U.S. Businesses Scout Opportunities In Cuba

Courtesy of the New York Times, a report on the spike in American business interest in Cuba:

PepsiCo wants in. So do Caterpillar and Marriott International.

Within hours of President Obama’s historic move to restore full diplomatic relations with Cuba, companies in the United States were weighing how to introduce their products and services to a market they haven’t been in for the better part of 50 years — if ever.

While many corporations appeared interested, consultants and others cautioned that there were still many details of doing business in Cuba yet to be detailed and that not all companies would be welcomed or find a robust audience in Cuba.

“For a company like McDonald’s, the Cuban government is going to ask, ‘How does McDonald’s coming in and selling hamburgers help the economy of Cuba?’?” said Kirby Jones, founder of Alamar Associates, who has consulted with companies on doing business in Cuba since 1974. “It’s just not going to be like other regions where you see a McDonald’s on every corner.”

Companies selling industrial products or services that could be viewed as bolstering Cuba’s domestic production or helping to develop its resources will probably have an easier time gaining entry than consumer products companies that could compete with Cuba’s own brands or draw away a chunk of the population’s limited disposable income.

And despite Cuba’s long stagnation and isolation from the global economy, the potential trade opportunities go both ways. While some Americans will be itching at the opportunity to more easily obtain famed Cuban cigars, the country also has a surprisingly robust biotechnology industry that makes a number of vaccines not available in the United States. Another hot spot for Cuba’s economy could be mining: The country has one of the largest deposits of nickel in the world.

While President Obama’s move to open relations between the United States and Cuba for the first time in 54 years was widely seen as the signal for trade to resume, in fact the United States is already the fourth-largest exporter to the country, behind China, Spain and Brazil.

The Trade Sanctions Reform and Export Enhancement Act of 2000 allowed the sale of unprocessed agricultural products and raw forestry materials by American producers to Cuba, with strict restrictions. Producers were not allowed to extend any sort of credit or financing to Cuba and payments needed to be funneled through a third-party country or bank, typically one located in Europe.

Last year, the United States exported $359 million worth of goods to Cuba, down from a high of $711 million in 2008, according to United States government statistics.

Men push a tricycle hauling goods in Havana. Analysts see a need in Cuba for modern machinery for farming and construction.

Alabama producers have done a brisk business selling frozen chicken to the country and North Dakota sells some dry beans. But early robust sales of American rice and soybeans quickly fell off as competing nations like Vietnam and Brazil offered cheaper product or allowed it to be purchased on credit.

So while companies like Home Depot, Caterpillar and Deere & Company are likely to be welcomed with open arms by the Cuban government, it remains unclear whether they will be able to offer financing or credit for their expensive industrial machinery.

“Cuba is a potential market for John Deere products and services,” Ken Golden, a spokesman for the Illinois-based company, said in an email. “There is a need in Cuba, as there is around the globe, for productive, modern machinery to help feed, clothe and shelter the world’s rapidly increasing population.”

A much bigger question mark hangs over companies geared toward selling consumer goods — from Frito-Lay chips to Apple iPads — to Cuba’s residents, most of whom have very limited disposable income. Analysts and advisers say it will be nearly impossible for American companies with franchise-based models, including many of the world’s largest fast-food restaurants like McDonald’s, Subway or Dunkin’ Donuts, to establish a beachhead there.

Instead, the bigger opportunity for many consumer-based companies may come from selling to the increasing numbers of foreigners expected to visit Cuba if travel restrictions are fully lifted. If that happens, the annual number of visitors to the country could jump to four million from three million practically overnight, analysts say. And American travelers will seek creature comforts in well-known brands like Coca-Cola, Pepsi and Bud Light.

American hospitality and hotel companies, shut out of the attractive Caribbean island for decades, are quickly assessing the opportunities in Cuba as well, but analysts caution that they, too, will face a number of high barriers.

A pedicab in Havana. Most Cuban residents have very limited disposable income — a potential roadblock for American consumer products companies.

While the Cuban government may welcome a high-end brand looking to establish a luxury resort on the island — something to attract big spenders to the country — it will probably follow its current path of offering only management contracts to many other hoteliers, since the government in Havana prefers to own the building and property itself. That is the arrangement the Spanish hotel chain Melia Hotel International made for its Havana properties, said two consultants.

But companies like Marriott appear undaunted by the challenges.

“We are very excited for the people of Cuba and the opportunity and jobs that will be created when relations with the U.S. opens up, especially for travel and tourism,” Arne M. Sorenson, the president and chief executive for Marriott International, said in an email. “We will take our cues from the U.S. government, but look forward to opening hotels in Cuba, as companies from other countries have done already.”

Those longing for a return to the time of rum-filled nights of gambling at a sleek five-star resort may have to wait, however. Even in the best of circumstances, those types of resorts can take up to a decade of planning to construct and Cuba most likely faces the additional hurdles of upgrading its infrastructure and training its population to provide high-end services to big spenders, say consultants. Moreover, Cuba may also face legal challenges involving properties seized during the Communist takeover.

“What you’re going to get is a midmarket two- or three-star experience from a remodeled hotel in Havana that will be cool for somebody from New York or Charlotte who wants to experience and think back to the Hemingway days,” said Rick Newton, a founding partner at Resort Capital Partners, a real estate investment advisory firm that focuses on small, high-end properties in the Caribbean.

“But for a true, five-star experience that will attract five-star customers who want five-star amenities and served by a five-star staff, we’re at least a decade out,” he added.

This entry was posted on Thursday, December 18th, 2014 at 4:01 pm and is filed under Cuba.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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