International Marketing Term Project

Cuba

Term Project

Professor Mobar

9/26/15

Table of Contents

Cuban Information and Environmental Analysis

Geography

Demographics

History and Economy

Cuban Information and Environmental Analysis

Geography

Cuba, located in the Caribbean, is situated between the Caribbean Sea and North Atlantic Ocean. Just 150 kilometers from the southern tip of Key West, Florida, Cuba has a total area of 110,860 square kilometers, which makes the country slightly smaller than the square area of Pennsylvania (Central)[footnoteRef:1]. With a coastline of approximately 3,735 kilometers, the climate within the region is classified as tropical, with a dry season from November to April and a rainy season from May to October. The climate makes Cuba a prime agricultural destination, with 60.3% of their land being used in such a capacity. Despite the warmer climate, the Caribbean region is often a victim of hurricanes. Cuban’s natural resources are heavily saturated with cobalt, nickel, iron ore, copper, along with other commodities. While Cuba is the largest country in the Caribbean, economic and political struggles have severely crippled their economy. [1: The map above is from National Geographic, and the link can be found in the works cited section of this paper]

Demographics

The official language in Cuba is Spanish, and there is approximately 11 million people living on the island as of July 2015 (CIA). The population growth rate in Cuba has declined 0.15 percent over the last year, while the unemployment rate is a staggeringly low 3.1% (CIA). To put that into perspective, American economics recognizes “full employment” to be a jobless rate of 5%, a rate at which the American economy is currently hovering around (Bloomberg). The ethnic groups breakdown within the country estimates 64.1% of the population to be white, 26.6% mestizo, and 9.3% black (CIA).

History and Economy

Before understanding the intricacies of the Cuban economy, it is necessary to delve into the history of country. The Spanish government once ruled Cuba, before the American government helped to rid the country of Spanish rule, during the Spanish-American War in 1898 (Central). In 1901, the Platt Amendment was passed as a revision to the Cuban constitution authorizing American involvement in Cuban affairs (Platt). Shortly thereafter, the Treaty of Paris established Cuba as country independent from the United States, commencing a string of ineffective governments to rule the small island nation. Eventually, Fidel Castro and his rebel followers gained control of Cuba. The Castro family has yet to relinquish their power, as Fidel’s younger brother, Raul Castro, is now the official leader. During the Castro reign, Cuba entered into the period of their communist revolution, strongly backed by the Soviet Union during the height of The Cold War.

Cuba’s affiliation with the Soviet Union[footnoteRef:2] caused United States President John F. Kennedy to establish an embargo against the Cuban government in 1962, due to Cuba’s alignment with Communist powers (Cuban Embargo). The embargo can be lifted if the following conditions are met. Cuba must legalize all political activity, commit to free and fair democratic elections, release all of their political prisoners, grant freedom to the press, and allow for the acceptance of all internationally recognized human rights (Cuban Embargo). The biggest piece of these restrictions is the abandonment of their communist regime in favor of a democratic governing structure. While the Soviet Union helped keep Cuba’s economy afloat after the establishment of the embargo, the removal of approximately $4-6 billion of Soviet subsidies in 1990 caused their economy to spiral downward uncontrollably. These economic hardships have persisted since the dissolution of the Soviet Union, and have been amplified by the persistence of the American government upholding the embargo. During recent meeting at the United Nations, President Raul Castro[footnoteRef:3] attributed his nations economic troubles directly towards the American embargo (Growing). Castro’s sentiment has been shared by 188 members of the United Nations for the past twenty years, while the only two countries that support the embargo are Israel and the United States. Despite the heavy criticism of the United States embargo on Cuba, President Barack Obama has made positive strides in easing economic and political tension. [2: The image above combines the flag of Cuba and the former Union of Soviet Socialist Republics, now the Russian Federation. ] [3: The picture is of President Raul Castro speaking at the United Nations on September 26th, 2015. This photo is courtesy of the New York Times, and can be found in the works cited section.]

On July 20th, 2015, Cuba and American governments agreed to reestablish embassies in their respective countries. Americans can now travel freely to and from Cuba, but the embargo is still in effect. Unfortunately, the renewed diplomatic relations between the two nations has not had a similar impact on American Congress, and therein lies the problem. The decision to lift the embargo belongs to the House of Representatives and the Senate. While American politics continues to skirt the issue, Cuba is importing goods from various countries, while American business sits idle.

Despite the positive sign of the proverbial thawing of diplomatic relations between the United States and Cuba, Cuba has a bigger problem—their two-currency system. The Cuban peso (CUP) and the Cuban convertible peso (CUC) are two legal forms of tender within the country, though neither form of currency is exchangeable in the foreign markets[footnoteRef:4] (Symmes). The CUC is based against the United States Dollar, and trades at a rate of 25 CUCs for 1 CUP. Interestingly enough, most Cubans are paid in the devalued CUP currency, but the Cuban government has announced that they will unify the currencies. Doing so could have a costly impact. [4: The picture shows the CUP held on the right, and the CUC on the left. The CUC, which is the more colorful currency of the two, is backed against the US Dollar and trades at 25 CUCs for one CUP. This picture is courtesy of The Economist, the article is cited below.]

