Marketing Strategies for the U.S. Business in Cuba

By:

Chelsea Montgomery

Marketing 4866

Executive Summary Cuba is an island about 90 miles off the coast of Florida that until very recently had severed diplomatic relations with the United States. Cuba is similar to the US in that they have a president and their executive branch consist of the Council of Minister and Council of State, Legislative would be the National Assembly of the People’s Power, but that is where the similarities end. Cuba is considered a communist country and women do not have any of the rights that American women do. For a business from the United States to succeed in the Cuban economy, there are many things to consider first. Marketing to a country that is so vastly different from our own is difficult to do. A company must gather all of the information possible about the country before they make their finale marketing decision, and that is what our team has done in this report. Everything from Cuba’s social structure to the average weather temperatures has been researched and marketing suggestions based off of the extensive research have been made.

1 Introduction Cuba is the largest, longest and most narrow island in the Caribbean. Cuba is mostly known for its cigars, rum, white sand beaches, as well as their mountains. Their main exports are sugar, nickel, seafood, citrus, rum, and tobacco products. Cuba takes higher education very seriously. They spend 10 percent of their central budget on education, which includes books and uniforms. This is one of the reasons Cuba is the most populous island in the Caribbean and home to 11 million people. Relevant History The U.S. claimed Cuba during the Spanish-American war in 1898. In 1902, Cuba gained its independence. In 1977, Cuba was split into 15 provinces. Cuba became a socialist state in 1961, which was also when all diplomatic ties between Cuba and the United States were cut off. In December of 2014, President Obama and the Cuban President Raul Castro, who came to power in 2008 when his brother Fidel Castro relinquished control to him, announced that they would finally begin normalizing relations between the two countries. While more than half of the population in Cuba consider themselves Catholic, although it is not common, other religions are practiced as well such as, Protestantism, Judaism, Islam and Jehovah’s Witness. Geographical Setting Cuba is made up of a group of islands 90 miles south of Florida in the northern Caribbean Sea where the Gulf of Mexico and the Atlantic Ocean meet. Cuba is the main island, the 17th largest island in the world by land area, and is surrounded by four smaller islands; the Colorados Archipelago, the Sabana-Camagüey Archipelago, the Jardines de la Reina, and the Canarreos Archipelago. Most of the island is south of the Tropic of Cancer, which gives it a tropical climate. The northeasterly trade winds blow year round which helps cool the island, and the Caribbean current brings in warm water from the equator. Cuba has a drier season from November to April, and a rainier season from May to October and the average temperature in January is 69.8 degrees Fahrenheit, and is 80.6 degrees Fahrenheit in July except in the mountainous areas on the southeastern part of the island. Social Institutions Family The nuclear family consisting of both parents and children are not considered the most common in Cuba. In a normal situation, the extended family lives under the same household as the nuclear family for a number of reasons. Extending meaning, grandparents, uncles and aunts, sometimes even the community. The reasons for this may vary. One in particular is housing shortage. Another reason may be because both parents’ work and someone needs to be home to watch the kids. Some families even choose to remain under the same household being divorced because the household is stronger with more people there to contribute and lack of housing elsewhere. Masculinity is the most dominant role in Cuba, specifically caused by the differences in personalities, duties, and sexuality. Because of the different organs obtained from birth distinguishing the difference from a male and female, their roles are very different and must be met. Women are expected to be very submissive. In other words, women are expected to be passive, meekly obedient, and conform to the authority of the man of the house. As little girls, women are looked at as angels, very gentle, taught to cook, clean, sew, and take care of the family. Young girls are always being watched to make sure they remain virgins being

