Expand on each pros and cons in your own words explanation of advantages and disadvantages of a multinational company entering in Cuba, knowledge of regions and country
Advantages of doing business in Cuba
Growing service sector
In the recent time, the economic sanctions by the government of the United States are slowly and steadily being lifted. This is helping the Cuban market to have more inflow of the foreign investment in their domestic market. However, in the recent time, the major growth with the help of the rise of private players is witnessed by the service sector. This is due to the reason that government of Cuba is slowly lifting their restrictions on the operation of the private business (Orozco & Hansing, 2014). On the other hand, manufacturing sector is having some stability due to the more involvement of the government. However, service sector is still not in the position to compete in the global market. Thus, private players are more investing in the service sector of Cuba. Foreign companies investing in Cuba will have the access to the growing service sector and it will in turn help the foreign investors to have favorable business infrastructure.
Another advantage that can be gained by the business organizations from investing in the Cuban market is the emerging workforce. In the recent time, the more economic sanctions and the restriction of the domestic communist governments are reducing; the domestic workforce in the country is equipping themselves to cope with the change in the country due to the rise in the foreign investments and opportunities (Trotta, 2014). Thus, the foreign companies entering in the market of Cuba will have the access to huge workforce who is energized and willing with work with the foreign companies. With the recent inflow of the global investments in the country, the current workforce will further get skilled and trained according to the current needs. This will ensure that the foreign companies in the Cuban market will have the access to the cheap human resources rather than paying extra for the foreign employees.
In the current time, one of the major factors that is being considered by the global business organizations is the market potentiality. Thus, in the case of the Cuban market, the foreign investors will determine the market opportunity in the country. However, the market of Cuba is mainly untapped due to the reason that with the restrictions of the communist government and the international sanctions, competition in forms of the global competitors is less in the Cuban market (Morris, 2016). Thus, in the current time, business organizations entering the market of Cuba will find huge untapped market to operate. It will also enable the investing business organizations to extend the life cycle of their existing products by launching them in the Cuban market.
Evolving relationships with United States
Cuba was having major ideological confrontation with the United States and this affected their opportunities in the global market. However, in the recent time, relationship between the United States and Cuba is showing positive trend mainly after the visit of former president of the United States Barak Obama. Thus, with the positive relationship with the United States and less geographical distance between the two countries, economy of Cuba will rapidly evolve (LeoGrande, 2015). This will help the foreign investors entering in this market by having more favorable business and market environment in the country. On the other hand, entering the Cuban market will enable the American business organizations to have the access to the natural resources.
Disadvantages of doing business in Cuba
Lack of business infrastructure
Due to the fact that Cuba was isolated in all these years from the global economy; the domestic business infrastructure is adequate and at par to the current global standards. This is mainly happened due to the lack of foreign investments in all these years. Thus, the foreign companies entering in the market of Cuba will not have adequate business infrastructure for their operation. Moreover, due to having unfavorable business environment till now along with the unfavorable business regulations, it will be difficult for the foreign companies to have smooth and seamless business operation in Cuban market (Spadoni & Sagebien, 2013). On the other hand, the domestic economy and industries of Cuba are also not capable and stable enough to improve the business infrastructure rapidly. This may stall the business operation of the foreign companies in the Cuban market.
Cuba is having one of the most unique concepts of dual currency in the country. One currency is for the use of the foreign known as CUC or convertible Peso and another one is the CUP or Cuban Peso, which is for the use of the citizens. However, having dual currency in the system is increasing the complexities in the business sectors (Torres, 2016). Thus, the foreign companies entering the Cuban market will find it difficult to operate with two currencies. This will also reduce the market attractiveness among the foreign investors. Another challenge that foreign companies will face from having dual currencies is using currencies for the export and import and using currencies for the domestic transactions. Thus, this will also restricts the foreign companies in entering the market of Cuba.
Strict and stringent regulations of the communist government in Cuba will also create issues for the foreign companies. This is due to the reason that in the current time, there are various restrictions being lifted and the government of Cuba is willing to have foreign investment in the country but there are some major regulations, which may prove unattractive for the foreign investors. One of the major legal regulations is the partnership with the government bodies or agencies in doing business in Cuba (Sweig & Bustamante, 2013). This will create barriers for the foreign private organizations. In the case of the Nestle, it was seen that they had to go for the joint venture with the government body, which further limited their business strategies in Cuba. Hence, this type of rules and regulations will have to face by the foreign investors in investing Cuba.
