Strategic Management Assignment

Strategies for ITC to enter into Cuban Cigar industry

Submitted by: Group I, PGP 2010-12 Priyansh Modi (2010PGP050) Rishi Agarwal (2010PGP060) Sawan Singamsetty (2010PGP073) Shubhi Gupta (2010PGP077) Siddartha Wagh (2010PGP079) Vinod Duhan (20101PGP090)

Indian Institute of Management, Shillong

............. ... 5 TOWS Matrix ...................... ............................................... ... 3 General Environmental analysis .. .. 4 Possible strategies .................. . ....................... ................................. .............. ........ 2 Cigarette & Cigar Business ............................... 2 Strengths: ...... ................ ............................. ................. 3 Cigar Industry in Cuba.................................................................. ...................................................................................................... 6 .............. ........................................................................ 2 Strengths & Weakness of ITC .................. .......... ............... ....... ......................................... ..............Contents ITC Limited ............. ................................................................................. ...................... ........ ....................................... ........ ....................................... 3 Cuban Economy.. . ........................ ........................................................................................ 2 Weaknesses:....... .... ....... .. ........................... .................................................................................... ........................................ ............................................................... ............ .............................................................................................................................. 5 Conclusion . ................................. ...................... .......... 4 Task Environment Analysis:......... ................................ .................

Armenteros cigars have been developed to suit the discerning taste of the Indian cigar connoisseur. ITC has launched its much awaited hand-rolled cigar. Its turnover is $6 billion and a market capitalization of over $30 Billion.ITC Limited ITC Limited is a public conglomerate company headquartered in Kolkata. ITC has become a key player in the GCC markets through growing volumes of its brands. Capstan. In West Asia. International Presence: In West Asia.C. Financial position: ITC is financially sound enough to setup new plants or acquire other companies . In recognition of the Company's multi-business portfolio encompassing a wide range of businesses .T. In the extremely competitive US market. It's highly popular portfolio of brands includes Insignia. Cigarette & Cigar Business ITC with 72% market shareis the market leader in cigarettes in India. The company has its registered office in Kolkata. Hotels. Sustainability: ITC is one of the few companies practicing sustainability. Packaging.Cigarettes & Tobacco. Classic. India Kings. Silk Cut. Navy Cut. Berkeley. ITC has become a key player in the GCC markets through growing volumes of its brands. India.ITC's pursuit of international competitiveness is reflected in its initiatives in the overseas markets. Lifestyle Retailing. 1910 under the name Imperial Tobacco Company of India Limited. the largest producer of hand-rolled cigars in the world. it has a leadership position in every segment of the market. Strengths & Weakness of ITC Strengths: y y y y y Premium brand perception: ITC is more than 100 years old company & controls over 70% of the Indian Cigarette market. With its wide range of invaluable brands. Armenteros. value-priced cigarettes and Roll-your-own solutions. Education & Stationery and Personal Care . Paperboards & Specialty Papers. ITC offers high-quality. Limited in 1974. ITC was incorporated on August 24. The cigars are being manufactured at La Aurora. in the Indian market in March 2010. 2001. Gold Flake. ITC is also a key player in USA. Information Technology. the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I. which is one of the oldest cigar companies in the world and is run by the reputed Leon Jimenes family. Scissors.Armenteros cigars are being sourced from the Dominican Republic. As the Company's ownership progressively ³Indianised´.The exquisite wrapper leaf comes from Cuban seed tobaccos grown in the mountains of Ecuador. Bristol and Flake. Promotion: ITC recently has promoted goodwill among the consumers due to aggressive promotion of its green initiatives. The Company now stands rechristened 'ITC Limited'. Foods. Agri-business.the full stops in the Company's name were removed effective September 18.

Less experience in the Latin American politics & culture can hinder its progress Cuban Economy The economy of Cuba is a largely state-controlled. As a tropical region.HendrikKelner. Cigar exports from the Dominican Republic were expected to reach 162 million in 1997.5% in 1995 and 7. The Cuban government sets most prices and rations goods to citizens. Cuban cigars are renowned for as the sign of upper echelon style and class even foran uneducated cigar smoker. Cuba (and the individual investor) is missing out on a potential revenue goldmine. the USSR.8% in 1996.Weaknesses: y y ITC has little experience in Cigar industry. The bulk of the exports were premium cigars. 1996 revenues were US$130 million. The drop in GDP apparently halted in 1994. Cigar Industry in Cuba Cuba¶s land is possibly the ideal place to grow the most tempting cigar tobacco in the world. In the year 2000. and most of the labour force is employed by the state. and wouldslow to 10 to 15 percent in 1998. Cuba¶s land is possiblythe ideal place to grow the finest tobacco and wrappers in the world. as the internationalmarket stabilized (DR Economic News. Cuba ranked 51st out of 182 with an HDI of 0. Investment in the Cigar industry of Cuba makes sense considering its popularity but the most prominent problem facing external investment opportunities today for the Cuban cigar industry would be the fifty years of a trade embargo with the UnitedStates. Cuba¶s mystique still has a strong hold over cigar aficionados worldwide. It started its operations in March 2010. followed by increases of 2. when Cuba reported 0. president of TabacosDominicanosS. A.7% growth. Most of the means of production are owned and run by the government. centrally planned economy overseen by the Cuban government. Though other countries aremaking very similar cigars. public sector employment was 76% and private sector employment was 23% compared to the 1981 ratio of 91% to 8%.863. 1997). . remarkably high considering its GDP per capita only places it 95th. Even though cigarshave been manufactured in other countries as well. with a value ofUS$210 million. In 2009. Cuba suffered a depressing period from 1989 to 1993 due to collapse of its main trading partner. though there remains significant foreign investment and private enterprise in Cuba. They are highly reputed for distinct taste and feel andconsider containing the world¶s best tobacco. indicated that the high rate of growth in theDominican cigar industry could not last. With the United States being the largest cigar market in the world. Growth slowed again in 1997 and 1998 to 2.2% respectively. It has entered this field less than a year back.5% and 1.Capital investment is restricted and requires approval by the government. Cuba¶s cigars still hold the foremostchoice of all cigar aficionados around the world.. November13-18.