2 that pre-marital sex is forbidden. Women are not allowed to vote and are restricted to the house in a sense. Women must breastfed their babies for the first few years. Boys are taught to be very strong and aggressive. Men work the fields and do a lot of outside work. Most men are taught to continue schooling well past trade school while women average around some level of grade school education. Extramarital sex is very common in men, but looked at shameful in women. Homosexuality is not allowed under any circumstance. Education Education is primarily taught in Spanish given it is Cuba’s primary language. The Castro Government mandates teaching of communism. Students are taught behavioral and psychological development. Specifically, “behavioral include aspects such as language, social skills and customs, whereas psychological aspects have more to do with values, belief systems, attitudes and preferences.” ● Education is compulsory, ages 6-16. Specifically, Kindergarten- Ages 4-6 ● Primary- (6-11) ● Basic Secondary (12-15) ● Upper Secondary or Technical Secondary (15-18) ● Universities Cuba has a literacy rate of 99.9%. Political System Cuba is considered a Communist State. It is similar to the U.S. in that they have a President and their executive branch consist of the Council of Minister and Council of State, Legislative would be the National Assembly of the People’s Power. They are considered the supreme body. They currently have 609 members who serve a 5-year term. They are elected directly by the people. The President is an elected position, which carries a term of 5 years, but there is no limit to how many terms a president may serve. The current President is Raul Castro. He is the brother and successor of Fidel Castro, who was President from 1976 until 2008. Transitioning from one to the other, Cuba has entered a new period of economic, social, and political transformation. Castro stated “it is time for the gradual transfer of key roles to new generations.” The national Assembly of the People’s Power is now more diverse with delegates that are younger and represent more trade, medicine and cultural positions. President Castro has announced that he will retire by 2018 and naming a possible successor of someone that was born after the Cuban revolution. Cuba is organized into 14 provinces and 169 municipalities. The provinces are governed by a provincial assembly of 75 members- 5-year terms, which elects a committee whose president functions as the governor. An assembly – 2 ½ year term, which elects a committee whose president functions as the mayor, governs the 169 municipalities. The only recognized political party in Cuba is the Communist party. It is the largest party and is considered to be the leading force for society and State. For many decades it was a major part of everything in Cuba. By 1993, the Communist membership was no longer a requirement for delegates. Still a strong force but Cuba is in transition under a new leader moving to a new generation. Cuba’s government has held stable for many decades with working trade agreements with Russian Federation and South American countries. The transitioning will have its trials and turbulences as events of other nation’s government change and progress. In the global scheme of things, the United States is important to Cuba but as for the United States, Cuba is of little

3 importance since there was no longer a global communist threat at the time, situations change. Cuba’s legal system is comprised of municipal courts, provincial courts and military courts. The People’s Supreme Court is the highest court and the last resort that hears appeals from the lower courts. It is organized into five chambers: criminal, civil and administrative, labor, state security, and military. The constitution theoretically provides for independent courts, although it explicitly subordinates them to the National Assembly, the Council of State, and ultimately the Communist Party. The Minister of Justice exercises administrative control over all the courts, but the Communist party controls all government positions, including judicial offices. Cuba is not trying to create a society in which neither class, occupation, income, race, nor sex will define social opportunities. They are more of a socialistic society. The government largely controls Cuba’s business. Their business practices are largely informal. A few basics, they greet each other with a handshake. Exchanging business cards when first meeting is considered important. It is respectful to use professional titles and in conversations to have good eye contact. Business environment is one that stresses the importance of personal relationships in business networking. Business dress code has become more informal, suits and sport coats for men, women in pantsuits or skirts. Religion and Aesthetics Cuba is a multiracial society with a population of mainly Spanish and African origins. The largest organized religion is the Roman Catholic Church. Afro-Cuban religions, a blend of native African religions and Roman Catholicism, are also widely practiced in Cuba. Cuba had been an atheist state for most of the Castro era. In 1962, the government of Fidel Castro seized and shut down more than 400 Catholic schools, alleging that they spread dangerous beliefs among the people. In 1991, however, the Communist Party lifted its prohibition against religious believers seeking membership, and a year later the constitution was amended to characterize the state as secular instead of atheist. The Roman Catholic Church estimates that 60 to 70 percent of the population is Catholic; however, only 4 to 5 percent regularly attend mass. Membership in Protestant churches is estimated at 5 percent of the population. Baptists and Pentecostals are likely the largest Protestant denominations. Jehovah’s Witnesses reported approximately 94,000 members; Seventh-day Adventists and Methodists each estimated 30,000; Anglicans, 22,000; Presbyterians, 15,000; Quakers, 300; and The Church of Jesus Christ of Latter- day Saints (Mormons), 50. The Jewish community estimated 1,500 members of whom 1,200 reside in Havana. According to the Islamic League, there are approximately 6,000 to 8,000 Muslims, although only an estimated 1,000 are Cubans. Other religious groups include the Greek and Russian Orthodox churches, Buddhists and Baha’is. Santeria is another religion with roots in West Africa and the Congo River basin. In Cuba, Santeria religious practices are commonly intermingled with Catholicism, and some even require Catholic baptism for full initiation. The Catholic Church has slowly increased the scope of the activities it is willing and able to conduct in Cuba. The Church goes to great lengths to keep a low profile and stay out of any public discussions that may be considered political, or certainly counter-revolutionary. Cuban religious groups, including evangelical Christians, whose numbers are growing rapidly, have benefited from the

