What Are The Barriers To Franchising In Cuba?
Written by Tim Morral
In 2014, President Obama announced that the U.S. would chart a course toward normalizing relations with Cuba. The business community saw the move as an opportunity to expand into a market that has been untapped for more than half a century.
A year and a half later, there are signs that -- for some sectors -- trade with Cuba may become a reality in the not-so-distant future. But there are still hurdles that present serious threats to franchises and small businesses eager to invest in Cuba-based expansion strategies.
The Potential Upside of Franchising in Cuba
In many ways, Cuba is an untapped market for franchising. The country has approximately 11 million consumers that have not yet been exposed to the juggernaut of the American franchise economy.
Cuba also represents a new market that is geographically advantageous to U.S. franchisors and franchisees. From a supply chain standpoint, it's difficult to find a more convenient location for global expansion (apart from Canada and Mexico).
In April, the U.S. International Trade Commission advised that Cuba is a suitable market for the U.S. manufacturing sector, inching Washington one step closer to lifting the trade embargo. The bottom line is that at some future point, Cuba will open up for U.S. franchising -- and early entrants will likely have the most to gain over the long term.
Cuba Franchising Challenges
Franchising in Cuba isn't all upside. Based on current conditions, franchisees face several key obstacles in addition to the common franchising mistakes that can cripple their efforts.
- The U.S. Trade Embargo -- Right now, it's illegal for most entrepreneurs to do business in Cuba. Although it's believed that the trade embargo will ultimately go away, it will take an act of Congress to eliminate it -- and it will probably be a contentious piece of legislation.
- Lack of Infrastructure -- There's no getting around the fact that Cuba doesn't have the same level of infrastructure as the U.S. and other highly developed markets. The lack of infrastructure could pose significant problems for franchises that rely on well-oiled supply chains.
- Weird Labor Laws -- Cuba is a socialist country and indigenous workers are required to be hired by Cuba's government rather than private companies. In other words, the government will be a middleman between you and your employees. Sound nightmarish? It very well could be.
- Little Disposable Income -- A desire to buy American goods and services doesn't mean much if consumers lack the income to back it up. Unfortunately, that's the situation many franchisees will face when they enter Cuba, where the average monthly income is just $20.
The trade relationship between the U.S. and Cuba is gradually thawing. Although the challenges shouldn't be minimized, the outlook for franchising is generally positive, even though we may still be several years away from seeing U.S. franchises on the streets of Havana.
But whatever shape franchising in Cuba takes, U.S. franchisees need to know what they're getting into and invest in Cuba with their eyes wide open.
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