A NOTE ON THE CUBAN CIGAR INDUSTRY

The case A note on the Cuban cigar industry provides an extensive picture of the Cuban cigar industry, the importance of the brand and the image of the cigar. Cuban cigar is highly known for its taste and feel. It is considered to the worlds best tobacco .it provide us with an understanding of the Cuban history , relationship with united states ,its impact on the Cuban economy. The relationship with Cuba and tobaccos is strong. It was discovered by Christopher Columbus in 1492 and Cuba became well known for its tobacco production. Moreover Cubas land is the suitable and the ideal place to grow the most tempting cigar tobacco in the world John Hernandez is a recent MBA graduate from the prestigious institution in Canada. He is an avid smoker who is looking for good investing opportunities to make use of one million dollar inheritance available in the next month.

ISSUE The main issue of the case a note on the Cuban cigar industry is Whether john Hernandez should go forward in investing the Cuban cigar market. Many key players and workers fled the country and took with them the Cuban tobacco seeds, knowledge , skills and expertise to cigar making and production US is one of the largest markets for cigars in the world but US embargo restricts the sale if the Cuban products.

Pest analysis
Political: The Cuban government implemented an austerity program to steer through the energy crisis which began to rebuild the Cuban economy. This special period in peacetime program helped to revive the Cubans economy. Economic: Cuba is a command economy. The United States is one of the largest markets for cigar in the world. The relationship between United States and Cuba is deteriorating that began with the revolution and imposed trade embargos. Cubas economy became heavily dependent on soviet support. It incurred higher import costs as Ships that were traded with Cuba were unable to enter us ports. As the Eastern Europe collapsed and Soviet Union dissolved, the Cuban economy became disastrous as they lost their major source of foreign assistance as well as their major markets. Cuban economy went through a economic crisis for almost a decade until the government implemented special period in peace time program.

Social: The traditional way of making tobacco is family manufacture. The families produced with Cuban tobacco and developed new packaging and cigar bands for their new versions of cigars. Families are often shown in many cigar advertisement and packaging. Technological: There are basically three types of cigar produced in Cuba. They are handmade, hand finished, and machine made. In the past, people produced cigar with their hands but now people prefer to use machines to produce cigar. Early infrastructure was poor and investment resources were in short supply. But now new rollers are used to maintain the quality and ramp up the production of Havana cigars. The COHIBA brand is also introduced to avoid pirating. It is often considered the pinnacle of cigars.

Swot analysis
Strength: Cubas land is possibly the ideal place to grow the finest tobacco in the world They are highly reputed for the distinct taste and feel and consider the world best tobacco Though other companies are making very similar cigars, Cubas mystique still has a strong hold over cigar worldwide.

Weaknesses: Trade embargo with the United States. Economy crisis after the collapse of soviet union High transport costs Cuba is under command economy Unfavorable investment climate or no economic freedom Cuban foreign trade fell 75% and the economic output fell 50%, agricultural production had fallen 54% Increasing external debt

Threats: The threats to the Cuban cigar industry is more intense now as the market begins to slow down

Opportunities:

Porters analysis:
Threats of new entrants: product differentiation is the major players in the market of Cuban cigars with the certain brands being linked to prestige and honor. There is the restriction from the world which makes it difficult for the new entrants because of trade embargos placed by a majority of the most powerful countries including the United States. Power of suppliers: cigar industry is dominated by the two major suppliers. Altadis and Swedish Match. Altadis being the largest cigar company in the world. They control through ownership or interest in other companies, the distribution of Havana cigars and Cuban brand names worldwide. Power of buyers: buyers are willing to pay premium price for quality cigars, therefore, the power of the buyers 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 the locations outside of Cuba including United States, Dominican Republic and Honduras. According to the case, 250 millions cigars were exported to the United States from the Dominican Republic. Competitive rivalry: the rivalry in the Cuban cigar industry is extremely high, where industry growth has tapered off because of intense competition.

S. No. 1. 2. 3. 4. 5.

Competitive Force Rivalry among Competing Sellers Threats of New Entrants Other Industries Offering Substitute Products Bargaining Power of Suppliers Bargaining Power of Buyers

Degree Moderate Low None High High

Recommendation:
There a recommendation to bring better and more consistent product to customers as Cuban cigar industry might face some serious challenges in the future. Close and careful study of their industry, marketplace and with the relationship and support they have built with foreign ventures. Investigation of new agricultural methods to improve yields and quality Extensive research on methods and tobacco strains that will help to stave off diseases to maintain the legendary appearance and original flavor.

Conclusion:
Thus the case a note on Cuban cigar industry provides us the understanding of Cuban history along with its relationship with united state and its impact on it. The main issue of the case to analyze the industry and the environment surrounding it in order to decide whether the potential of this industry is significant enough to warrant investment in it or not. In my opinion the best case scenario would be that john invests his entire inheritance into the Cuban cigar industry and the embargo with the United States would be lifted.