4 easing of official restrictions on religious organizations and activities. Religious organizations have been able to attract new members without government interference. Congregations have seen an increase in participation in religious instruction for children because government schools no longer scheduled competing activities on Saturdays or Sundays. The majority of religious groups reported little interference from the government in conducting their services and saw improvement in their ability to import religious materials, receive donations from overseas, and travel abroad to attend conferences and religious events. Language The official language of Cuba is Spanish. The Spanish in Cuba has a Caribbean dialect that shares many characteristics with Dominican and Puerto Rican Spanish. As Europeans arrived in the area, the local cultures were enslaved or extinguished and millions of slaves were brought from Africa. The influence of African languages is evident in the vocabulary and the rhythmic inflection. As a result of their strong presence in the Caribbean, English and French have also affected the development of the language. Other languages spoken ● Haitian Creole is the second most spoken language, with approximately 300,000 speakers (about 4% of the population). It is spoken amongst immigrants of Haiti and their descendants. ● Lucumi – this West African language is spoken only as a second language in a small region of the country. It is the ‘holy language’ of the African religion Santería and is used in prayer. ● Catalan – spoken by over 3,000 people in Cuba. ● Cuban business people speak English and it is used at hospitality centers, health facilities and recreation facilities. Spanish dialects and variations ● Like in most of the Antilles islands, the indigenous cultures of Cuba were unable to retain their customs and languages, and there is little to no influence from native languages on the Spanish spoken here. ● Amongst groups that influenced the Cuban language, the Roma brought many words and also influenced the ‘guajira’ music form. ● Spanish spoken from east to west varies strongly. The eastern regions had large coffee and sugarcane plantations where many African slaves were used for labor. Eastern Cuban Spanish was shaped by a stronger influence from African languages whereas Castilian Spanish and other European languages influenced the west, closer to the Capital and main ports, more. Hofstede’s Five Dimensions Hofstede’s 5 dimensions are used to describe and explain the different characteristics of different cultures. They include Power Distance, Collectivism and Individualism, Masculine and Feminine, Uncertainty Avoidance, and Long Term and Short Term Orientation. Power Distance is the distribution of power and how the less powerful accept the inequality of the distribution. High power distance means that the members of that society accept the distribution of power while low power distance means that power is distributed more equally. Cuba has a high power distance due to the dictatorship of Fidel Castro who has had control over everything from its citizens’ religion to their small group

5 organizations for years. They also have a history of being under control of other countries, including the United States. Collectivism vs. Individualism is the degree of interdependence a society maintains among its members. Individualistic countries people are worried about their personal achievements and gain, while collective cultures put their country before themselves. Cuba is a collective culture because being a communist country they are forced to work together to better the country as whole. They believe that the well being of all of the citizens is very important and that personal sacrifices must be made. Masculinity vs. Femininity is what motivates people, wanting to be the best (masculine) or enjoying what you do (feminine). These traits are made up of the male and female gender roles. While feminine cultures are seen to be more caring and relationship oriented, masculine cultures are known for being more assertive, dominant, and power driven. Cuba is more of a masculine country because their focus is on bettering themselves and being the best, not necessarily for the fun of it, and they take great pride in what they do. Uncertainty Avoidance refers to a society’s tolerance for uncertainty and ambiguity. Societies with low uncertainty avoidance such as the United States, England, and China are more comfortable with ambiguity and taking risks. Societies such as Korea, Italy, and Mexico have high uncertainty avoidance and do not like to take risks. Cuba is on the high uncertainty avoidance list. Being under a dictator for so many years, Cubans are used to, and comfortable with, the stability and structure of their everyday lives. Long Term Orientation vs. Short Term Orientation is whether a culture places importance on living in the present or puts emphasis on the future. Long-term orientation is looking ahead at the future and doing whatever is necessary now to prepare for the future that is desired. On the other hand, countries like Cuba who has short-term orientation focus on the present and make it the most important because they care more about immediate gratification. Cubans have left their futures in the hands of their leader, leaving them only what is right in front of them to worry about.