Difference in government ideologies
Cuba is having communist government and majority of the countries in the current time are having capitalist and democratic type of governments. Thus, the business approach of the organizations from the capitalist countries will get matched with the communist ideologies of the Cuban government (Lynn, 2015). In the communist countries such as Cuba, capitalist organizations are being perceived as negative force and exploiter of resources. Thus, it will be difficult for the business organizations from the capitalist economies to operate in the Cuban market with negative image in the market. Investing foreign organizations will always have the risk in relation to the future of their business operation in the Cuban market (Flores, 2016).
Small market size
Currently, Cuba is only having a little over 10 million as their total population. Thus, the gross market size is low. However, in the case of the global investments, one of the major factors for the investing firms is to have favorable market opportunities. Therefore, large multinationals will face limited market opportunities in entering in the Cuban market. In addition, the risks associated with the investments in the Cuban market will also be more due to the reason that with having less number of populations, it will be difficult to recover the cost. In the case of the direct investments, the risk of recovering the cost of investments will be more. On the other hand, in case of direct exporting, the cost involves in the process will not be viable to cater to the limited customer segment for the organizations.
Lack of bi lateral agreements
Cuba being a closed economy from the last forty years does not have bilateral trade agreements with majority of the countries. In the current time, they are having agreements with a few limited countries. Thus, it will be difficult for the foreign business organizations to operate in the Cuban market (Cotman, 2013). This is due to the reason that lack of having bilateral agreements will restrict the export and import process of the foreign organizations along with other elements in the international business scenario. In addition, due to not having bilateral agreements with the majority of the countries, political risk will also be more for the investing organizations in the Cuban market. This will also increase the risk of diplomatic issues between Cuba and the home countries of the foreign organizations. In that case, the business operation of the organizations in the Cuban market will be at stake.
Foreign companies entering in the Cuban market will have to find suppliers for their sourcing of raw materials. However, business organizations will find it hard to have suppliers due to the less private players in the country. In the case of Nestle also, they found it difficult to have suppliers for their sourcing of milk. In addition, business organizations cannot even deal with the farmers directly due to government regulations. Thus, business organizations will have difficulties in having suppliers. This will force them to import materials, which will further increase the price of the products and will reduce the market opportunities in the already doomed market.
Cotman, J. W. (2013). The Havana Consensus: Cuba’s ties with five CARICOM states. COPING with the Collapse of the OLD ORDER:: CARICOM’S New External Agenda, 278.
Flores, V. (2016). Cuba: The Last One to the Global Economic Table. Law & Bus. Rev. Am., 22, 59.
LeoGrande, W. M. (2015). Normalizing US–Cuba relations: escaping the shackles of the past. International Affairs, 91(3), 473-488.
Lynn, H. G. (2015). Transitions and Non-Transitions from Communism: Regime Survival in China, Cuba, North Korea, and Vietnam Why Communism did not Collapse: Understanding Authoritarian Regime Resilience in Asia and Europe. Pacific Affairs, 88(1), 159-163.
Morris, E. (2016). How Will US-Cuban Normalization Affect Economic Policy in Cuba?. In A New Chapter in US-Cuba Relations (pp. 115-127). Palgrave Macmillan, Cham.
Orozco, M., & Hansing, K. (2014). Remittance recipients and the present and future of micro-entrepreneurship activities in Cuba. A Contemporary Cuba Reader, 183-190.
Spadoni, P., & Sagebien, J. (2013). Will They Still Love Us Tomorrow? Canada?Cuba Business Relations and the End of the US Embargo. Thunderbird International Business Review, 55(1), 77-93.
Sweig, J. E., & Bustamante, M. J. (2013). Cuba after Communism: The economic reforms that are transforming the island. Foreign Affairs, 92(4), 101-114.
Torres, R. (2016). Economic transformations in Cuba: a review. Third World Quarterly, 37(9), 1683-1697.
Trotta, D. (2014). Cuba approves law aimed at attracting foreign investment. Australia's Paydirt, 1(216), 56.