The Benefits of Investing in Cuba: Cargill Company Research Paper

Introduction

The Republic of Cuba is an island country that borders the North Atlantic Ocean and the Caribbean Sea. The country is positioned 145 kilometers south of the Florida Coast. It has a landmass of 110,000 square kilometers with about 11.4 million people. This makes it difficult to interpret the development and economic growth of Cuba. The country has a GDP of 93.90 Billion, which is approximated to increase to about 97.30 billion by the end of 2022 (“GDP growth,” 2022). The country uses central administration planning where the wages and prices of products and services are set and regulated by the Cuban government.

Tariffs and Quotas Policies

Following the economic embargo that the United States of America placed, it has opened up its business channel to enable investors to invest in the country. The government of Cuba has imposed various rules that manage the importation of goods within the country. For a person or an organization to export, one requires exporting license and a travel license. Currently, the tariffs are set to 8.54%, incrementing 1.39% compared to 2017 (“Cuba Tariff Rates,” 2022). The importation of goods into Cuba is only done by the joint venture operation and the state entities with permits to import the specified product.

The tax rate in Cuba is distributed as income tax rate and corporate tax rate. The income tax rate is 50%, and the corporate tax rate is 35% (ECLAC, 2018). The income tax rate varies depending on the organization’s earnings, and the corporate tax rate is similar to other companies. However, as the country lacks value-added tax, it has a tax on sales based on the type of product and its nature. Furthermore, there are other taxes such as property transfer tax and land tax. The country has a maximum tariff of 30%, which is applied to the Most Favored Nation (MFN) (ECLAC, 2018). This rate is applied to countries with a bilateral trade agreement with Cuba.

Consequently, goods originating from other countries have an average tariff of 17.9% (ECLAC, 2018). Imported goods from foreign countries that have partnered with Cuba may enjoy the free duty of some products depending on the economic association and the joint venture agreement. Furthermore, the country provides negotiations when there is a duty drawback, including material replacements incorporated within the exported products and temporary importation specifically for upgrading (ECLAC, 2018). However, these drawbacks are only implemented whenever the circumstances are of national interest or crucial for business viability in the external market.

Cultural Differences

The culture of Cuba is mixed because of different factors and influences. Cuban culture is based on Amerindian, African, and European influence. The music incorporates instruments and dances that are major of European and African basis. This makes the country lack the original tradition because of the two groups’ transformation into the country. The official language used is Spanish, as approximately 90% of the Cuban people use it in their daily tasks and operations (“Cuba,” 2022). Other languages spoken include Creole, Portuguese and Chinese. More than 60% of the Cuban people are catholic; however, over time, the religious practices have gnarled the attitudes and perception of the people towards the church (“Cuba,” 2022). Santeria, a religion formed from African slaves’ Catholicism and Yoruba religion, is also shared among most people. Religion has also faced great resistance because of its beliefs and practices.

Norms and Values

There are various norms and values that the Cuban people practice. The Cuban are usually louder when expressing their views to other people. They typically maintain eye contact when speaking as it is perceived as a demonstration of interest and respect. Hand gestures are also persistent during a conversation, not as a show of disrespect but for illustration purposes (“Cuba,” 2022). It is common for Cubans to use a handshake during greetings, even when meeting someone first. They use friendly styles such as kissing women on the cheek and hugging sometimes. They are known to practice hospitality as they are kind, welcoming, and generous. Affection is also portrayed during conversations through touching the people. When handling interpersonal conflicts, they usually use innuendo instead of direct accusations (“Cuba,” 2022). The country lacks legal drinking age similar to the legal age for purchasing tobacco products and smoking.

Exports and Imports

The country’s key exports include medical products, sugar, coffee, tobacco, citrus fruits, and nickel. These products are mainly exported to France, Venezuela, Netherlands, China, Canada, and Spain. Other countries include the Caribbean and Latin America (“Cuba Trade Statistics,” 2022). The main imports for Cuba are food and petroleum products. The main food products consist of beans, rice, and corn. Other significant imports include machinery and chemicals. The core suppliers are Germany, Spain, Mexico, China, Italy, the USA, Canada, and Venezuela.

Cargill Company to Invest

Cargill Company

Cargill is among the global top pioneer food producing and distribution industry of products such as salt, chocolate, sugar, cotton, and refined oil. The company headquarters is in Minneapolis, and it was first set up in 1965 by William Cargill. The company’s main agenda is to make the world safe through sustainable methods (“Bloomberg,” 2022). The organization uses technology innovations to serve clients all over the world. It has operations in more than 125 countries with approximately 160,000 employees. It has for main divisions: agriculture, animal nutrition and protein, food, and financial and industrial. The agriculture section focuses on producing food products such as oilseeds and grains. It also processes, market, and distribute these products to various markets (“Bloomberg,” 2022). This division is linked with livestock and firm products and services. Animal nutrition and protein division produce animal food products such as pet food, poultry, pork, and dairy. The food division serves beverage ingredients and food manufacturers. Financial and industrial provide the clients with risk management services and trade finance solutions.

Cargill SWOT

Strengths

1. Its brand is highly noticeable in the market
2. Long history in the area of agriculture
3. Operates in more than 125 countries
4. Has four major segments that serve a variety of clients (agriculture, animal nutrition and protein, food, and financial and industrial)
5. Variety of brands
6. Technological advancement in the field of agriculture
7. Has many CSR activities that promote its brand name
8. Has invested in research and development, which gives it a competitive advantage.