6 Economic Analysis

Introduction Cuba is a country that suffers from many economic problems, some bigger that others. They have had problems ever since the loss of support from the Soviet Union. As it still faces challenges, it’s leaders must decide which are important enough to fix and which they can live with. Population As of 2012 when the last census was conducted in Cuba, the most populated country in the caribbean, the population was 11.1 million. In 2014, the population growth rate was -.14%. According to the CIA World Fact Book, Cuba’s population growth has been steadily declining since the year 2000; the population drop between the census of 2002 and 2012 is the first since Cuba’s war of independence. This can be attributed to low fertility and emigration as 332,028 Cubans received legal permanent residence in the U.S. Cuba’s birth rate is 1.45 births per woman as of 2012, while the death rate is 7.58 deaths/1,000 inhabitants with life expectancy at 78 years. The population density of Cuba is 100.7 inhabitants per kilometer. 19.1% of these inhabitants are between the ages of 0 and 14, 70.3% are between the ages of 15 and 64, and only 10.6% are over the age of 65 as of 2006. As for the sexes, of the inhabitants between the ages of 0 and 14, 1,117,677 of them are male and 1,058,512 are female making it a 1.06 male to female ratio. Of those between the ages of 15 and 64, 4,001,161 are males and 3,999,303 are female making it a 1 male to female ratio, and for inhabitant 65 years and older, 554,148 of them are male and 652,1019 are female making it a .82 male to female ratio. Throughout Cuba, urban populations out weight rural populations. As of 2013, the urban population in Cuba was 8,669,864 making it 75.15% of the the entire population, while the rural population was only 2,578,919 which is just 34.85% of the total population. According to the most recent census in 2012, the ethnic groups are made up of 51% Mulatto, 37% White, 11% Black, and 1% Chinese. Economic Statistics and Activity Gross national product (GNP or GDP) According to Trading Economics, “The Gross Domestic Product (GDP) in Cuba was worth 77.15 billion US dollars in 2013. The GDP value of Cuba represents 0.12 percent of the world economy. GDP in Cuba averaged 30.59 USD Billion from 1970 until 2013, reaching an all time high of 77.15 USD Billion in 2013 and a record low of 5.69 USD Billion in 1970. GDP in Cuba is reported by the World Bank.” The chart below lists actual values provided by Trading Economics. The actual economic values were last refreshed, Wednesday, July 15, 2015.

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Trading Economics Content for Cuba GDP

Cuba GDP Last Previous Highest Lowest Unit

GDP 77.15 73.14 77.15 5.69 USD Billion

GDP Annual 1.30 2.70 12.10 -14.90 percent Growth Rate

GDP per 5351.30 5208.85 5351.30 1938.30 USD capita

GDP Constant 52333.0 51642.0 52333.00 51642.0 CUC Prices 0 0 0 Million

GDP Per 18796.1 18290.9 18796.19 8910.56 USD Capita Ppp 9 2

**All rights reserved to Trading Economics 2015* Personal income per capita The Gross Domestic Product per capita in Cuba for 2013 was 6,848.20 US dollars. The GDP per Capita in Cuba is equivalent to 40 percent of the world’s average. GDP per capita in Cuba averaged 3,201.34 US dollars from 1970 until 2011, reaching an all time high of 5,049.59 US Dollars in 2011 and a record low of 1,938.30 in 1970. Average family income The average state salary reported for 2013 in Cuba was 471 pesos ($20) a month. Figures show that during the last eight years the salaries of public employees - more than 4 million people, have had constant annual raises, though very modest ones. In 2006, average monthly pay was 387 pesos ($16). By sectors, construction maintained the highest average state salary in 2013 at 582 pesos ($24). The government acknowledges that low wages are a problem, but observes that Cubans pay no basic services like healthcare and education, while prices in many other categories are subsidized. Distribution of wealth Prior to 1959 the wealthiest 20% of the Cuban population enjoyed 58% of the country’s income. The poorest 20% received 2% of the country’s income. Today, all wealth is equally distributed and all Cubans are guaranteed their basic requirements of food, clothing and housing. Before 1959 with only 13 reservoirs, a mere 35.2% of the Cuban population had running water. Sadly, 63% had no bathroom facilities in addition

