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. Competitive Rivalry: 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 improve quality, however, that was too difficult of a task, so in turn, Ana Lopez, the head marketer for Habanos S. A. changed their focus and decided to keep working at improving quality at any expense. The quality remains, and with that remains a set group of cigar buyers, who would rarely stray from a brand that they have become affixed to. Specifically, I would target my investments towards the distributors of the cigars, as they not only supply Havana or Cuban cigars to the world, but also many other popular brands and types.
The main barriers that exist in investing in the Cuban Cigar industry are the U. S. trade embargo as well as the type of government ruling over Cuba, Communist. The trade embargo puts a huge blemish on Cuban cigar export numbers, where the numbers could be increasingly high. Furthermore, because of the Communist government in place, it isn’t always easy for competitors to start new ventures, or to keep profits on the rise. My decision would remain the same; I would still invest in the Cuban cigar industry, even if the trade embargo is lifted.
However, the difference in the analysis comes in the situations of rivalry, new entrants and power of the buyers. All of these would change completely with trade being allowed to the United States, who stakes claim to more than 500million premium cigar imports a year, of which, zero are “officially” Cuban cigars. If the U. S. were to lay stake in the Cuban cigar industry, the entire market would be revamped, with competitors springing up everywhere, buyers gaining more control, and competitive rivalry going on the rise.