Weaknesses

1. Faced various irregularity issues with human rights violations leading to negative publications of the brand name
2. It has a variety of brands which makes it vulnerable to brand switching

Opportunities

1. There are various market that remains unexplored
2. High chances of mergers and acquisition
3. Global expansion on the agricultural sectors to curb the problem of hunger

Threats

1. Economic instability in most of the countries that it operates
2. Fluctuation in the prices of raw materials
3. Competition from other agricultural companies

The Financial Position of Cargill

In 2021, the company reported a net revenue generation of about 134.4 US billion dollars, representing a 17% rise in revenue despite many organizations experiencing a reduction in their net revenue because of the COVID-19 pandemic. The nature of the organization favored its revenue expansion during this period, as people had to consume food products and other services regardless of the desperate times (Cargill, 2022). The organization used these opportunities to help food industries keep running with full shelves, promoting their sales expansion.

Core Competencies

Leveraging Global Knowledge across Markets

The company has a research and development located in North America and Europe that focuses on the technical requirements crucial for production and development. The technical services are provided in other areas such as Asia, the Middle East, and Africa, enabling the company to become a pioneer in bringing sustainable solutions to clients and fulfilling their emerging requirements and needs (Cargill, 2022). Furthermore, the organization’s development in one area of its section helps expand the other areas. For example, research on animal nutrition has helped provide solutions to human nutrition problems. The organization has the expertise that enables them to solve multiple problems in many parts of the world and provides them with leverage that makes their product sale fast.

Tailoring Foods for Local Tastes and Cultures

The organization’s local and international presence is a significant factor in its development and growth. It can provide the locals with products that significantly fit their tailored needs, fulfilling their cultural requirements.

Understanding both Product Ingredients and Processes

The organization has understood its clients’ production processes and ingredients. This is attained by having a team focused on research and development to satisfy the required customers’’ preferences (Cargill, 2022). This has enabled the clients to prefer their products over other organizations because of their added value and cost reduction.

Venturing in Cuba

Comparative Advantage

The operation of Cargill in most parts of the world is from the fact that the organization has been able to attain a comparative advantage that makes expand their market share. The company can extend the same in Cuba because it has an intense research and development team (Cargill, 2022). Investing in Cuba will provide the company with a great deal of market considering the country has a significant problem with food. Furthermore, the company operations will require minimum input because the country’s location is strategic.

Implications

The company has a strategy that will promote the performance of its product in the Cuban market. This is because the organization is known to deliver superior services than their competitors, which will enable them to generate a wide range of quality products that the Cubans will value. The research and development team will have to research the Cuban way of life to enable the organization to meet the required quality levels (Cargill, 2022). The company’s operations have to focus on fulfilling the clients’ needs and identifying opportunities within Cuba that will help the organization grow. The organization structure is also suitable as it is linked, making it easy for the company to solve the cultural problem in the region.

Barriers to Entry

US Embargo

The company is US based, and following the embargo that was placed by the US government, it makes it impossible for Cargill to enter the Cuban market. The relationship between the two countries has deteriorated, making it difficult to engage in business.

Government Regulations

The government of Cuba is a threat to international business because of its regulations. It prevents international organizations from buying lands and creating ventures with the locals. This leaves the international organization with an option of partnering with the government only in its business activities (“Cuba: Investing,” 2022). This partnership is challenging as it has the potential for bureaucratic problems. The interest of the Cuban government in bringing foreign investors is not to support their venture.

Strategic Plan

Year One and Two

• Development and implementation of appropriate tools to help the organization meet the clients’ agricultural target.
• Building of necessary relationship with the local for easy transformation of the organization in incorporating the necessary cultural values.
• Introduction of Corporate Social Responsibility (CSR) programs to attract the attention of the locals through participation in volunteering activities.
• Analysis of the implemented programs to determine the degree of their success in society.

Year Three through Five

• Expansion and analysis of the innovative programs.
• Strategic planning and identification of other potential zones suitable for the organization’s expansion.
• Continued provision and expansion of the CSR program with a focus on the organization’s sustainability.

Year Six through Seven

• Additional strategic programs that will help the organization meet the customers’ target.
• Expansion on research and development to cater for the necessary improvements.

Year Eight through Ten

• Analysis of the outcomes of the developments to assess whether the investment is worth further expansion.
• Further extension on the CSR programs to incorporate most members of the society.

Conclusion

In conclusion, Cuba is a strategic place for investment by Cargill Company. The tariffs and Quotas policies of the country are suitable for investors as they are promising for an organization. The cultural differences make it possible for investors to serve various markets within the country. Considering the core competencies of Cargill and its financial position, the company has a promising investment. However, the US embargo and the Cuban government regulations post an ideal threat for investment.

References

Bloomberg – Are you a robot?. Bloomberg.com. (2022). Web.

Cuba — History and Culture. Iexplore.com. (2022). Web.

Cuba Trade Statistics | WITS. Wits.worldbank.org. (2022). Web.

Cuba Tariff Rates 1993-2022. Macrotrends.net. (2022). Web.

Economic commission for Latin America and the Caribbean (ECLAC). (2018). Evaluation of the economic and social impact of possible trade negotiations between Jamaica and Central America, Mexico and the countries of the Northern Caribbean (pp. 1-110). Santiago: United Nations publication.

GDP growth (annual %) – Cuba | Data. Data.worldbank.org. (2022). Web.

Cuba: Investing. mauritiustrade.mu. (2022). Web.

Cargill. (2022). Cargill-annual-report (pp. 2-13). Web.