After President Barack Obama’s historic visit to Havana in March 2016 and the death of Fidel Castro, many U.S. businesses wonder about market entry strategies in Cuba. There’s renewed hope in border relations, economic growth, and an end of the U.S. embargo, which sparks interest from many entrepreneurs eager to enter a new market.
Despite the minor advancements, there’s plenty of uncertainty surrounding Cuba’s business environment. For one, Cuba failed to move forward with economic liberalization and battles with a fiscal crisis. In addition, global uncertainty burns bright after the U.S. election cycle and the impending results of President-elect Trump’s first 100 days in office.
It’s still a region to keep your eye on, as many companies find success with market entry strategies in Cuba. In this post, we’ll give you a better idea of Cuba’s business landscape and how to enter the market.
Market Entry Strategies in Cuba: Understanding the Economy
If the U.S. embargo with Cuba ends, it should spike capital investment into the country and benefit the region. Right now, Cuba lacks capital investment. With a limited financial system, the country can’t raise its GDP above 10%.
Overall, Cuba has a planned economy dominated by state-run enterprises. A majority of the industries in the country are owned and operated by the government. As a result, most of the employees are employed by the State.
After the fall of the Soviet Union, the Communist Party encouraged the formation of cooperatives and self-employment.
Essentially, these cooperatives are worker-owned business structures with a legal status in Cuba. Similar to an umbrella company, the cooperatives offer significant tax incentives for the self-employed. Agriculture is the most popular industry for this arrangement. It’s increasing to include more industries as Cuba’s economy starts to decentralize.
In addition, Cuba started to shift workers from state-run enterprises to the private sector, but this is a slow-moving process.
Finally, businesses run into conflicts given Cuba’s dual-currency system, which includes the Convertible Peso (CUC) and the Cuban Peso (CUP). The CUC is valued the same as the U.S. dollar and is fully tradable, while the CUP is valued at a rate of 24:1 with the dollar. This system facilitates the transfer of subsidies to its public-sector businesses. The problem – It limits the earning power of those living off the CUP and is damaging the economy as a whole.
Market Entry Strategies in Cuba: Areas to Watch
With the embargo still in effect, businesses have restrictions on entry. Despite current limitations, there are many areas to keep an eye on if you’re interested in entering the market.
First, President-elect Trump’s time in office. During his campaign, Trump displayed strong language against Cuba and its deceased leader. He spoke about shutting down the progress made between the two countries, which is dismal for business development. If Trump changes gears, which is a possibility, then there could be further advancements made to get rid of the trade embargo and allow for more foreign investment in Cuba.
Support from the East
Cuba’s economy continues to struggle and this past year wasn’t better despite less border restricting for travel into the country. Cuba took a large hit after Venezuela’s oil-dependent economy struggled due to the hit on oil prices. As a result, it’s in a position to accept financial help from a country like Russia or China. A collaboration with power country could incentivize Trump to end the embargo.
Invest Via Proxy
One way American companies are currently engaging with Cuban businesses is through a Proxy. Cuba has many skilled laborers in the tech industry, for example. As a result, software companies in the U.S. are contracting with Cuban programmers, who are part of a collaborative.
If you’re interested in market entry strategies in Cuba, give us a call today. We can explain the business landscape in more detail and discuss potential opportunities for your company to get a compliant presence in-country!