A Note on the Cuban Cigar Industry

The bargaining power of suppliers is dependent on whether major suppliers can exercisesufficient bargaining power to influence the terms and conditions of supply in their favor.The production in the premium cigar factories is under the direct control of Cuba's Unionof Tobacco Enterprises and is completely separate from the Altadis-Habanos jointventure. Tobacco growers can buy land through government loans and then pay in kindthrough tobacco harvests. So the Cuban government is the only buyer of the output fromthe private firms, partly due to the Helm-Burton Act of 1996. This Act limited trade thatsubsidies of U.S. companies in other countries could conduct with Cuba, allowed the U.S.to impose sanctions on countries trading with Cuba, an

When anyone mentions the country Cuba, two products register in our mind – sugar andcigar. Cuban cigars are renowned for as the sign of upper echelon style and class even for an uneducated cigar smoker. They are highly reputed for distinct taste and feel andconsider containing the world's best tobacco. As a tropical region, Cuba's land is possiblythe ideal place to grow the finest tobacco and wrappers in the world. Even though cigarshave been manufactured in other countries as well, Cuba's cigars still hold the foremostchoice of all cigar aficionados around the world. Cigar is mostly popular in United Statesas a symbol of class and posh lifestyle. This means that anyone would be tempted toinvest in the cigar industry. However, the importation of the Cuban cigar to the UnitedStates is illegal. Due to the trade embargo imposed on Cuba by the Kennedyadministration forty years ago, all economic trades between United States and Cuba are blocked.With the former U.S. president Jimmy Carter, the first U.S. president to visit Cubafollowing the embargo, there are speculations that the U.S. – Cuba relations would soften,leading to lifting the embargo restrictions. Obviously the potential slackening of thetrade barrier would be an investor's dream within this industry, but the reality of thesituation is still very unpredictable. Forty years have passed since the embargo, and manycigar manufacturing industries have evolved around the world during this period, allcontributing to U.S. cigar consumption. Even United States has its own cigar industries inConnecticut and Tampa.Anyone considering investing in the cigar industry as a possibility of alleviation of theembargo should identify the external environments forcing the shape this industry. Thisstudy identifies the Five Forces Model of Competition identified by Michael E. Porter:(i) Rivalry among competing sellers, (ii) Threat of new entrants, (iii) Other industriesoffering substitute products, (iv) Bargaining power of suppliers, and (v) Bargaining power of buyers. Consequently, the strength of each force is also identified

1. Rivalry among Competing Sellers

The strongest among the