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

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

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

. Cuba ranked 51st out of 182 with an HDI of 0. the USSR. and most of the labour force is employed by the state.HendrikKelner. November13-18. followed by increases of 2.8% in 1996. Cigar exports from the Dominican Republic were expected to reach 162 million in 1997. The drop in GDP apparently halted in 1994. and wouldslow to 10 to 15 percent in 1998. with a value ofUS$210 million. The bulk of the exports were premium cigars. Cigar Industry in Cuba Cuba¶s land is possibly the ideal place to grow the most tempting cigar tobacco in the world. Cuba suffered a depressing period from 1989 to 1993 due to collapse of its main trading partner. Cuba¶s cigars still hold the foremostchoice of all cigar aficionados around the world. The Cuban government sets most prices and rations goods to citizens. With the United States being the largest cigar market in the world. when Cuba reported 0.2% respectively. centrally planned economy overseen by the Cuban government.863. Growth slowed again in 1997 and 1998 to 2.5% and 1. though there remains significant foreign investment and private enterprise in Cuba.Capital investment is restricted and requires approval by the government.. Cuba (and the individual investor) is missing out on a potential revenue goldmine. Cuba¶s land is possiblythe ideal place to grow the finest tobacco and wrappers in the world. remarkably high considering its GDP per capita only places it 95th. Even though cigarshave been manufactured in other countries as well. 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. as the internationalmarket stabilized (DR Economic News. Less experience in the Latin American politics & culture can hinder its progress Cuban Economy The economy of Cuba is a largely state-controlled. A. Most of the means of production are owned and run by the government. 1997). In the year 2000. 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. president of TabacosDominicanosS. public sector employment was 76% and private sector employment was 23% compared to the 1981 ratio of 91% to 8%.Weaknesses: y y ITC has little experience in Cigar industry. Though other countries aremaking very similar cigars. 1996 revenues were US$130 million. As a tropical region. Cuban cigars are renowned for as the sign of upper echelon style and class even foran uneducated cigar smoker. It started its operations in March 2010. It has entered this field less than a year back.7% growth.5% in 1995 and 7. In 2009. Cuba¶s mystique still has a strong hold over cigar aficionados worldwide.

Political-Legal segment:Constitution of 1992.).159 million work-force. Sometimes. (Opportunity) Bargaining Power of Suppliers: High. thus extending the ban on Cuban cigars in the greatest cigar market of the world. the new agricultural methods are introduced to people to improve the quality of tobacco plants. Now. people prefer to use machines to produce cigar instead of using hands. cigar is still very popular in the world because of its high quality and reputation.) as compared to 92% & 8% respectively in 1981. Cuban government is the only buyer of the output from the private firms. people produced cigar with their hands. (Not threat) ivalry: Moderate. (Threat) Bargaining power of buyers: High. Now. Out of a total 5.1 billion (2009 est. However. which is guided by the ideas of José Marti Marx. The industry works on economies of scale. The cigar industry in Cuban has a long history. (Threat) Threat of substitute product: Low. Capital investment is restricted and requires approval by the government. Two corporations control the distribution of Cuban cigar worldwide.) and GNP per capita of $9. Engels and Lenin describes the Communist Party of Cuba as the "leading force of society and of the state". handmade and machine-made will be combined in the producing processes. public sector employs 78% & private sector 22% (2009 est. Cuba can produce the best cigar in the world. some other countries can plant Cuban tobacco and make high quality cigars. Socio cultural segment: The traditional way of making tobacco is through families manufacture. (Mild opportunity . Any firm wishing to hire a Cuban must pay the Cuban government. The exclusive dealers distribute Havana cigar throughout the world and only these dealers have access to the cigar supply. Although cigarette is another industry of Cuba.700 (2009 est. and is still a poor country with a GDP of $111. Global segment:US government has extended the trade embargo on Cuba till September 2011. Technological segment: In the past. Task Environment Analysis: y y y y y Threat of New Entrants: low. The Cigar industry is an indispensible part of the Cuban culture and folklore with a major bearing on its economy. Except for.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.

S5. Growth in Private sector employment 3. O4) y Setup new plant in Cuba (S1.T4) y Can form alliances (S1. Low experience in Cigar 2.T1) y Can sell its product world-wide. Bargaining power of buyers 3.S5.O3. 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.T3) the plan . y y TOWS Matrix Internal External Opportunities 1.O2) players and sell in international market (S1. Premium brand perception 1. Cuban culture of smoking 4. China is also a huge consumer of cigars (S1. Low experience in Latin 4. 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.O4) y Private sector growth can help in gaining foothold y Form JV with the existing (W2.S3. Closed economy of Cuba 4.O3) y Can persuade the suppliers by y Can drop its brand value 7 financial altogether position (S1. Only two major players in Cuban market 2. They can use the expertise of the locals in manufacturing.O1. 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. Sustainability America 5. Bargaining Power of Suppliers 2.O2. This will help the ITC to gain first-hand experience in cigar industry at the best location of the world. It will also help it to enter the US market. Financial position 6.S5. Trade embargo by USA Strengths Weaknesses 1. Promotion industry 3. Expertise of local people Threats 1. For this ITC will have to pay the Cuban government a considerable amount of money to set up their plant in Cuba. International Presence 2. 100 years in tobacco business.S5.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.T2.

Opportunities & Threat and providing the appropriate weightage& ratings in the embedded Excel sheet. i. As seen from the graph above.e.. 2. Cuban Cigar_group I.475) 3 2 1 Weakness 2 1 Conclusion The point plotted above is obtained by equating the Strength. ITC has to go for ST strategy.825.xlsx Threats Opportunities .5 4 Strength 5 4 (3. y y y Can persuade the suppliers by its brand value & financial position Can sell its product world-wide. Weakness. China is also a huge consumer of cigars Can form alliances with the existing players. which is shown in TOWS matrix.