8 to 82.6% without a bathtub or shower. Today, 91% of the population receives sustainable access to improved drinking water. Sanitation has been a priority since the revolution and 98% of Cubans now have sustainable access to improved sanitation. Previously to 1959, just 7% of homes had electricity. Today, 95.5% of Cubans have access to electricity. Solar panels and photovoltaic cells have been installed in schools and clinics in isolated areas. Living conditions in Cuba have improved greatly ranking it 51 on the United Nations human development index putting it in the category of achieving high human development. Minerals and resources Cuba has a variety of mineral commodity and energy resources. The country is among the top 10 producers of cobalt and nickel, which are the leading exports, and has significant other mineral and petroleum resources. Cuba’s current crude oil and associated natural gas production from onshore and shallow water reservoirs is approximately 50,000 barrels per day of liquids and about 20,000 barrels per day oil equivalent of natural gas. Industrial minerals and manufactured industrial mineral products produced in Cuba include ammonia and ammonia byproducts, bentonite, cement, feldspar, high-purity zeolite minerals, gypsum, kaolin (a type of clay), lime, high-grade limestone, marble, sand, sulfuric acid, steel and urea. F.Surface Transportation Airports: 64 airports with paved runways 69 airports with unpaved runways public use) Roadways: 60,858km (29,820 paved, 31,038 unpaved. Waterways: 240km Major ports: (8) Antilla, Cienfuegos, Guantánamo, Havana, Matanzas, Mariel, Nuevitas Bay, Santiago de Cuba. Merchant marine: 3 – 1 cargo, 1 passenger, 1 refrigerated cargo

Communication Systems Telephone: 1.217 Million – mainline users 1.682 million Mobile Cellular International code (53), fixed line density @ 10 per 100 inhabitant- considered low. Broadcast media: Government owns and controls All Broadcast media.

9 4 national networks, many local stations. Radio – 6 national networks, one international station, many local stations 169 AM stations, 55 FM stations Internet: Internet code – (.cu) Internet host – 3,244 Internet Users – 1.606 million ** Private Citizens are prohibited from buying computers or accessing the internet without special authorization; foreigners may access the internet in large hotels but are subject to firewalls.** Principal industries Since Cuba no longer had the Soviet Union’s support, Cuba was submerged in a major economic crisis. The gross national product contracted by as much as one-half between 1989 and 1993, exports fell by 79 percent and imports by 75 percent, the budget deficit tripled, and the standard of living of the population declined quickly. Cuba’s economic freedom score is 29.6, making its economy one of the world’s least free. But the overall score is 0.9 point higher than last year. Public expenditures account for 60.2 percent of the domestic economy, and public debt is equal to about 38 percent of gross domestic product. Private entrepreneurship exists only on a very small scale. I. International trade statistics The top 5 major exports in Cuba are 25% raw sugar, 15% refined petroleum, 14% nickel mattes, 14% rolled tobacco, and 6.7% hard liquor. The total trade for Cuba in exports is 1.76 billion dollars. There are many other exports as well such as glands and other organs, crustaceans, semi-finished irons, fruit juice and even human or animal blood. Most of Cuba’s exports go to China (30%), Spain (11%), Brazil (5.1%), Belgium- Luxembourg (5%), and Italy (3.2%). The top 5 major imports in Cuba are 6.1% refined petroleum, 3.9% wheat, 3.8% corn, 3.3% poultry meat, and 2.4% concentrated milk. The total trade for Cuba in imports is 6.02 billion dollars. Cuba gets way more imports than they export. Other imports in Cuba are soybean meal, rubber tires, soybean oil, vehicle parts, pesticides and the list goes on. Most of their imports come from China (18%), Spain (16%), Brazil (9.4%), United States (7.6%) and Mexico (5.5%).

