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When anyone mentions the country Cuba, two products register in our mind – sugar and
cigar. Cuban cigars are renowned for as the sign of upper echelon style and class even for
an uneducated cigar smoker. They are highly reputed for distinct taste and feel and
consider containing the world’s best tobacco. As a tropical region, Cuba’s land is possibly
the ideal place to grow the finest tobacco and wrappers in the world. Even though cigars
have been manufactured in other countries as well, Cuba’s cigars still hold the foremost
choice of all cigar aficionados around the world. Cigar is mostly popular in United States
as a symbol of class and posh lifestyle. This means that anyone would be tempted to
invest in the cigar industry. However, the importation of the Cuban cigar to the United
States is illegal. Due to the trade embargo imposed on Cuba by the Kennedy
administration forty years ago, all economic trades between United States and Cuba are
blocked.
With the former U.S. president Jimmy Carter, the first U.S. president to visit Cuba
following the embargo, there are speculations that the U.S. – Cuba relations would soften,
leading to lifting the embargo restrictions. Obviously the potential slackening of the
trade barrier would be an investor’s dream within this industry, but the reality of the
situation is still very unpredictable. Forty years have passed since the embargo, and many
cigar manufacturing industries have evolved around the world during this period, all
contributing to U.S. cigar consumption. Even United States has its own cigar industries in
Connecticut and Tampa.
During the 1970s and 1980s many other cigar industries evolved around the world
including the Dominican Republic, Honduras, Indonesia, Ecuador, Mexico, and
Cameroon along with United States. Competition increased as new technologies were
developed to manufacture machine-made cigars, reducing the price per cigar. However
the merger between the cigar industry giants Spanish Tabacalera S.A. and French SEITA
S.A. in 1999, forming Altadis S.A. eased competition. Altadis entered into joint venture
with Habanos S.A., which is the marketing, distribution and export arms of all Cuban
brand cigars.
Thus, rivalry is moderate among competing sellers. Even though many countries harvest
tobacco and manufacture cigars, Cuban cigars still landmark as the benchmark of the
superior cigar in the world.
countries, other than Cuba, have the climate suitable for growing tobacco. So the threat of
new competitors entering the cultivation and harvesting tobacco is low.
The cigar industry operates under sizable economies of scale, i.e. higher production
volume mean a lower cost for each item produced, since fixed costs are shared over the
goods produced. So new entrants in the cigar industry must also enter on a large scale,
which can be a costly and risky move; or they can accept a cost disadvantage and
consequently lower profitability. In either case, threat of new entrants is low. Moreover,
two major corporations Altadis and Swedish Match control the distribution of Cuban
cigar worldwide, increasing the barrier to entry.
doing business in Cuba from entering the U.S. In a way, U.S. was trying to extend its
embargo to other trading partners of Cuba. With these restrictions in action, Cuba could
not trade with other suppliers rather than its own government, thus giving it a high
bargaining power.
Conclusion
The renowned Cuban cigar was examined under the Five Competitive Forces Model,
depending on the environment it is operating on and the factors influencing it. The result
of each force is summarized below:
So investing in Cuba is unfavorable as of today. The embargo has not yet been lifted and
even if it does, the major supplier would still be the Cuban government. There are major
companies which take over the supply and distribution of the cigar. Thus investing in
Cuban cigar would turn risky if one does not have a strong political connection or high
monetary investment to commit for advertising and sales promotion for brand loyal cigar
consumers.