By unifying the currencies, any increase in the unified Cuban peso would inevitably increase the consumer spending power, which could possibly lead to widespread inflation and shortages of products. Unifying the currency would put an end to a bizarre Cuban accounting practice that values the CUP and CUC as equal, therefore artificially decreasing the price of imports while drastically increasing their exports (Economist). Despite the potential hindrances of unifying the Cuban currency, doing so will undoubtedly strengthen their currency in the long run, while reversing the negative effects that their two-currency system has created.

The possibility of the United States Congress lifting the Embargo, coupled with the unification of Cuban currency is a positive sign for their economy. While the country depends on external assistance in the form of oil subsidies from Venezuela, there are investment opportunities within the communist nation. Their agricultural, automotive, and travel industry, are all starved fro foreign investment. While Cuba presents a higher level of investment risk, the potential for larger returns is exponentially higher on the Caribbean nation.

'The product we believe that will be good in Cuba is Kia Motors. (1)Kia Motors Corporation was founded in May 1944 and is Korea’s oldest manufacturer of motor vehicles. (2)Today, Kia produces more than 1.4 million vehicles a year at 14 manufacturing and assembly operations in eight countries. (3) These vehicles are sold and serviced through a network of more than 3,000 distributors and dealers covering 172 countries. We believe that since this company has two cars that were ranked inside the top 20 most selling cars within the United States that we know this company will succeed in Cuba.

Kia Motors stands for three things in their company that allows them to become a successful brand not just in Korea but internationally. They stand for creating a distinctive ‘look’, raising brand awareness, and building to satisfy ‘local’ demands. With Kia Motors coming to Cuba, we aim to meet specific needs of local customers that will help find them the best car that suits him/her. Through brand awareness our goals are to make sure our name is being spread throughout the country. We want to put up billboards and have numerous commercials on TV stating that Kia Motors is coming to Cuba.

The market size of consumers who own cars in Cuba are extremely low. More than 11 million people live in Cuba, but only a tiny fraction of households own a vehicle because of complicated bureaucratic rules about buying and selling both new and used cars. We want to target the demographic age of middle age men from 25-45 that make a decent form of income. Since the wages in Cuba are relatively low we will set our car prices to a price that will allow consumers who don’t make the most money to buy a Kia vehicle.

Since the Cuba trade embargo is almost lifted with the United States and other countries, we know that their will be a surge of motor vehicles coming into the country trying to sell cars. Hyundai is the only well-known vehicle in Cuba at the moment due to Cuba’s strong relations with North Korea but more of the other cars in Cuba are old vintage American cars. If Cuba was to see Kia cars and their slick design, we know that our car will succeed in a market that is saturated with old unknown car brands. We want to sell our cars through the government due to the fact that most cars in Cuba are rented out or sold through some sort of transaction done by the government.

The market type we want to open in Cuba is a duopoly. We want to dominate the car and service industry by selling cars and allowing the Cuban government to be able to give out permits for our cars to consumers. We want to be a household name in the Cuban market and beat out Hyundai and other cars that are in the automobile market. We at Kia want to be known in the Cuban market as a durable car that can make an immediate impact.

Works Cited

Central Intelligence Agency. Central Intelligence Agency, n.d. Web. 26 Sept. 2015.

"Cuba." Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. N.p., n.d. Web. 26 Sept. 2015.

"Cuba Embargo - ProCon.org." ProConorg Headlines. N.p., n.d. Web. 27 Sept. 2015.

"Cuba Guide -- National Geographic." National Geographic. N.p., n.d. Web. 27 Sept. 2015.

"Double Trouble." The Economist. The Economist Newspaper, 23 Oct. 2013. Web. 01 Oct. 2015.

"Growing Momentum to Repeal Cuban Embargo." The New York Times. The New York Times, 02 Aug. 2015. Web. 27 Sept. 2015.

Nichols, Michelle. "Cuba's Castro Slams U.S. Trade Embargo at United Nations." Reuters. Thomson Reuters, 26 Sept. 2015. Web. 27 Sept. 2015.

"Platt Amendment (1903)." Our Documents -. N.p., n.d. Web. 27 Sept. 2015.

Symmes, Patrick. "Cuba's New Money." Bloomberg.com. Bloomberg, n.d. Web. 01 Oct. 2015.

"Kia Motors Corporation." Kia Motors Corporation. N.p., n.d. Web. 28 Oct. 2015.

Woodyard, Chris. "Cuba Trade Could Benefit Car Collectors, Automakers." USA Today. N.p., n.d. Web. 25 Oct. 2015.