Market Entry and Marketing Strategies

Market entry strategies In light of Cuba and the United States recently restoring diplomatic relations, there are only a few types of entry strategies that are recommended for companies in the

10 US wanting to begin businesses in or with Cuba. Because the relations between the US and Cuba have been restricted for so long, US businesses now hoping to work their way into the country must be careful about their approach and consider all of the cultural differences before deciding how to market to this country. Direct exporting is one market entry strategy that a US business could consider before entering the Cuban market. The direct exporting strategy is selling directly into the market, and once they establish their business, turn to agents or distributors to represent them and further their business in the country. This would be a good move for a US business entering Cuba because Cuba has a high uncertainty avoidance which means that they have a low tolerance for uncertainty and do not like to take risks. Using the direct exporting approach and hiring locals as agents and distributors, making them the face of their new company in Cuba, could seem less threatening to the inhabitants of the island. The agents work closely with the emerging business to represent their interests integrate them into the society in a way that the citizens would accept them so that the new business becomes a success in the foreign country. A disadvantage to this approach is also because Cuba is a high uncertainty avoidance country. Cubans may not be accepting of a new business from another country at all, ultimately causing it to fail. Another approach that a US business should consider using when attempting to enter the Cuban market is partnering. Partnering can be different forms from a simple co- marketing arrangement to a more complex collaboration for marketing. Using this approach may be the best route to take as it reduces risk and the shared costs reduce the investment needed, both which are positives for the emerging business. Cuba has a high power distance meaning the distribution of power is unequal among its citizens, so partnering with those in power is a big advantage. Giving the leaders of the country partial control over what the new business brings into their nation creates trust between the US business and Cuban leaders, therefore creating trust throughout the country. A disadvantage though, which could be true for any strategy used, is that the Cuban leaders may not be open to forming a partnership with any US business or taking the risk of allowing the US business into their country. Both strategies have their positives and their negatives, a business trying to establish themselves in Cuba will be able to choose their best option. Product Product is one of the 4 P’s in the marketing mix. Product is defined as the goods and/or services offered by a company to its consumers. Product has its own tools to contribute to the marketing mix; services, quality, packaging, features, variety, design, and brand name. According to Chapter 12 in the International Marketing textbook, fifteenth edition, “The three major components of a product are: (1) its core, the physical product and all its functional features; (2) the packaging component that includes the physical package in which the product is presented, as well as the brand name, trademark, styling and design features, price and quality levels; (3) the support services component,

11 which completes the product buyers receive and from which the bundle of satisfactions received are derived. This support services component includes repair and maintenance services, installation, delivery, warranty, spare parts, training and instructions, credit, and any other services related to the use and purchase of the product. The importance of each component, as well as the perceived component attributes are functions of culture. What may be desirable in one culture may be unimportant in another. A product is, in a large part, a cultural phenomenon; that is, culture determines the individual’s perception of what a product is and what satisfaction that product provides. Therefore, in developing products for international markets, adaptation of that bundle of utilities or satisfaction received may be necessary to bring the product in line with the culture’s needs. Such adaptation may require changes of any one or all of the product components as defined above. Standardization is a framework of agreements in which all associated parties involved must adhere to ensure that everything is done in a just manner of the creation of a good or performance of a service within suitable and sustainable set guidelines. According to Eric Dontigney, Demand Media, “As a business enters a new market, it must cope with cultural and demographic differences in the way it handles marketing. Some businesses choose a standardization model, in which the business appeals to universal needs, wants or goals in its marketing. An alternative, the adaptation marketing strategy, forgoes universality in favor of tailoring marketing to appeal to the cultural or demographic particulars of customers in the new market. Adaption marketing strategies can also fail to overcome customer loyalty to established local brands. A business should weigh the financial costs against the probability of success before embarking on an adaptation marketing strategy.”The adaptation is not only usable and suitable for Cuba, it also necessary. Price In regards to price in the marketing mix, there are several questions marketers look at. • What is the value of the product or service to the buyer? • Are there established price points for products or services in this area? • Is the customer price sensitive? Will a small decrease in price gain you extra market share? Or will a small increase be indiscernible, and so gain you extra profit margin? • What discounts should be offered to trade customers, or to other specific segments of your market? • How will your price compare with your competitors? Price covers the actual amount the end user is expected to pay for a product. How a product is priced will directly affect how it sells. This is associated with the perceived value of the product to the customer rather than an objective costing of the product being offered. If a product is priced higher or lower than its perceived value, then it will not sell. This is why it is important to understand how a customer sees what you are selling. If there is a positive customer value, than a product may be successfully priced higher

