remarkable correlationbetween economic indicators and human development. It shows that some countries dobetter than others in converting income into education and health opportunities. Forexample Luxembourg not only has experienced $69961 GDP per capita at 2004, but alsosimultaneously obtained 12thplace in HDI (HDI=0.945) at the same time. In comparison toLuxembourg, Iran at the same time experienced $7500 GDP per capita while the HDI forIran is 0.746, which gives Iran a rank of 96th out of 177 countries. It means the country hasnot been completely successful in using its income to improve human development. As aresult, this ratio shows that 95 countries have a better situation (better human development)than Iran.Source: UNDP, Human Development Report 2004
  88. 88. 88Moreover, there are other indicators for evaluation of HDI that Calculated each year such aslife expectancy at birth, adult literacy rate and human poverty index. Although the indexshows considerable growth for Iranians human development in which Iran has improved itsindex from 57% at 1975 to 74% at 2004 (28% growth for 30 years), Iran has been ranked asan median country with a place of 96 at 2004.Irans HDI Trend00.10.20.30.40.50.60.70.81975 1980 1985 1990 1995 2000 2004TotalScoreHDI TrendData Source: UNDP, Human development Report 2004Irans human development index 2004HDI valueLifeexpectancy atbirth(years)Adult literacyrate(% ages 15 andolder)GDP per capita(PPP US$)Human PovertyIndex*2004In worlds placeof 96th, (0.746)In worldsplace of 85th,(70.7)In worlds placeof 85th, (77.0)In worlds placeof 72nd, (7,525)In worldsplace of 35th,(16.4)Data Source: UNDP, Human Development Report 2004* The Human Poverty Index for developing countries (HPI-1) focuses on theproportion of people below a threshold level in the same dimensions of human development as thehuman development index - living a long and healthy life, having access to education, and a decentstandard of living.
  89. 89. 89Source: UNDP, Human Development Report 2004Another measurement is "Gender Empowerment Measure" (GEM) that reveals whetherwomen take an active part in economic and political life. It tracks the share of seats inparliament held by women; of female legislators, senior officials and managers; and offemale professional and technical workers- and the gender disparity in earned income,reflecting economic independence. Iran, Islamic Rep. of ranks 71st out of 75 countries inthe GEM, with a value of 0.326. It means Iran has low level of gender empowerment andwomen have no participation in economy as well as men and most of important seats in thepublic and private sectors are occupied by men.
  90. 90. 90A-4-3-2) Populations:Periods Irans Annual Population Growth1946-1956 3.131956-1966 2.921966-1976 2.711976-1986 3.911986-1996 1.961996-2006 1.45Reduction in the population growth rate has been among the main achievements during therecent years, which is mostly due to the economy, life style, culture of households anddownward trend of female fertility rate. The high growth of population during 1977-1987evolved the population age-structure and brought about additional demand for education,health and employment. Improvement in the social indicators such as education, health andincome distribution reflects special attention paid to the social affairs during the recentyears. However, to meet accelerated pace of labor force supply, certain measures weretaken in the area of mobilization of potential resources to raise the demand for labor forceand to reduce unemployment rate.Irans Population4045505560657075801995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006MillionIrans PopulationData Source: Iran Statistical CenterPopulationwas affectedby firstdecadesbelieves ofIransrevolution
  91. 91. 91Irans Annully Population and HDIgrowth rate0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%197819811984198719901993199619992002%Population Growth rate HDI Growth rateLessening of Iranspopulation growthrate has affecteddirectly by highgrowth in its HDIindex. During threedecades ago HDIindex always hasbeen bigger thanpopulation growthrate.
  92. 92. 92A-4-3-3) Age distribution:Percentage Distribution of Households’ MembersBy Age Groups, 2004-05Age Groups Percent0-5 years 7.56-10 years 7.811-15 years 11.116-20 years 13.921-30 years 20.031-50 years 26.151 years and over 13.6Total 100Data source: Irans Central Bank, Household Budget Survey 2004-05Iran is known as a young country in the world because more than 45% of population isunder 30 years old. Due to this demographic distribution, there are many opportunities andthreats facing Iran:Opportunity: Good potentials for labor market Good potentials for buying goods and services (does consumption stylechange as a result of age distribution?) Good potentials for scientific activitiesAround 70%of Iranspopulationinvolves injob marketAround 45%of Iranspopulationis young(Goodpotentialfor marketdemand)
  93. 93. 93Threats: Need to spend huge investment on training and education Unemployment emerge as an social crisis for government Aging and Challenges for Medical Care and Long-term CareMost of Iranspopulation isyoung and areknown asmarketdemandpotential
  94. 94. 94A-4-3-4) Unemployment, An emerging social crisisYear Population(Million)Unemployment Rate(%)1956 18.9 31966 25.7 91976 33.7 101986 49.4 141991 55.8 111996 60 92001 64.5 14.22006 70 10.2Data Source: Irans statistic centerEmployment and unemployment are among major economic issues of every country so thatany changes in unemployment are treated as development indicators in societies.Meanwhile, unemployment rate is one of the indicators used to evaluate the economicconditions of the country.Unemployment is currently the Islamic Republic’s most acute single economic concern.Demography, rapid urbanization and a shift in the countrys economic structures are themain causes of growing unemployment in Iran. As an increasing number of youth, bornduring the 1980s baby boom, is reaching adulthood and want jobs, the unemploymentconcern is quickly developing into an acute crisis. In recent years Iran has experienceddouble-digit unemployment rate. The challenge is formidable not only because ofunemployment’s debilitating impact on the economy, but also due to its dire political,social, and even cultural consequences for the countrys stability and staying power.

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