Have you ever thought about what kind of business is more profitable than others in Armenia? I think that this is something people interested in opening a business in Armenia should actually ask themselves before starting a business there.
Armenia is a small country whose size of land is only 29,743 sq km. The GDP of the country was estimated to be $ 10,325 billion and GDP/capital (nominal) was $3,037 in 2013. At the same time, according to some published announcement, the estimated population within the country is approximately 3 million although it can be possibly speculated that the actual number of people currently living in Armenia is likely less than 2.5 million by taking into account the fact that many Armenian nationals are working and living outside Armenia, for example Russia. To make the matter worse, there have been reported that more and more Armenians left the country in order to find a job outside.
These aforementioned factors actually have made the environment for businesses difficult in general; however, at the same time, may function well for some types of business to be successful in Armenia. Well, let us think about the following points.
1. Armenia may be too small for very large multinational companies to be very attracted.
- The size of market does not bring about enough profits for them to allocate resources to it. (If a cost generated 1 million USD in Japan but the same cost generated only 1000 USD in Armenia, they would choose Japan to focus on).
- Other emerging countries such as Vietnam, Indonesia and etc seem more attractive in terms of investment because the population sizes are much larger and they show higher economic growth.
2. The small GDP / capita implies that targeting local Armenians in Armenia would not bring about enough profits to expand business.
- In order to make profitable by targeting local Armenians in Armenia, the operation should be slim limiting the operation cost but it is necessary to target a large number of local people to make large sum of profits.
- This also works to limit the entry of large global companies to Armenia.
3. Decreasing population indicates that the investment into the market is not as attractive as investing into the countries such as Indonesia.
- Usually, an important factor to drive economic growth is population growth.
- This also limits large-scale business to be implemented in Armenia.
4. Armenia is landlocked country and bordered with some countries without diplomatic relationship.
- This entails that trading (import/export) businesses are not cost friendly.
- In order to trade products, either a land route or sea route needs to be used. For sea route, extra taxes are incurred when they are shipped across countries or canals so that the total cost in the end become very high. For land route, also some taxes are incurred over the borders and routes in neighboring counties are not very secure so that total costs will be also very high and not time friendly. For air route, the cost becomes too high expect some products whose weight are light.
5. Armenia have scarce natural resources
- Natural resources in Armenia are not affluent.
6. Armenia has a rich history and beautiful nature
- Armenia has a very long and rich history especially as the first nation that adopted Christianity as the national religion.
- The nature in Armenia is very beautiful and can be very attractive to those from other countries especially because the nature in outside towns have not really affected artificially.
7. Armenian people have potentially very high intellectual ability and this has been shown in the history.
- In history, there have been many Armenians who showed very high intellectual ability and accordingly to the history, they are usually good at adopting to new environment and creating new businesses.
- Also, they seem very talented at acquiring new languages.
First of all, by taking into account No. 1 and 3, it can be concluded that Armenian market is attractive enough for large global companies which usually have a lot of financial resources that make them much more competitive than small – medium sized local companies. Small-medium sized companies would need to retreat from the market if these global companies decide to enter the same market and compete with them. Therefore, it can be said that the condition of Armenia market actually protects the local companies from possibly severe competition with large global companies.
Secondly, according to No. 2, it can be said that opening a business that only targets local Armenians without multiple branches with one operation center may not be really a good option. Even if the cost for businesses in Armenia is not high, the profits that can be made from one consumer is also not high.
Thirdly, No. 4 and No. 5 indicate that trading / manufacturing (mostly heavy industry) businesses are very difficult to be realized in Armenia. The landlocked condition prevents the manufactured products to be competitive in terms of price for end-users eventually because shipping the products to reach the destination of other countries cost extremely high. In addition, since Armenia is poor in natural resources, trading raw materials to make profits is not a real option at the moment (except a rare metal called molybdenum maybe).
On the other hand, No. 6 and No. 7 can be strength in comparison to other countries. No. 6 entails that potentially tourism in Armenia would be one of the most attractive area for business. In this case, it is important that the target consumer needs to be aimed at inbound tourists rather than taking local people to local destinations or other countries as outbound. For instance, if we target tourists from Western European countries, the price of the services (guiding, accommodation, transportation and etc) to provide can be similar to those provided in their countries while costs required to operate the business are much lower than those in their countries. Therefore, the costs are limited and the proportion of profit in the sales is very large.
No. 7, in fact, implies that a very good possibility to start a successful business in 21st century. In 21st century, we have seen the advancement of technologies especially in IT. Let me say IT by including both information technology and online/internet. IT is not limited by borders, geographic location and even economic situation as long as the population are skilled with certain programming as well as possess knowledge of internet/online. There have been so many cases that a very small group of people without any initial fund has grown their business related to IT because their products/services are very creative and help easily solve the issues that some people were facing. Consequently, if Armenians are given a guide about how to start IT related businesses especially by somebody who has experienced business in a top-tier IT global company, their potential would be exerted and Armenian original IT business may have become globally well-recognized, developing the economy of Armenia in the end. Thus, IT can be another highly potential area of business if you want to open a business in Armenia.
In summary, I think that two types of business have more growth potential in Armani; inbound tourism and IT or internet/online. For tourism, it is also very important for Armenian government to start more promotion in large scale. Travel companies have limitation in terms of bringing tourists into Armenia due to their limited resources and channels for promotion. The government and travel companies should move together to bring tourists and giving them excellent services. On the other hand, IT business in Armenia would have potential to grow to be a global business by itself. It is just a matter of creativity and intellectual ability with excellent guide by those who have been successful from a globally very successful enterprise in the area.
They are my opinion so that I do not say that what I wrote here is all correct. But I do believe so and that is why I am running ArMania, which has the combination of IT and tourism. Let us see if my hypothesis is correct or not with ArMania!