Cuba’s Economic Reopening Presents Opportunity and Risk for US Firms
As the United States and Cuba move closer to lifting the decades-long trade embargo, American businesses are eyeing the island nation as a potential market. However, entering the Cuban market without proper due diligence could lead to disaster, according to risk management experts.
The Opportunity and Threats
“The opportunity is there, but so are the threats,” said Glenn Ware, partner at PwC and practice group leader for anti-corruption, corporate intelligence, and strategic threat management. “You have labor issues, political issues, corruption risks, and supply chain risks.”
The Importance of Compliance
A panel of experts discussed the importance of compliance in entering the Cuban market at the recent Cuba Opportunity Summit. The panelists emphasized that simply being a first-mover will not guarantee success for US firms.
“You’re worse off if you go in there, mess things up, and trip over your own feet,” said Natalia Shehadeh, director at the World Bank Group. “Getting it right on entry is how you seize the competitive advantage.”
Challenges Faced by Cuban Companies
The experts noted that Cuban companies may not be prepared to handle the regulatory concerns and constraints that US firms will bring to the table.
“Think about all the countries that were able to get into the Cuban market: Russia, China, and Venezuela,” said James Jacobson, partner at Arnold & Porter. “Those are not the countries with the best business practices.”
Risk Assessment is a Constant Process
The panelists stressed that risk assessment is a constant process, not something that can be addressed and abandoned once a firm opens operations in a new locale.
“You’d be surprised about how it only takes one person with the right message to look your government counterpoint in the eye and say, ‘This is how we do business,’” said Shehadeh. “It doesn’t take legions if you can get that strength of message from the person who is going to be the first boot on the ground doing the outreach.”
Demand and Competitive Landscape
US firms must also consider the demand for their products and services in Cuba, as well as the competitive landscape.
“One thing that I would ask anybody looking into going to a new market is - your competitors there, are they having success?” said Ware. “If the market is really saturated, that means you’re going to have to take market share from a competitor. How are you going to do that?”
Regulatory Concerns
The experts noted that federal regulatory laws, such as the Foreign Corrupt Practices Act, also play a significant role in risk assessment.
“Companies that are routinely operating in foreign markets kind of get the balance,” said Ware. “The concern that we would have is for the new entrants.”
Conclusion
In conclusion, entering the Cuban market without proper due diligence could lead to disaster for US firms. Companies must assess all components of the market, including demand, risk, and regulatory concerns, and have an exit strategy in place if things go wrong.
- Consider labor issues, political issues, corruption risks, and supply chain risks.
- Assess the competitive landscape and consider the demand for your products and services.
- Have a thorough understanding of federal regulatory laws, such as the Foreign Corrupt Practices Act.
- Develop an exit strategy to mitigate risk.