Sometimes. The industry works on economies of scale. The cigar industry in Cuban has a long history.1 billion (2009 est. Any firm wishing to hire a Cuban must pay the Cuban government. Cuban government is the only buyer of the output from the private firms. people prefer to use machines to produce cigar instead of using hands. (Mild opportunity . Two corporations control the distribution of Cuban cigar worldwide. The Cigar industry is an indispensible part of the Cuban culture and folklore with a major bearing on its economy.) and GNP per capita of $9.). some other countries can plant Cuban tobacco and make high quality cigars. people produced cigar with their hands. Global segment:US government has extended the trade embargo on Cuba till September 2011. Although cigarette is another industry of Cuba. Political-Legal segment:Constitution of 1992. Cuba can produce the best cigar in the world. (Threat) Bargaining power of buyers: High.General Environmental analysis Environmental analysis of the Cuban Cigar industry is done as below y y y y y Economic segment: Cuba is command-economy. The Cuban government sets most prices and rations goods. Engels and Lenin describes the Communist Party of Cuba as the "leading force of society and of the state". Socio cultural segment: The traditional way of making tobacco is through families manufacture. Except for. The exclusive dealers distribute Havana cigar throughout the world and only these dealers have access to the cigar supply. (Threat) Threat of substitute product: Low. (Not threat) ivalry: Moderate. which is guided by the ideas of José Marti Marx. handmade and machine-made will be combined in the producing processes. Technological segment: In the past. Task Environment Analysis: y y y y y Threat of New Entrants: low.159 million work-force. the new agricultural methods are introduced to people to improve the quality of tobacco plants. Capital investment is restricted and requires approval by the government. Out of a total 5. Now. (Opportunity) Bargaining Power of Suppliers: High.) as compared to 92% & 8% respectively in 1981. cigar is still very popular in the world because of its high quality and reputation. thus extending the ban on Cuban cigars in the greatest cigar market of the world. and is still a poor country with a GDP of $111. However.700 (2009 est. public sector employs 78% & private sector 22% (2009 est. Now.

Cuban culture of smoking 4.T1) y Can sell its product world-wide. It will also help in the global operations Contract Production:Company can purchase the finished products from Cuban manufacturers and sell under its brand name in India & abroad. For this ITC will have to pay the Cuban government a considerable amount of money to set up their plant in Cuba. Expertise of local people Threats 1.S5. It will also help it to enter the US market.S3.Possible strategies y Set-up a plant in Cuba: They can go to Cuba and negotiate with the government and the local people about their plan. Alliances / Acquisition: They can buy some stake in the existing players of Cuba or enter into Joint Ventures with them to partner in production and distribution worldwide. Sustainability America 5. International Presence 2. This will help the ITC to gain first-hand experience in cigar industry at the best location of the world. y y TOWS Matrix Internal External Opportunities 1. Financial position 6.O3) y Can persuade the suppliers by y Can drop its brand value 7 financial altogether position (S1. Promotion industry 3. Premium brand perception 1. Trade embargo by USA Strengths Weaknesses 1. O4) y Setup new plant in Cuba (S1. Only two major players in Cuban market 2.O3.O1. 100 years in tobacco business.O2.T4) y Can form alliances (S1.S5.T2. Closed economy of Cuba 4.O4) y Private sector growth can help in gaining foothold y Form JV with the existing (W2.S5. Bargaining power of buyers 3. China is also a huge consumer of cigars (S1. Growth in Private sector employment 3.S5. Low experience in Cigar 2.T3) the plan .O2) players and sell in international market (S1. 72% market share in India y Can acquire one of the player y Can seek expertise of owing to its financial strength Cuban people to counter (S6-O1) its inexperience in cigar industry (W1. Bargaining Power of Suppliers 2. Low experience in Latin 4. They can use the expertise of the locals in manufacturing.

2. As seen from the graph above. which is shown in TOWS matrix.xlsx Threats Opportunities . i. Cuban Cigar_group I.e. China is also a huge consumer of cigars Can form alliances with the existing players. Weakness. y y y Can persuade the suppliers by its brand value & financial position Can sell its product world-wide. Opportunities & Threat and providing the appropriate weightage& ratings in the embedded Excel sheet..825.5 4 Strength 5 4 (3. ITC has to go for ST strategy.475) 3 2 1 Weakness 2 1 Conclusion The point plotted above is obtained by equating the Strength.

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