Cuban Cigar Industry

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A Note on the Cuban Cigar Industry

The case renders an extensive picture of the Cuban Cigar Industry. It attempts to provide us with an understanding of the Cuban history, tumultuous relationship with United States and the impact on the Cuban economy thereof, along with the process of cigar-making and the major players. The Cigar industry is an indispensible part of the Cuban culture and folklore with a major bearing on its economy. With Christopher Columbus discovering indigenous tobacco in 1492, Cuba became known for its tobacco production. The 1959-1962 Revolution saw outing of President Batista and Fidel Castro took over. He nationalized the Cigar industry and about $1 billion of US-owned property resulting in US blockade on Cuba. Most key players in the industry fled to other countries, with the remainder fleeing when President Kennedy initiated the trade and financial embargo in 1962, which prohibited the sale of Cuban cigars, among other items, in the US. Cuba, then, adopted command economy and became dependent on Soviet Union. With the collapse of the Soviet Union, Cuban economy went through a major economic crisis for almost a decade until the government implemented “Special period in Peace time” program. Still, industry infrastructure is poor and investment resources are in short supply and though Cuba’s economic recovery has started, there are still many problems to be tackled. Main Issues

Following the Cuban revolution, many key players and workers fled the country. They took with them the Cuban tobacco seeds, knowledge, skill and expertise to cigar-making and production, opening doors to competition. Moreover, the US is one of the largest markets for cigars in the world today but the US embargo restricts the sale of Cuban products there. Though the industry has survived without the US market over the past forty years, whether it can sustain in today’s marketplace, in the light of Cuba’s political upheaval and fragile economy, requires a great deal of probing.

Furthermore, the cigar industry is dominated by two firms: Altadis, the world's largest cigar producer, produces cigars in the U.S., the Dominican Republic, and Honduras, and has a 50% stake in Corporacion Habanos in Cuba. It also makes cigarettes and Swedish Match, the second largest producer, produces cigars in Honduras, Belgium, Germany, Indonesia, the U.S., and the Dominican Republic.

Hence, we have to decide whether the Cuban cigar industry exhibits enough potential to warrant new investments. If yes, will it be able to withstand these industry giants for sustainable profit?

To decide, we need to analyze the macro-environment, the industry’s dominant traits and the competitive environment and perform SWOT analysis of the Cuban cigar industry.

1. PESTEL Analysis

➢ Political

The political environment in Cuba is not very stable. Before the Revolution, the Cuban cigar industry was not centralized. Every manufacturer was free to produce as much cigars and as different packaging styles as they desired. After Fidel Castro came into power, all private businesses became property of the government and many key players had to flee. Also, US-Cuba relationship deteriorated owing to the nationalization of US owed property, which later culminated to President Kennedy imposing the embargo on Cuba. Hence, the country specific risk is high as US is the largest market for cigars in the world.

➢ Economic

Though 300 million cigars are smoked in Cuba annually, it is the foreign premium cigar exports that play the pivotal role in sustaining the economy. The imposition of US embargo badly upset the Cuban economy and Cuba adopted a command type of economy. The support from Soviet Union helped reduce its impacts to a certain extent but with the dissolution of Soviet Union, Cuba lost a major market along with a major source of foreign assistance. In 2002, Cuba’s population was 11,224,321 with per capita GNP of...
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