Not so fast

Editor's note: Tim Grainey is the founder and managing member of Strategic Research Initiatives, Queen Creek, Ariz. 

For over 50 years, Cuba has effectively been closed to American businesses due to the U.S. government’s longstanding embargo. Relations between the two nations are thawing, opening connections for business, cultural and non-governmental organizations (NGO) activities. A key decision facing American businesses is whether Cuba is a new El Dorado or if it is an illusion and they should focus on other markets. Marketing research agencies can assist their clients with market-entry investigations and subsequent market-launch activities.

When companies are deciding whether to expand into a country, they typically conduct market-entry research, which identifies: competitors in the market; current brand imagery; infrastructure needs to support their products/services; distribution and sales channels; realistic product/services price points; financial projections (including prospective currency exchange rates); cultural (local market) considerations; and legal considerations.

One automotive company has asked our firm, Strategic Research Initiatives, for guidance in entering the market. Cuba is unique on the transportation side, with 1940s and 1950s restored American models – including Studebakers, old Russian-made Ladas and Moskvitchs as well as new-model Kias from Korea and Geelys from China. China is a primary supplier of newer buses, cars and trucks. One particular concern for domestic-based automotive companies is residual versus current brand imagery since many Cubans’ impressions of Buick, Chevrolet, Chrysler and other makes are based off of vehicles from the 1950s; brand impressions based off of current models may differ drastically. Currently, sales of new automobiles are through the Cuban government (fleet sales) for official use and rental car fleets. In the past, automotive companies learned from the experiences in China: The first companies that enter and stay through initial financial hardships are often rewarded in the long-term with a stronger market share, brand awareness and imagery among customers.

Cuba is definitely of interest to some specific business sectors:

• hotels, airlines, convention planners and other companies in the tourism sector;
• construction and power-generation firms;
• parts suppliers for automotive and industrial equipment;
• small consumer products (soap, disposable razors, etc.);
• computer and telecommunications products and infrastructure;
• agricultural supplies and equipment;
• freight expeditors;
• automotive (trucks, buses and rental cars).

In addition, some American companies are interested in importing Cuban products including: cigars (Cohiba, Partagas), rum (Havana Club, Santiago), beer (Cristal, Bucanero), historical American cars and agricultural products.

Eight U.S. based airlines – Alaska Airlines, American Airlines, Delta Air Lines, Jet Blue Airways, Frontier Air-lines, Southwest Airlines, Spirit Airlines and United Airlines – have been approved by the U.S. Department of Transportation to service 10 international airports in Cuba; some flights began in the fall of 2016. Direct service will be available in cities such as Chicago, Ft. Lauderdale, Los Angeles, Miami, Minneapolis and Philadelphia to start.

For Americans visiting Cuba, they must meet one of the following 12 “people-to-people” categories established by the U.S. Department of Treasury:

1. Family visits
2. Official business of the U.S. government, foreign governments and certain intergovernmental organizations
3. Journalistic activity
4. Professional research and professional meetings
5. Educational activities
6. Religious activities
7. Public performances, clinics, workshops, athletic and other competitions and exhibitions
8. Support for the Cuban people
9. Humanitarian projects
10. Activities of private foundations or research or educational institutes
11. Exportation, importation, or transmission of information or information materials
12. Certain authorized export transactions

Marketing research is allowed under category four and our firm has already started to collect research data in Cuba. For business professionals, traveling to Cuba with an authorized group on a people-to-people exchange will allow them to understand some of the opportunities and challenges.

Sobering facts

Cuba is popular right now as a new market for Americans, particularly after President Obama’s historic 2016 visit and the 2015 opening of the American embassy in Havana but there are some sobering facts to consider before expanding into the market:

• Currently, all Cubans are guaranteed a job by the government, with an annual salary of approximately $25 a month. Doctors and other professionals can make up to $60 a month and people supplement their base pay with tips in tourism jobs, second and third jobs, as well as remittances from relatives in the States. Still, for many ordinary consumer goods, the socialistic economic model needs to change drastically in order for most people to afford even inexpensive consumer goods.
• The size of the market is also a potential downside. Cuba has approximately 11 million residents, which is roughly the population of the state of Ohio.
• The Cuban government typically partners with most new companies entering the market, taking an ownership stake in the venture. The socialistic system is all-pervasive in Cuba. Payment for services by the government is typically over two-to-three years, rather than months, which is a financial model that may not be palatable to some clients.
• U.S. government restrictions: a full repeal of the embargo is not expected to happen quickly, as some major issues have to be negotiated. Issues requiring negotiation including claims from Cuban-Americans who lost land or businesses after the Cuban revolution, revising trade agreements and the Cuban government’s demand for the return of the land that the Guantanamo Bay Naval Base resides on.
• A bleak 2017 is projected in Cuba as Venezuela’s economic meltdown has had a huge impact on Cuba’s finances. Venezuela was a large supplier of discounted oil to Cuba under the decade-plus rule of former President Hugo Chavez. Cubans were encouraged to cut back on their power usage during the summer months of 2016.

See rapid expansion

Advertising is in its infancy on the island but the potential is huge. The advertising field is expected to see rapid expansion in a nation where advertising has been barely existent, with many media outlets under government control. In the future, commercial advertising is expected to become an important part of the mass media in Cuba, which will assist the growth of local and international brands as well as increase competition in the marketplace.

Strategic Research Initiatives has partnered with Morvin Isidora of International Fieldworld Inc. of Miami to conduct fieldwork in Cuba. International Fieldworld has been working in Central America and the Caribbean Basin for decades. We recently conducted a brand awareness research project in the market. Previous research has shown that, even in the absence of media advertising and low purchasing power, Cubans are brand-focused and over four-in-10 made their purchase decision based on the impact and influence of the brand. Among recent re-search on global brands, three American brands rated among the top 10: Coca-Cola, Nike and Apple.

Once a company has conducted market-entry research and decided that it makes sense to enter Cuba, then it needs to develop an operational plan including: creating a timeline for launch in the market; identifying and vet-ting distributors; establishing sales outlets and a management structure; setting prices; developing promotion and advertising strategies; finalizing legal contracts, licenses, etc., in both countries, and hiring local staff/suppliers.

Several years away

Internet surveys are still several years away because of low Internet penetration in homes and the cost for Wi-Fi access. Cuba is currently one of the least-connected countries in the hemisphere. The International Telecommunications Union estimates that about 30 percent of Cubans now have at least semi-regular access to the Internet at home or work. While this number is low, it is still nearly double the percentage from five years ago. The Cuban government newspaper, Granma, announced in a recent editorial: “Cuba has been, and is, intent upon being connected to the world, despite propaganda to the contrary. The government wants to have Internet access for all citizens by 2020.” Currently, information flows through the transfer of material from hand-to-hand via flash drives, DVDs or through Cuban chat sites.

A concern of researchers abroad is the extent of scrutiny from government officials on the survey process. As in China, we suggest working actively with government officials, even though there is not a specific law that marketing research agencies must do so. In Cuba, involvement from government agencies includes not just national administrators but also local neighborhood-level officials from the Committee for the Defense of the Revolution (CDR). The local authorities provide authorization for interviewers and reassure residents that the survey is legitimate to complete. Market research is not common on the island and some people are nervous about providing honest answers. Utilizing local interviewers and supervisors trained by experienced researchers will also assist the credentialing process with respondents. Researchers should avoid questions about religion and local politics.

Face-to-face interviewing is the methodology of choice, common in many markets outside of the U.S., but with a wrinkle, focused on neighborhood rather than household sampling, with assistance from local CDR officials. In addition, conducting face-to-face interviews through sampling at the neighborhood/block level ensures that samples include all different groups of people, including Millennials – who were born after the Cuban Revolution and are more open to foreign influences. Interviews are commonly conducted in public squares or in the street, rather than in residences, some of which are set within multi-story units behind stores and difficult to enter. In some cases, four generations of a family will live together, which can further complicate sampling schemes.

Tablet/PDAs should be used on a limited basis at first in Cuba, as the new technology can create distrust or suspicion, particularly among older respondents. Tablets/PDAs are appropriate for longer surveys (15-20 minutes). For shorter surveys, pen-and-paper surveys are recommended. Data entry should be done locally, with the data sent out of the country by memory sticks/drives, as package delivery between the United States and Cuba is still limited and costly.

Analyzed carefully

Cuba is a fascinating country and a prime new market for some American companies but it must be analyzed carefully and from a longer-term perspective. Currently, Cuba is not a viable consumer market for many products; it simply does not exist at the present time, nor will it until Cuba’s economic model changes drastically.