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U.S. Businesses Scout Opportunities in Cuba U.S. Businesses Scout Opportunities in Cuba
(about 2 hours later)
PepsiCo wants in. So do Caterpillar and Marriott International.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. Within hours of President Obama’s historic move to restore full diplomatic relations with Cuba, companies in the United States were already developing strategies to introduce their products and services to a market they have not 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. “Cuba is a potential market for John Deere products and services,” Ken Golden, a spokesman for Deere & Company, a leading maker of farm and construction equipment based in Illinois, said by email.
“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.” But while there may be robust opportunities for some companies, especially those selling products or goods that could be viewed as enhancing Cuba’s own domestic production or helping to develop its underused resources, other companies could get the cold shoulder.
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. “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, which has advised 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.”
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. 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 obtain the famed Cuban cigars more easily, the country also has a surprisingly robust biotechnology industry that makes a number of vaccines not now available in the United States. Another hot spot for the economy could be mining, as Cuba 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. While United States companies are eager to establish a toehold in the country, many expect former Cuban businessmen and leaders in the rum or sugar industries to lead the charge.
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. “The Cuban people have immense pride in their history, and those from the expatriated community and those who have continued to live in Cuba will seek to return to the international stage the best way that they can,” said Richard Harris, a vice president of operations and product development for the luxury travel company Abercrombie & Kent, which has arranged trips to the Caribbean nation. “Bacardi disassociated itself from Cuba, but I’m sure somebody must be thinking, ‘How can we re-establish the brand with its heritage?’ ”
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. President Obama’s move to open relations between Washington and Havana for the first time in 54 years was widely seen as the signal for trade to resume, but, in fact, the United States is already the fourth-largest exporter to Cuba, behind China, Spain and Brazil.
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. 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, though with strict restrictions. Producers needed to be paid in cash in advance, and payments needed to be funneled through a third-party bank in another country, typically one in Europe.
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. Last year, the United States exported $359 million worth of goods to Cuba, compared with a high of $711 million in 2008, according to American government statistics.
“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.” American companies often struggle to compete. Tyson Foods and Pilgrim’s Pride have done a brisk business selling frozen chicken, but sales of grain by Cargill and Archer Daniels Midland have fallen off sharply in recent years because suppliers in other countries, like Brazil, offered cheaper products or allowed their goods to be bought on credit.
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. “This is a wonderful first step, but we would like to see the embargo ended,” said Devry Boughner Vorwerk, a vice president of corporate affairs for Cargill.
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. Congress would need to act to lift the embargo entirely.
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. Under the changes in banking and trade, American companies like Home Depot, Caterpillar and Deere can expect to be welcomed with open arms by the Cuban government, as they would be viewed as providing items or goods or services that support Cuba’s domestic sector.
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. A much bigger question mark hangs over companies geared toward selling consumer goods — whether Frito-Lay corn chips or Apple iPads — to Cubans,  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 chain restaurants like McDonald’s, Subway or Dunkin’ Donuts, to establish beachheads.
But companies like Marriott appear undaunted by the challenges. Instead, the bigger opportunity for many consumer-focused companies may come from selling to the increasing number of Americans expected to visit Cuba if travel restrictions are fully lifted. If that happens, the annual number of visitors could jump to four million from three million practically overnight, analysts say. American visitors will presumably seek creature comforts in well-known brands like Coke, Pepsi and Bud Light.
“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.” American hospitality and hotel companies, shut out for decades, are quickly assessing the opportunities in Cuba as well, but analysts caution that they, too, will face some high barriers.
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. While the Cuban government may welcome a high-end brand looking to establish a luxury resort — something to attract big spenders — it will probably follow its current path of offering only management contracts to many other hoteliers. The government in Havana prefers to own the buildings and land itself. That is the arrangement the Spanish chain Meliá Hotels International made for its Havana properties, two consultants said.
“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. Still, American hotel executives indicated that they were undaunted. 
“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. “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,” Arne M. Sorenson, president and chief executive of Marriott International, said by email.
Those longing for a return to the days of rum-filled nights of gambling in luxurious surroundings may have to wait awhile, though. Even in the best of circumstances, a luxury resort can take up to a decade to plan and build. Cuba badly needs to update its aged infrastructure and train people to provide high-end services to big spenders, consultants say.
“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, 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,” he said, “we’re at least a decade out.”