“A Note on the Cuban Cigar Industry”
Threats of new entrants:
Product differentiation is major player in the market of Cuban Cigars, with certain brands being linked to prestige and honor. Also, restrictions from the world make it difficult for new entrants, because of trade embargos put in place by a majority of the most powerful countries in the world, including the United States.
Power of suppliers:
Cigar industry is dominated by two major suppliers, Altadis and Swedish Match, which control the distribution of Havana cigars and Cuban branded names, with Altadis being the largest cigar company in the world.
Power of buyers:
Buyers are willing to pay premium price for quality cigars, therefore, the power of the buyer is very minimal, as cigar enthusiast have increased worldwide.
Threats of substitutes:
The threat of substitutes is higher, where the actual tobacco seed has been farmed in locations outside of Cuba, including the United States, Dominican Republic, and Honduras. As noted in the Case, 250 million cigars were exported to the United States from the Dominican Republic.
Rivalry in the Cuban cigar industry is extremely high, where the industry growth has tapered off because of intense competition. Projections were high in the nineties for Cuban Cigar imports; however, with the fear of loss in quality and exclusivity of the cigars, the projections were lessened. Even though there has been a steady increase in exports, it has not been heavy, exhibiting the fact that there are few “real” producers of Cuban cigars.
Given the previous analysis, based on Porter’s Five Forces model, I would without a question invest in the Cuban cigar industry. For a few decades now, the industry has been on the rise, with cigar connoisseurs always remaining loyal and faithful to their preferred brands of cigars. At first, the tobacco firms were increasing their production rapidly, all the while trying to maintain and...
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