12 than its objective monetary value. On the other hand, if a product has little value in the eyes of the consumer, then it may need to be underpriced to sell. Price may also be affected by distribution plans, value chain costs and markups, and how competitors price a rival product. Despite membership in the World Trade Organization, the economy of Cuba remains relatively cut off from the international marketplace. Only state enterprises are allowed to engage in international trade and investment. The state uses an oppressive regulatory environment to suppress entrepreneurial activity and controls most means of production. Shallow credit markets impede access to credit for business activities. The Cuban people are resourceful and hard working. If given the market incentives and rights to property, Cubans easily could make their weak economy grow. With higher incomes, Cuba could buy more of everything, whether produced on the island itself, in the United States or somewhere else. With higher productivity, Cuban producers would have more to sell, either to Cubans themselves or as exports. This certainly would benefit Cuba. Pricing policies should be designed consistently with an updated economic model. Pricing structures could be revised so that it reflects correctly the economic events, stimulates efficiency, increases exports, and substitutes imports. The pricing for goods and services that are subject to regulation for social and economic reasons can be determined centrally and the pricing for any other goods and services should be decentralized. The excessive subsidies on goods and services and unduly free benefits should continue to be eliminated gradually. In addition, retail pricing could be formed on the basis of costs and without inefficiency cover-ups, with attention paid to the people’s income levels. The quality-price ratio between similar products and services supplied in the State-run network could stand improvement to avoid unwarranted price differences. Introducing measures in order to propitiate, to the extent possible, the price stability of non-State supplies. In particular, the supplies of goods and services that satisfies basic needs of the population, with attention given to the economic conditions. Place or Distribution System A company doing business in Cuba could use several channels of distribution that Cuba has set up. They are a collective society, they are working for the good of the State not necessarily the individual. The economy has supported the collective society whereas family, whether immediate or extended family, are close if not under one roof in order to survive They have a high distribution of power, used to having their lives controlled for them , only having to worry about the right now. A company would need to focus on building a long term relationship with them, developing a trust and a familiarization of their product. The United States has had trade agreements through the decades, although strained or restricted up to recent years. Business within Cuba’s borders is still controlled entirely by their government. Any company would need to go through them in order for

13 distribution of their product could take place. Cuba has had several struggles in recent years and are in need of acquiring new ways for support through possible trade with other nations. Relationships are important to the Cuban culture. Building those relationship, a company once granted access could use more of their local markets to promote and distribute a product. As stated earlier according to Information from the CIA World Factbook, Cuba’s transportation systems are in place and in working order. Work would be needed for improvements and possible modernization would be needed. Cuba has 8 ports; Anntilla, Cienfuegos, Guantanamo, Havana, Matanzas, Mariel, Nuevitas Bay, and Santiago de Cuba. These ports are currently serving their importing and exporting needs. The ports are one point of entry to the country for distribution. Depending on the nature of business, Air transportation could be of service. Once on land, products can be distributed by railway or truck transport to destinations across the island. They have paved road access to most cities, but might need to develop more of their infrastructure as needed. Since 2000, they have been making improvements of the communications systems; upgrading to digital, cellular service, internet, in which are still expensive and not widely permitted for public use. Promotion Mix Some say Cuba does not have any advertising, but that is not true. Cuba does lack in the advertising department leaving only the stores that accept the CUC (Cuban Convertible Pesos) the right to have print ads advertising things such as beer and cigarettes. Only big things get to have a TV commercial ad, like the 1990 Italy World Cup which was held in Cuba. Advertising is so scarce in Cuba because there is not much to buy as well as Cuban are not very wealthy so the items they do have for sell, most people can not afford. There is very few consumer activity which means there is no need for advertisement nor is it money to pay for the advertisements. Since Cuba is ran by the government, there is very little competition. All of the retail stores are ran by them so that leaves only the tourist services such as the private owned restaurants and transportation services. Even these are not differentiated enough to support advertising. Because of this Cuba is pretty much direct selling or personal selling, most companies do joint ventures because of this. Services are exclusively available through national companies. If a company plans to be active with services in Cuba, it’s only possible through a joint venture with a national company. In general, the Cuban partner brings the property, the infrastructure and the staff, the foreign partner the know-how and financial resources. Moving forward in the future, the only way for Cuba to grow in promotional mix is to become a completely free country. This will allow much more competition which will require advertisement to expand through TV, Internet and even the radio. Cuba is a Communist country which also makes it a collectivist culture. The people of Cuba believe that the well-being of all of their citizens are important. They are

14 a isolated country in which they are forced to work together and share pride in their countries independence.

15 Appendix

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