AGB 302 - Global Business: Analyzing Cuba's Investment Climate

This case study delves into the advantages and disadvantages of foreign companies investing in Cuba. Advantages include a growing service sector, an emerging workforce, an untapped market, and evolving relationships with the United States. Disadvantages encompass a lack of business infrastructure, a dual currency system, strict government regulations, differing government ideologies, a small market size, a lack of bilateral agreements, and supplier issues. The analysis considers factors such as the lifting of economic sanctions, the role of private players, the impact of communist governance, and potential risks for capitalist organizations. The case study references examples like Nestle's experience in Cuba to illustrate the challenges and opportunities present in the Cuban market. Desklib provides access to this and other solved assignments for students.

Running head: GLOBAL BUSINESS MANAGEMENT
Global business management
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1GLOBAL BUSINESS MANAGEMENT
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.
Emerging workforce
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

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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.
Untapped market
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.

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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.
Dual currency
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.

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Government regulations
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).

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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.

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Supplier issue
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.

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Reference
Cotman, J. W. (2013). The Havana Consensus: Cuba’s ties with five CARICOM states. COPING
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Flores, V. (2016). Cuba: The Last One to the Global Economic Table. Law & Bus. Rev. Am., 22,
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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
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Morris, E. (2016). How Will US-Cuban Normalization Affect Economic Policy in Cuba?. In A
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Sweig, J. E., & Bustamante, M. J. (2013). Cuba after Communism: The economic reforms that
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Torres, R. (2016). Economic transformations in Cuba: a review. Third World Quarterly, 37(9),
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Trotta, D. (2014). Cuba approves law aimed at attracting foreign investment. Australia's Paydirt,
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